17 key Terms in the Stock market that you should know

Stock Market is a place where buyers and sellers meet to buy and sell their shares/stocks. Many young enthusiasts who want to enter the stock market but do not possess the basic knowledge of the markets and the common terminologies used in the market. before entering the market it is very essential that we should know the basic terms used in the stock market which would make our trading much more easier.

Read Top Financial mistakes made by Indians

Although there are thousands of terminologies that a stock market investor/trader should know, however, they are a handful of them that are repeatedly used. This basic domain knowledge of these terms is really important if you want to enter and succeed in the share market.

1. Share

Shares are units of ownership interest in a corporation or financial assets that provide for an equal distribution in any profits, if any are declared, in the form of dividends. The two main types of shares are common shares and preferred shares. Physical paper stock certificates have been replaced with electronic recording of stock shares, just as mutual funds shares are recorded electronically.

2. Intraday

When you buy and sell the share on the same day, then it is called intraday trading. Here the shares are not purchased for investing, but to get profits by harnessing the movement in the market.

3. Delivery

When you buy a share and hold it for more than one day, then it is called delivery. It doesn’t matter whether you sell it tomorrow, after 1 week, 6 months or 5 years. If you hold the stock for more than one day, then it is called delivery.

4. Bull market

A bull market is the condition of a market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities. Because prices of securities rise and fall essentially continuously during trading, the term “bull market” is typically reserved for extended periods in which a large portion of security prices are rising. Bull markets tend to last for months or even years.

5. Bear Market

When the share prices are falling and the public is pessimistic about the stock market, then it’s a bear market. The public is fearful and thinks that the market will continue to fall and hence, selling increases in this market.

6. Stock Exchange

 Just like a vegetable market, exchanges act as a market where the stock buyers connect with stock sellers. There are two big stock exchanges in India- Bombay stock exchange (BSE) and National stock exchange (NSE).

7. Dividend

Whenever a company (whose shares you are holding) is in profit, the company can either reinvest the profit or distribute the amount among its shareholders. This share of the profit that you get from the company is called dividend.

Companies may or may not give dividends to their shareholders depending on their needs. If it’s growing fast, it might re-invest the profit in its expansion. However, if it has enough cash, the company will distribute it among its shareholders.

8. Index

Since there are thousands of companies listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

9. Limit order

A buy limit order is an order to purchase an asset at or below a specified price, allowing traders to control how much they pay. By using a buy limit order, the investor is guaranteed to pay that price or less. While the price is guaranteed, the filling of the order is not. If the asset does not reach the specified price, the order is not filled and the investor may miss out on the trading opportunity. Said another way, by using a buy limit order the investor is guaranteed to pay the buy limit order price or better, but it is not guaranteed that the order will be filled.

10. Market order

When you want to buy/sell a share at the current market price, then you need to place a market order. For example, if the market price of ‘Tata Motors’ is Rs 400 and you are ready to buy the share at the same price, then you place a market order. Here, the order is executed instantaneously.

11. Trading volume

It is the total number of shares being traded at a particular period of time. When securities are more actively traded, their trade volume is high. Higher trade volumes for a stock mean higher liquidity, better order execution and a more active market for connecting a buyer and seller.

12. Volatility

It means how fast a stock price moves up or down. More volatile assets are considered riskier than less volatile assets because the price is expected to be less predictable and may fluctuate dramatically.

13. Liquidity

Liquidity means how easily you can buy/sell a share without affecting the share price. A highly liquid share means that it can easily be bought or sold. Low liquid stock means that the buyers/sellers are hard to find.

14. Short selling

It is a practice where the trader sells share first (which he doesn’t even own at that time) and hope that the price of that share starts falling. He will make a profit by buying back those shares at a lower price. Overall, both selling and buying are done here, however, it’s sequence is opposite to the regular transactions to get the profit of the falling share prices.

15. Going long

This is buying the shares in expectations that the share price is going to increase. When a trader say I am “Going long…” or “Go long”, it indicates his interest in buying a particular share.

16. Average down

This is an approach that investors use to buy more shares when the share price starts falling. This results in an overall lower average price for that share. For example, you bought a stock at Rs 100. Then the stock price starts falling. You bought the stock again at Rs 80 and Rs 60. Hence, the average price of your investment will be lower i.e. Rs 80. This is the approach used in averaging down.

17. Public float (free float)

Public float or free float represents the portion of shares of a company that is in the hands of public investors

These are some of the terminologies which you might come across while reading business articles. There are many other terminologies that should be learned to understand how markets functions. You can get those in Investopedia.