List of Key terms in share market to learn: After learning the basic rules in billiards, a game I’ve wanted to play forever, I was thrown into a conversation at the table where half of the lingo flew straight over my head. Learning the game was hard enough and the terms thrown around regularly like rack, scratch, cushions, bank shot, etc. did not make it any easier.
This took me back to my days as a novice investor where I was again bombarded with several terms which made it even harder to understand what I was even supposed to be doing. Bulls, Bears, Market Order, Limit Order, Equity, Stocks, Marketcap, etc, all these terms are complex enough to confuse a beginner!
Keeping these experiences in mind we present you with an elementary guide for beginners out of thousands of terminologies that exist to help you understand the key terms in the share market. Let’s get started!
What is the Stock Market?
Just like vegetables can be bought and sold in a vegetable market, similarly, stocks can be bought and sold in a stock market. In the simplest terms, the stock market just like any other market is a place where investors wishing to sell meet other investors hoping to buy equity shares or other financial instruments of a company.
Although this is harder to notice as the markets have evolved, thanks to technology, but the base still remains the same!
In India, we have two major platforms or stock exchanges i.e. Bombay Stock Exchange and the National Stock Exchange where most of the buying and selling in the country takes place.
Why is Understanding Stock Market Terminologies Important?
Communication. Understanding these terminologies is important as it helps us understand what another speaker, writer is trying to convey. This is especially crucial when one is just entering the world of investing in order to further understand the technicals.
Understanding these terminologies will put you on a fast track to comprehend how to invest and trade and further make your communication more effective!
27 Key Terms in Share Market that You Should Know:
There are millions of stock market and investing terms that you will slowly learn as you spend more time in this field. But we have put together a list of 27 of the important terms to assist as a beginner. Here are some key terms in Share Market to get you started:
Share: A share is the part ownership of a company and represents a claim on the company’s assets and earnings. It fluctuates up or down depending on several different market factors and is exchangeable at stock exchanges. As you acquire more stock, your ownership stake in the company becomes greater. In general, a share, stock or equity, all denotes the same thing.
Shareholder: An individual, institution, or corporation that legally owns one or more shares of stock in a public or private corporation is called a shareholder. Shareholders have a claim on the company’s ownership.
Primary market: Also known as New Issue Market (NIM). It is the marketplace where new shares are issued and the public buys shares directly from the company, usually through an IPO. The company gets the amount on the sale of shares.
Secondary Market: It is the place where formerly issued securities are traded. The second market involves indirect purchasing and selling of shares among investors. Brokers are Intermediaries and the investors get the amount on the sale of shares.
Preference shares: Preference Shares or Preferred Stocks offer investors preferential rights over common stock when it comes to earnings and asset distribution. However, in exchange for these preferential rights, preference shares do not possess the voting rights in a company that the common stock holds.
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.
Convertible Securities: It is a type of security that can be exchanged into other securities of the same issuer, such as preferred stocks, bonds, and debentures.
Bonds: A bond is a type of fixed-income instrument that is sold to investors by the government or a firm. It represents the amount that an investor lends to the bond issuer for a set period of time at a variable or fixed interest rate known as the coupon rate. Bonds are debt instruments.
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.
Bull market: This is a term used to describe the scenario of the market. A bull market is when the share prices are rising and the public is optimistic that the share price will continue to rise.
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.
IPO: When a privately listed company offers its sharers first time to the public to enter the share market, then it is called an initial public offering. IPOs are the ways for private companies to raise money from the public and enter the share market.
Defensive Stock: Those stocks that do not depend much on how the economy is performing and regardless of the status of the stock market, these stocks perform steadily and provide profits & dividends. Popular defensive sectors include FMCG, pharmaceuticals, and information technology.
Blue-chip stocks: These are the stocks of those reputed companies who are in the market for a very long time, financially strong, and have a good track record of consistent growth and returns in the past many years. Their stocks have low risk compared to mid-cap and small-cap stocks.
Broker or Stockbroker: A stockbroker is an individual/organization who is a registered member of the stock exchange and is given a license to participate in the securities market in place of its clients. Stockbrokers can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service. A few examples of popular stockbrokers in India are Zerodha, Angel Broking, HDFC Securities, ICICI Direct, etc.
Portfolio: A stock portfolio is grouping all the stocks that you are holding. A portfolio shows the different stocks and the quantities that you are holding. It’s important to build a good portfolio to maintain risk-reward in the stock market.
Also read: How to create your Stock Portfolio?
Stock Exchange: These exchanges act as a market where the stock buyers connect with stock sellers. There are two big stock exchanges in India- the Bombay stock exchange (BSE) and the National stock exchange (NSE).
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 a 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.
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 representative of the whole market. This small sample is called an 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.
Limit Order: Limit order means to buy/sell a share with a limit price. If you want to buy/sell a share at a given price, then you place a limit order. For example, if the current market price of ‘Tata motors’ is Rs 325, however you want to buy it at Rs 320, then you need to place a limit order. When the market price of Tata motors falls to Rs 320, then the order is executed.
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 325 and you are ready to buy the share at the same price, then you place a market order. Here, the order is executed instantaneously.
Good till cancellation (GTC) order: This order can be placed when an investor is willing to buy/sell the shares at a specific price and the order remains active till it is executed or canceled.
Day order: This order can be placed when an investor is willing to buy/sell shares on a particular day and the order gets automatically canceled if not fulfilled on that day.
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.
Debentures: Debentures/Bonds/Notes are instruments for raising long-term debt. Debentures are either unsecured or secured (backed by collateral support) in nature. There are a variety of debentures/bonds such as fully convertible, non-convertible, and partly convertible debentures.
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.
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.
Face Value: It represents the nominal or rupee value of a stock, as stated by its issuer, and differs from the market value. It can also be referred as the original cost of the stock, as listed on the certificate.
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, its sequence is opposite to the regular transactions to get the profit of the falling share prices.
Going long: This is buying the shares in expectations that the share price is going to increase. When a trader says I am “Going long…” or “Go long”, it indicates his interest in buying a particular share.
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.
Moving Average: Mostly used by active traders, moving avearge refers to the average price per unit of an equity share during a specified time period. The 50- and 200-day moving averages are two prominent time periods for studying a stock’s moving average.
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.
One-sided Market: It describes a situation in which a market only has potential sellers/buyers rather than both at the same time. Only the bid or offer price is displayed by market makers, indicating that the market is moving in one way.
Market capitalization: It refers to the total rupee value of the company’s share. It is calculated by multiplying the total number of shares by its present market share price. We define large-cap, mid-cap, or small-cap companies based on their market capitalization. Companies with a market cap greater than Rs 25,000 Cr can generally be considered large-cap companies.
Bid: The bid price represents the maximum price that the buyer/buyers are willing to give to buy a share.
Ask: This is the minimum price that the seller/sellers are willing to receive to sell their shares.
Bid-Ask spread: This is the difference between the ‘bid’ and ‘ask’ price of a share. Basically, its the difference between the highest price that the buyers are willing to buy a share and the lowest price that the sellers are willing to sell their shares.
Demat account: It is the short form for ‘Dematerialised account’. The Demat account is similar to a bank account. Just as money is kept in your saving account, similarly bought stocks are kept in your Demat account.
Trading Account: This is a medium to buy and sell shares in a stock market. In simple words, the trading account is used to place buy or sell orders for a share in the stock market. You’ll require both demat and trading account to start investing or trading in stocks in India.
Margin: Trading on margin means borrowing money from your stockbrokers to purchase stock. It allows the traders to buy more stocks than you’d normally be able to.
How to Invest in the share market in India?
At the end of the day, the purpose of learning these terms is to understand how to invest your money in the appropriate stocks and make profits. Following are some of the basic steps you can follow to begin your journey in the Indian stock market.
1. Get some financial education – You have already learned a few of the key terms in the stock market. However, this is just the start. Continue your journey and get more stock market education.
2. Set your investment goals: Find out how long you’re planning to invest and how much.
3. Build your investing foundation and implement this starting off by creating a plan/strategy.
4. Find a suitable stockbroker and open your demat account. You can prefer full-service brokers like (ICICIDirect, Kotak Security, HDFC Sec) or discount brokers (Zerodha, Upstocks, 5 Paisa, Paytm Money, Groww), complete your KYC and activate your account.
5. Research into Common Stocks and Invest.
In this article, we explained the key terms in share market in India. Understanding these terms would definitely get anyone a foot through the door into the world of investing. These terms would help you understand investing better and even take and give more meaning to conversations on the subject.
We hope you found this article “Key terms in share market” helpful. If we missed any other key stock market term, let us know in the comments. Happy Investing!