23 must know terms for investors in stock market

If you have entered stock market and you don’t know most of the important terms you might lose a lot of money due to lack of knowledge. There are tons of terms and jargons used in the financial world but here are some of the basic and must know terms for every investor who enters the stock market.

1) Share

A share is a general term used to describe part ownership in a company. When you invest in shares you become a part owner of the company and have some share in the company’s earnings.

2) Exchange

An exchange is a facility where traders and investors can buy and sell securities, stocks, bonds and different other investments. For e.g. you go to a vegetable market, so here vegetable market is an exchange and vegetables are securities. But in stock market, BSE and NSE are the stock exchanges.

3) Primary market

Primary market is the market where the stocks are listed for the first time for the public, through IPO.IPO refers to the initial public offering. An IPO is the first sale or offering of a stock by a company to the public. It happens when a company decides to go public rather than remain solely owned by private or inside investors. The securities and exchange board of India (SEBI) has strict rules that company must follow if they are opting for IPO.

4) Portfolio

Portfolio refers to the collection of investments that you own. Having a well-diversified portfolio is the key to success in investing.

5) Dividend

Dividend an amount that a company pays to their shareholders from its earnings. It is not compulsory for the company to give their shareholders dividend. If it’s a growing `company, they will re-invest their earnings but if there is enough cash they will distribute it to their shareholders as dividends.

6) Volume

When stocks are trading in the market, they exchange hands every second. Volume refers to the total number of shares being traded at a particular time in the stock market.

7) Volatility

Volatility refers to how fast a stock moves up or down. Stocks which are highly volatile are risky and you can expect sudden changes in prices.

8) Secondary market

After the shares are listed on the stock exchange in the primary market, through an IPO, they are then traded in the secondary markets. Investors and traders buy and sell shares in the secondary market.

9) Blue-chip stock

Blue-chip stocks are the stocks of reputed companies which are well established and earning high profits with consistent growth. Blue chip stocks are less risky as they have a good track record.

10) Index

There are 5000 or more stocks listed on the stock exchange, to track every stock is obviously very difficult, therefore, stock index helps the investor to get an overall view of the stock market. Sensex is the index of BSE and consists of 30 large companies from BSE. Nifty is the index of NSE and consists of 50 large companies from NSE.

11)Liquidity

Liquidity means how easily you can buy/sell a share. A highly liquid share means that it can easily be bought or sold. A low liquid stock means that the buyers/sellers are hard to find.

12)Demat account

Demat is dematerialized account, in which shares are held in electronic format. Just as money is kept in your bank account, similarly the stocks bought are kept in your demat account.

13) Trading account

Trading account is the account through which you make transactions in stock market.

14) Broker

Investors cannot directly buy and sell in the stock market, they can only do so through a stock broker. A broker executes buy and sell order on behalf of the client. Every broker is registered with SEBI and has a license.

15) Large, mid and small cap companies

SEBI has defined 3 categories of funds based on market capitalization (market capitalization is calculated by multiplying the number of outstanding shares to the current market price).
Large Cap: Top 100 companies in terms of Market Capitalization.
Mid Cap: 101st – 250th Company in terms of Market Capitalization.
Small Cap: 251st Company on wards.

16) Market capitalization

Market capitalization is calculated by multiplying the number of outstanding shares to the current market price. It helps to define which company is a large, mid or small cap company.

17) Long

When any investor or trader says he is ‘going long’ it means he has some buying interest in that particular stock.

18) Short

When a trader says he is ‘going short’ it means he expects the stock price to fall and wants to make money in such a situation. Very less investors and traders are aware that by going short on a stock you can make money when the share price is falling. In short selling you first sell a share (which you don’t own but borrow from your broker) and you buy those shares back when they fall at a lower price. You will incur a loss if the share prices move up.

19) Intraday

Buying and selling shares on the same day is called intraday trading. Intraday trading. The only purpose of intraday trading is to profit from the daily moment of the market.

20) Delivery

When you buy a share and hold it for more than 1 day it is called taking share on delivery.

21) Bull market

A bull market is a scenario in the market where share prices are rising, and everyone is optimistic that the share prices will continue to rise

22) Bear market

A bear market is a scenario in the market where share prices are continuously falling, and everyone is negative about the markets.

23) Averaging down

This approach is used by investors to buy more shares when shares prices are falling. Let’s say you purchase Reliance at Rs 1000, as the share prices falls further to 900 Rs, you buy more and furthermore at 800 Rs. Hence your average buying price will now be lower at 900 Rs.