Stock Market Terminology: Key Terms Every Investor Should Know

If you have just entered the stock market, the biggest issue is not a shortage of money; it is a shortage of knowledge. Words such as bull market, IPO, PE ratio, stop loss and volume are used daily, while beginners just feel confused. This is why understanding stock market terminology is the first and most important step when it comes to any investment or trading.

In this guide, we break down stock market terms, trading terminology, share market terminology on share and investing terms in easy and plain English for the utmost understanding, even for total beginners.

Importance of Terminology in the Stock Market

Knowing stock market terminology provides you:

1. The ability to make an informed decision when investing and placing money.

2. To avoid mistakes that beginners make.

3. To read the market confidently.

4. To express your communication with brokers and advisors.

5. To understand and analyse charts, software and financial documents.

Without basic share market terms, investing is pure guessing and guessing will lead to a loss.

 

 

Basic Stock Market Terms for Beginners

Now, we can start the construction of the stock market glossary.

1. Stock/Share

A stock or share is a piece of ownership in a company.

Owning a single share means that you have partial ownership of the business.

2. Stock Market

The stock market refers to the platform where people can buy and sell company shares. It serves the purpose of linking investors with businesses.

3. Share Market

The share market is synonymous with the stock market and concerns the buying and selling of shares of a company.

4. Investor

An investor is someone who purchases shares in order to grow their wealth over the long term.

5. Trader

A trader is someone who seeks to profit in the short term by buying and selling shares regularly.

Common Trading Terminology Explained

The words in this section are part of the trading terminology vocabulary that traders use daily.

1. Buy

The word buy refers to purchasing shares when the buyer expects the price of the shares to go up.

2. Sell

The word sell refers to exiting a trading position to achieve a profit or to reduce a financial loss.

3. Market Order

A market order is an order to buy or sell shares at the price they are currently selling for in the market.

4. Limit Order

A limit order is an order that allows you to buy or sell shares at a certain price that you specify.

5. Stop Loss

A stop loss is a type of order that automatically sells a stock when it has reached a certain financial loss to reduce your loss on that stock.

Price-Related Stock Market Terms

One must understand price movement to know stock market-related terms.

1. Market Price

Market price is the price that shares are trading at now.

2. Bid Price

Bid price is the maximum amount that a buyer wants to pay.

3. Ask Price

Ask price is the minimum amount that a seller wants to receive.

4. High / Low

High: Maximum price for that day.

Low: Minimum price for that day.

5. Volume

Volume means the number of shares traded over a certain time.

 

 

Market Trend Terminology

These share market terms outline the direction of the market.

1. Bull Market

A bull market is when investors are confident and prices are increasing.

2. Bear Market

A bear market is when prices in the market are low and the market is bad.

3. Volatility

Volatility is how fast prices move either up or down.

4. Correction

Correction is a brief drop of 10-20% of prices from the recent peak.

5. Crash

A crash is a major and sudden drop in the market.

Company & Fundamental Investing Terms

Here are certain investing terms that are relevant in evaluating companies.

1. Market Capitalisation

Market cap = Price of Share × Total Number of Shares

This indicates how big a company is.

2. Revenue

This is the income a company generates in total.

3. Profit

Profit is the money you keep after expenses have been taken from revenue.

4. Earnings Per Share (EPS)

This indicates the profit earned on one share.

5. Price-to-Earnings (P/E) Ratio 

The P/E ratio indicates the valuation of a stock in relation to its profits.

Trading & Technical Analysis Terms

Important trading terminology regarding charts.

1. Support

Support is a price area where buying is strong.

2. Resistance

Resistance is the point at which the selling becomes intense.

3. Trend

A trend is used to show the overall direction of price movement.

4. Breakout

A breakout occurs when the price goes above resistance or below support.

5. Moving Average

This is where a moving average 'freezes' price data to show the trend.

Risk Management Stock Market Terms

So as to mitigate losses, every investor has to understand these stock market terms.

1. Risk

Risk involves the chance of financial loss.

2. Reward

The reward of an investment is the profit that can be gained.

3. Risk-Reward Ratio

The risk-reward ratio looks at the loss and profit that could be gained.

4. Diversification

To reduce risk when investing, diversification is the strategy of spreading investments across various assets.

5. Portfolio

A collection of investments is called a portfolio.

IPO & Corporate Action Terminology

Important share market terms about companies.

1. IPO (Initial Public Offering)

The IPO of a company occurs when it offers its shares to the public for the first time.

2. Dividend

A dividend refers to a part of the profit that is distributed to shareholders.

3. Bonus Shares

Free shares that are distributed to shareholders are known as bonus shares.

4. Stock Split

A stock split occurs when the number of shares in circulation is increased and their price is proportionately decreased.

5. Buyback

When a company buys back its shares, it is called a buyback.

Investment Style Terminology

These investing terms describe different styles.

1. Long-Term Investment

This is when a stock is held for many years.

2. Short-Term Trading

This is when there are buys and sells in the market, within the time frame of a few days or weeks.

3. Value Investing

This is investing in stocks that are undervalued in the market, but have good fundamentals.

4. Growth Investing

Investing in companies with increasing revenue.

5. SIP (Systematic Investment Plan)

Investing a fixed amount regularly.

Stock Market Glossary. Brief Overview

This is how mastering this stock market glossary works:

• For beginners, it prevents them from getting lost.

• Builds self-assuredness.

• Enhances decision-making

• Curtails emotional investing.

Grasping stock market terminology helps beginners overcome confusion and enables them to invest with assurance.

 

 

Conclusion

Knowing stock market terms is a must. A good command of trading terminology, share market termsand investing terms guides you in handling your finances and investing your money over a considerable time period or trading daily.

Before putting your money on the line, invest time in studying the stock market glossary. Knowledge is profit.

 

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.