Top 75 Stock Market Terminology Every Investor Should Know
Welcome to the dynamic world of the stock market! In this comprehensive guide, we'll embark on an exciting journey through the intricate labyrinth of stock market terms, focusing primarily on the Indian financial landscape. The term "stock market terminology" encompasses a vast array of phrases, jargon, and concepts crucial for anyone looking to understand or participate in the stock market. Whether you're a beginner intrigued by the basics or an experienced investor aiming to refine your knowledge, this guide promises to be your essential companion.
Understanding the language of the stock market is not just about memorizing terms; it's about unlocking the door to informed decision-making and strategic investing. From the foundational "basic stock market terminology" to the more “advanced stock market terminology" and the specific nuances of "share market terminology" in the Indian context, we'll cover 75 key terminologies that shape the landscape of stock trading and investment.
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This guide is designed to be your roadmap, navigating through the often complex terrain of stock market language, helping you to demystify the jargon, and equipping you with the knowledge to engage confidently in market conversations and decisions. So, let's dive in and unravel the mysteries of different stock market terminology!
Basic Share Market Terminology
The foundation of share market knowledge begins with understanding the basic terminology of stock market. These terms are the building blocks for anyone starting their journey in the investing world, especially in the vibrant landscape of the Indian stock market.
Stock: A type of security representing ownership in a corporation, entitling the holder to a portion of the company's assets and profits.
Dividend: A share of profits paid to shareholders, typically on a regular basis.
Portfolio: A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.
Bull Market: A market condition where prices are rising or expected to rise.
Bear Market: A market condition characterized by falling prices and often triggered by economic downturns.
IPO (Initial Public Offering): The process by which a private company offers its shares to the public for the first time.
Blue Chip Stocks: Shares of large, nationally recognized, financially sound companies. Here's the list of the best 15 blue chip companies in India.
Index (Sensex, Nifty): Benchmarks reflecting the overall performance of a selection of stocks, representing a specific market or a segment of it.
Bid Price: The highest price a buyer is willing to pay for a stock.
Ask Price: The lowest price a seller is willing to accept for a stock.
Volume: The number of shares or contracts traded in a security or market during a given period.
Market Capitalization: The total market value of a company's outstanding shares.
Equity: Ownership interest in a company in the form of common or preferred stock.
Bond: A fixed-income instrument representing a loan made by an investor to a borrower.
Mutual Fund: An investment program funded by shareholders that trades in diversified holdings and is managed by professionals.
ETF (Exchange Traded Fund): A type of security that tracks an index, sector, commodity, or other assets but can be bought and sold on a stock exchange like a regular stock. For further knowledge, visit What is an ETF.
Liquidity: The ease with which an asset or security can be converted into ready cash without affecting its market price.
Yield: The income return on an investment, such as the interest or dividends received from holding a particular security.
Sector: A group of stocks that are in the same business.
PE Ratio (Price-to-Earnings): A valuation ratio of a company's current share price compared to its per-share earnings.
Dividend Yield: A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
Book Value: The net value of a company's assets minus its liabilities and intangible assets.
Face Value: The nominal value of a security stated by the issuer.
Benchmark: Standard against which the performance of a security, mutual fund, or investment manager can be measured.
Financial Year: A period used for calculating annual financial statements in businesses and other organizations.
Understanding the basic terminology of stock market is essential for anyone navigating the share market. They help make informed investment decisions and lay the groundwork for more advanced stock market terminology.
Advanced Stock Market Terminology
As we delve deeper into the stock market, we encounter advanced terminologies in stock market that offer more nuanced insights into the complex dynamics of market operations. These terms are particularly relevant for investors looking to broaden their understanding beyond the basics.
Derivatives: Financial securities whose value depends on, or derives from, an underlying asset or group of assets.
Futures: Contracts to buy or sell an asset at a predetermined future date and price.
Options: Contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a set price before a certain date.
Short Selling: The sale of a security not owned by the seller, typically borrowed and then bought back later at a lower price. Read How to Make Money from Short Selling to better understand short selling.
Margin Trading: Borrowing funds from a broker to purchase stocks, using the bought stocks as collateral.
Circuit Breakers: Measures used by stock exchanges to temporarily halt trading in response to large price declines in the market.
Leverage: The use of borrowed capital to increase the potential return of an investment.
Hedging: Investment strategy used to reduce risk by taking an offsetting position in a related asset.
Arbitrage: The practice of buying and selling the same asset in different markets to profit from price differences.
Insider Trading: Illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.
Market Order: An order to buy or sell a stock at the best available current price.
Limit Order: An order to buy or sell a stock at a specific price or better.
Stop Loss Order: An order placed with a broker to buy or sell once the stock reaches a certain price. Market order, limit order and stop loss are the basic orders in the stock market. There are different types of orders in stock market, which a trader should know.
Demat Account: An account that holds financial securities (equity or debt) in electronic form.
Trading Account: An account used to buy and sell securities on a stock exchange.
Broker: An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.
Sub-broker: An agent who is not a stock exchange member but acts on behalf of a broker.
Bull Spread: An options strategy used when an investor expects a moderate increase in the underlying asset's price.
Bear Spread: An options strategy used when an investor expects a moderate decrease in the underlying asset's price.
Straddle: An options strategy involving the purchase or sale of particular option derivatives, allowing the holder to profit based on how much the price of the underlying security moves.
Strangle: An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset.
Call Option: A financial contract giving the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
Put Option: A stock market instrument that gives the holder the right to sell a particular stock at a specified price within a specific time period.
Open Interest: The total number of outstanding derivative contracts, such as options or futures, that have not been settled.
Settlement: The process of reconciling a trade, where the buyer pays the seller for the transfer of the security.
These advanced different terminology in the stock market is vital for investors who are moving beyond the basic stock market concepts and are essential for understanding the more intricate aspects of stock trading in the Indian market.
Unique Aspects of the Indian Stock Market
The Indian stock market, while sharing many similarities with global markets, has its own unique set of terminologies and practices. Understanding these unique share market terminology can provide valuable insights into the nuances of trading in India.
Muhurat Trading: A special trading session is held for an hour on Diwali, marking the beginning of the new financial year according to the Hindu calendar, considered auspicious by investors. Explore more about this in our previous blog - What is Muhurat Trading.
SEBI Regulations: Rules and regulations set by the Securities and Exchange Board of India to protect investor interests and ensure fair market practices.
Nifty: An index representing the 50 most traded stocks on the National Stock Exchange (NSE).
Sensex: The benchmark index of the Bombay Stock Exchange (BSE), representing 30 financially sound and well-established companies.
Participatory Notes: Financial instruments used by foreign investors to invest in Indian securities without registering directly with SEBI.
F&O (Futures & Options) Segment: A market segment that deals with trading futures and options contracts on the Indian stock exchanges. At Lakshmishree, we provide Algo trading services to our clients. Explore more about Options trading by reading our blog, Options Trading for Beginners.
SLBM (Securities Lending and Borrowing Mechanism): A system that allows investors to borrow or lend securities in the Indian market.
RGESS (Rajiv Gandhi Equity Savings Scheme): A tax-saving scheme in India to encourage small investors to invest in the domestic stock market.
ELSS (Equity Linked Savings Scheme): A type of mutual fund in India that offers tax benefits under the Income Tax Act.
Direct and Indirect Taxes on Securities: Taxes imposed on the buying and selling of securities in the Indian market.
Dematerialization: Conversion of physical shares into electronic form.
Rematerialization: The process of converting electronic securities back into physical form.
ASBA (Applications Supported by Blocked Amount): An application mechanism for subscribing to IPOs, where the application money is blocked in the bank account until shares are allotted.
QIP (Qualified Institutional Placement): A capital-raising tool whereby a listed company can issue equity shares to a qualified institutional buyer.
SME Platform: Specialized platforms on Indian stock exchanges for small and medium-sized enterprises to raise equity capital.
Understanding these unique share market terminology offers a more comprehensive view of the Indian stock market, highlighting cultural and regulatory influences that shape trading patterns and investor behaviour.
Comparative Terminology Analysis
In this section, we will compare key stock market terminology in the Indian context with their counterparts in global markets. This comparative analysis helps in understanding the similarities and differences in market dynamics.
Market Capitalization (Global vs Indian): While the concept of market capitalization (company's share price multiplied by the number of shares outstanding) is universal, the scale and market dynamics can vary significantly between Indian and global markets.
FII (Foreign Institutional Investors): Investors or investment companies registered in a country outside of India and investing in the Indian market. Their impact may differ from market to market.
DII (Domestic Institutional Investors): Institutional investors who are based within India, such as mutual funds, insurance companies, and banks, and their influence is significant in the Indian market. Gain more insight into the terms FII and DII by reading our blog, Who are FII and DII and How to read FII and DII data.
Corporate Governance (Global vs Indian Standards): Practices and policies that dictate how a company is administered and controlled. The standards for corporate governance can vary between India and other countries, influenced by local regulations and cultural factors.
GAAP (Generally Accepted Accounting Principles): These are the accounting standards used for financial reporting. India has its own version (Ind AS), which may differ from GAAP in other countries.
FPO (Follow-on Public Offer): A stock issuance by a company already listed on an exchange can have different implications in Indian and global contexts.
ADR (American Depository Receipt): A way for companies in the Indian market to list on American stock exchanges and vice versa.
GDR (Global Depository Receipt): Similar to ADRs, but used to list a company’s shares on international stock exchanges outside the U.S.
VIX (Volatility Index): While the concept of a volatility index is global (with the U.S. VIX being the most well-known), India’s own VIX can react differently to local market conditions.
Compliance Standards (Global vs Indian): Regulatory and compliance standards vary between countries. Understanding these differences is crucial for global investors, especially when comparing Indian standards to those in other markets.
These different terminology in stock market provide an insight into how some share market concepts can have different implications and interpretations in the Indian market compared to global markets.
Further Learning for Stock Market Beginners
After exploring the different terminology in stock market, beginners must further their understanding through comprehensive resources. To aid in this journey, we've compiled a list of highly recommended books, each offering unique insights into the world of finance and investment.
“The Intelligent Investor” by Benjamin Graham: This classic book is a cornerstone of value investing philosophy, providing timeless advice for investors.
“How To Avoid Losses And Earn Consistently In The Stock Market” by Prasenjit Paul: The book focuses on preventing investment losses and simplifying the stock market using relatable examples and incidents.
“Guide To Indian Stock Market” by Jitendra Gala: The book defines different stock market terminology in a way that a beginner in the stock market can understand.
These books are more than just educational resources; they are a gateway to mastering the stock market. These reads are invaluable whether you're just starting out or looking to refine your investment approach. Dive deeper into our recommended readings by checking out our detailed guide on Best Stock Market Books by Indian Authors.
Frequently Asked Questions
In What Ways Does Market Capitalization Affect My Investment Portfolio?
Market capitalization signals company size and stability in your portfolio. Large-cap firms offer stability but lower growth, while small-cap ones promise higher growth with added risk. Diversifying across market caps balances your portfolio's risk and return.
What's the Best Way for a Beginner to Start Building a Portfolio?
Start by assessing risk tolerance and investment goals. Begin with diversified options like mutual funds or ETFs for exposure to various assets. A conservative start, learning about asset classes gradually, is beneficial. Seek advice from financial professionals.
What Are Some Common Mistakes Beginners Make With Stock Market Terminology?
Beginners might misjudge high stock prices as a sign of company excellence and view a declining market solely as a risk. Misunderstanding stock market terms or neglecting market capitalization and liquidity can result in poor investment choices. Here is our guide to what common investing mistakes beginners make.
Can You Explain How Dividends Work and Their Significance in Investing?
Dividends are payments made by a company to its shareholders, usually from its profits. They provide an income stream to investors and can be reinvested for compound growth. Dividends are often a sign of a company's financial health and profitability. For long-term investors, a consistent dividend-paying stock can be a reliable source of income.
Are Stock Market Investments Still Worthwhile During Economic Downturns?
Investing in downturns can be valuable. Opportunities arise with lower-priced stocks, potentially yielding significant gains during market recovery. Caution is vital, emphasizing strong companies and diversification to reduce risk. Long-term strategies generally perform well in downturns.
Conclusion
As we wrap up this exploration of stock market terminology, it's evident that grasping these concepts is essential for navigating the intricate world of investing. From basic share market terminology that lays the foundation for beginners to more complex concepts shaping advanced strategies, each term we've covered plays a vital role in forming a comprehensive understanding of the stock market.
Keep in mind the journey into stock market investing is ongoing and constantly evolving. Remaining informed and adaptable to market changes is crucial. We urge you to continue learning, stay curious, and leverage the knowledge you've acquired as a potent tool in your investment journey. Whether you're just starting or refining your strategies, remember that each term you've learned is a step toward becoming a more informed and successful investor. Happy investing!
