When we first entered the share market world, we spent enormous time searching the primary stock market terms used in the share market. Even though there are many terms that a stock market trader should know, many stock market terms are used very often. Every person needs to know about these stock market terms. It is essential if you want to enter the stock market to succeed. In this blog, we will discuss the terms used in the Stock market that will help them understand the stock market basics.
What do Stock Market Terms mean?
Stock market terms are industry-specific stock market terms often used when studying the stock market. Also, Experts often use these terms to talk about-
- Market charts,
- Indices, and
- Other elements of the stock market.
Here are a few of the stock market terms that are being used in the Stock Market very often-
A share is proof of stake in a company, i.e., proof that the person who has that share is the company's owner. A Share reflects a unit of ownership in a particular company. As a shareholder of a company, a person holds a percentage of ownership of the company and is liable for the company's profits and losses. Also, the shareholder gets additional benefits such a
- Bonus Share
- Right Issue
A stock is an investment that describes a company's ownership share. Investors buy stocks that they think will go up in value over time. Stocks are publicly traded firm shares that can be bought and sold on a stock exchange. Companies issue stocks as "pieces of ownership" in exchange for cash from shareholders. When it comes to raising funds for their company, this is one of the options available to management. As a result, former shareholders' ownership percentages decrease as more shares are issued. The assumption is that companies will put the money they make from stock sales into profitable ventures and projects that will pay off over time. As a result, the company would become more profitable, and the stock price per share or ownership per share would rise.
3. BSE-Bombay Stock Exchange
BSE was inaugurated on 9 July 1875 by Mr. Prem Chand Roy. He was known as the big bull at that time. It is the second-largest stock exchange, its index, and Sensex, and is not counted as India's oldest stock exchange.
4. NSE - National Stock exchange
NSE was started in 1992. In India, NSE is the only stock exchange that has changed according to time. One of them is to buy and sell shares electronically. NSE is the first fully automated stock exchange in India. India's largest stock exchange is NSE, and its index is Nifty.
Demat is an electronic account that digitally holds financial assets like shares, mutual funds, ETFs, bonds, sovereign gold bonds, ULIPs, etc.
A portfolio is a collection of financial assets and investment tools held by an individual, financial institution, or investment firm. To maintain a profitable portfolio, it is essential to become familiar with its fundamentals and the factors that affect it.
7. Call options
Call options are bought when you feel that the stock or index will rise in price in the future. The call option buyer makes a profit when the price increases significantly above the strike price. Buying an option for a share of Rs 100 with a strike price of 105 means that the buyer expects the share price to go beyond 105 by the expiry date. There are index options along with stocks. Most of the trades in index options are made in Nifty and Bank Nifty options.
8. Put option
A put option is the opposite of a call option. For example, taking stock with a price of Rs 100 at 95 strike price means the buyer of the put option thinks the share price will go below Rs 95. Hence, the put option buyer gains when the price goes below the strike price in the bearish trend. Investors often buy put options as a security in a sudden drop in the stock price or a market downturn. Put options give an investor the ability to sell the shares and protect their investment portfolio from market volatility. For example, if you have invested in a stock and for some reason in the future you have an apprehension that the stock's price may suddenly drop, then instead of taking that stock out of your portfolio, you can buy its put option. If there is a decline from this, it can be compensated by selling the put option.
9. Bear Market
A bear market is a market situation when the price of shares declines and continues to do so over a long period. A bear market is associated with stock indices like Nifty, Sensex, etc.
10. Bull Market
A bull market is a situation in a financial market where the price of an asset/security is rising or expected to rise. The term' bull market' is often used for the stock market but can be used for anything that can be traded. It can be bonds, real estate, currencies, and commodities. Since the prices of securities inevitably fluctuate and rise during trading, a 'bull market' is typically used for extended periods in which the bulk of security values ??are rising. Bull markets can last for months or even years. Typically, a bull market occurs when stock prices rise by 20 % after two periods of 20-20 percent declines. Traders use several strategies to take advantage of the bull market, such as buy increases, holds, or retracements.
Volatility is the situation where the price of securities for a given set increases or decreases; this fluctuation is called volatility. If the price of a stock fluctuates sharply over a short period, it is said to be highly volatile. If the stock price fluctuates slowly over a long period, it is called a less volatile share.
12. Bid and Ask
A bid price is the highest price a buyer is ready to pay for goods. In General, it is referred to as the "Bid." In bid and ask, the bid price stands in contrast to the ask price or "offer," and the difference is called the bid-ask spread. A purchase offer is when a potential person receives a bid even though they are not looking to sell.
Spread refers to the variability between the bid and the ask prices of a share. An investor may perceive it as the difference between the amount at which a person would like to buy and the amount at which another person would like to sell a stock.
The cash payment made by the company to its shareholders is called Dividends. If you invest in preferred shares and common stock, you are entitled to dividends. In addition, you can opt for the payment of dividends while investing in the company's stock. When a person invests in common stock, the company pays a significant amount in the form of a dividend when the price of the shares increases, whereas in preferred stock, a predetermined dividend is paid out. In the case of preferred stock, the dividend payout is often higher than in the case of recognized stock or company bonds. The dividend given to common shareholders varies according to different companies. If there is a fall in stock prices and a loss is a dere, then the dividend payment reduces that loss. It helps in reducing volatility and portfolio risk.
In India, A stock market index indicates its respective stock exchange. Hundreds and thousands of companies are listed on both exchanges, but the indicators are just a grouping of some top-performing companies. Some companies that provide the highest returns on the stock exchange are listed, and indexes or indices are used to indicate their position. This is done to minimize the clutter and indicate the market's actual state. Bigger and better companies lead the economy and the country's financial health, so this is the logic behind keeping only the cream in the indices.
16. Blue Chip Stock
Blue Chip Stocks are the equity shares of well-established and financially stable companies. Generally, these stocks have a relatively high market capitalization.
By summarizing, we can say that knowledge of these basic terms used in the stock market is necessary for a seasoned stock investor. A person will not only become the best investor but also a successful trader as the vocabulary of a person on the stock market will grow.