Investing in the stock market can seem complex, especially for beginners. Understanding basic stock market terms is crucial for making informed decisions. This guide covers 100 essential terms that every Indian investor should know.
Basic Stock Market Terms for Indian Investors
1. Stock Market
A marketplace where stocks (shares of ownership in businesses) are bought and sold. This is the 1st terms used in stock market.
2. Stock Exchange
A platform where securities are traded. The two main stock exchanges in India are BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).
3. Sensex
The benchmark index of BSE, comprising 30 of the largest and most actively traded stocks.
4. Nifty
The benchmark index of NSE, comprising 50 of the largest and most actively traded stocks.
5. Stock
A share in the ownership of a company.
6. Share
A unit of ownership in a company or financial asset. This is most important terms used in stock market.
7. Equity
The value of shares issued by a company.
8. Preference Shares
Preference Shares is that have a fixed dividend and priority over equity shares in the event of liquidation.
9. Dividend
A portion of a company’s earnings distributed to shareholders.
10. IPO (Initial Public Offering)
The first sale of a company’s shares to the public.
11. Secondary Market
The market where securities are traded after being issued in the primary market.
12. Bull Market
Bull Market is a period when stock prices are rising.
13. Bear Market
A period when stock prices are falling.
14. Portfolio
A collection of investments owned by an individual or institution.
15. Broker
A person or firm that buys and sells securities on behalf of clients.
16. Demat Account
An account that holds shares and securities in electronic form.
17. Trading Account
An account used to buy and sell shares in the stock market.
18. Market Order
An order to buy or sell a stock immediately at the current market price.
19. Limit Order
An order to buy or sell a stock at a specific price or better.
20. Stop Loss Order
An order to sell a stock when it reaches a certain price to limit losses.
21. Margin Trading
Buying shares by borrowing money from a broker.
22. Blue Chip Stocks
Shares of large, reputable, and financially sound companies.
23. Penny Stocks
Low-priced, small-cap stocks that are highly speculative.
24. Market Capitalization
The total market value of a company’s outstanding shares.
25. Small Cap
Companies with a market capitalization of up to Rs 5,000 crore.
26. Mid Cap
Companies with a market capitalization between Rs 5,000 crore and Rs 20,000 crore.
27. Large Cap
Companies with a market capitalization of more than Rs 20,000 crore.
28. SEBI (Securities and Exchange Board of India)
The regulatory authority for the securities market in India.
29. FII (Foreign Institutional Investor)
Foreign investors who invest in the Indian stock market.
30. DII (Domestic Institutional Investor)
Indian financial institutions that invest in the stock market.
31. Mutual Fund
An investment vehicle that pools funds from multiple investors to buy securities.
32. SIP (Systematic Investment Plan)
A method of investing in mutual funds by making regular, fixed payments.
33. NAV (Net Asset Value)
The value per share of a mutual fund.
34. ETF (Exchange Traded Fund)
A type of investment fund traded on stock exchanges, much like stocks.
35. Index Fund
A mutual fund designed to follow a particular index, such as the Sensex or Nifty.
36. Derivatives
Financial instruments whose value is derived from other assets like stocks or bonds.
37. Futures
Contracts to buy or sell an asset at a future date at a predetermined price.
38. Options
Contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a set price before a certain date.
39. Call Option
An option contract giving the owner the right to buy a stock at a specified price.
40. Put Option
An option contract giving the owner the right to sell a stock at a specified price.
41. Intraday Trading
Buying and selling stocks within the same trading day.
42. Long-term Investment
Holding securities for more than one year.
43. Short-term Investment
Holding securities for less than one year.
44. Fundamental Analysis
Evaluating a stock by examining financial data, company performance, and market conditions.
45. Technical Analysis
Evaluating a stock by analyzing market data, such as price and volume.
46. Price-to-Earnings (P/E) Ratio
A valuation ratio of a company’s current share price compared to its per-share earnings.
47. Earnings Per Share (EPS)
The portion of a company’s profit allocated to each outstanding share.
48. Dividend Yield
Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
49. Book Value
The value of a company’s assets minus its liabilities.
50. Market Price
The current price at which a stock is traded.
51. Face Value
The nominal value of a share, bond, or stock as stated by the issuer.
52. Market Trend
The general direction in which the stock market is moving.
53. Liquidity
The ability to quickly buy or sell an asset without affecting its price.
54. Volatility
The degree of variation in a trading price series over time.
55. Correction
A short-term drop in stock prices following a significant rise.
56. Recession
A period of economic decline, typically defined by a fall in GDP for two successive quarters.
57. Inflation
The rate at which the general level of prices for goods and services rises.
58. Deflation
A decrease in the general price level of goods and services.
59. Yield
The income return on an investment, such as the interest or dividends received.
60. Capital Gain
The profit from the sale of an investment.
61. Capital Loss
The loss incurred from the sale of an investment.
62. Day Trading
The practice of buying and selling stocks within the same trading day.
63. Swing Trading
A short-term trading strategy that involves holding stocks for a few days to a few weeks.
64. Position Trading
A trading strategy that involves holding stocks for several months to years.
65. Stop Loss
An order placed to sell a stock when it reaches a certain price to limit losses.
66. Brokerage Fee
The fee charged by a broker for executing a transaction.
67. Annual Report
A comprehensive report on a company’s activities and financial performance throughout the preceding year.
68. Balance Sheet
A financial statement that summarizes a company’s assets, liabilities, and shareholders’ equity.
69. Profit and Loss Statement
A financial report that shows a company’s revenues and expenses over a specific period.
70. Cash Flow Statement
A financial statement that provides data regarding a company’s cash inflows and outflows.
71. Market Sentiment
The overall attitude of investors toward a particular security or financial market.
72. Insider Trading
The illegal practice of trading on the stock exchange to one’s own advantage through having access to confidential information.
73. Arbitrage
The simultaneous purchase and sale of an asset to profit from a difference in the price.
74. Circuit Breaker
A mechanism to temporarily halt trading on an exchange to curb panic-selling.
75. Blue Chip Stock
Shares of large, well-established, and financially sound companies.
76. Dividend Reinvestment Plan (DRIP)
A plan that allows investors to reinvest their cash dividends into additional shares of stock.
77. Ex-Dividend Date
The date on which a stock starts trading without the value of its next dividend payment.
78. Stock Split
An action by a company to divide its existing shares into multiple shares.
79. Reverse Stock Split
A process by which a company reduces the total number of its outstanding shares.
80. Underwriter
A person or institution that guarantees the sale of securities in an IPO.
81. Book Building
A process of generating, capturing, and recording investor demand for shares during an IPO.
82. Green Shoe Option
An option that allows underwriters to buy additional shares at the offering price.
83. Lock-Up Period
A period after an IPO during which major shareholders are restricted from selling their shares.
84. Beta
A measure of a stock’s volatility in relation to the overall market.
85. Alpha
A measure of an investment’s performance relative to a market index.
86. ETF (Exchange Traded Fund)
A type of investment fund traded on stock exchanges, much like stocks.
87. NAV (Net Asset Value)
The value per share of a mutual fund.
88. HNI (High Net-Worth Individual)
An individual with significant wealth to invest in securities.
89. KYC (Know Your Customer)
A process by which financial institutions verify the identity of their clients.
90. F&O (Futures and Options)
Derivatives that provide the right, but not the obligation, to buy or sell a stock at a set price.
91. Leverage
Leverage or Financial leverage is using borrowed money to increase the potential return of an investment.
92. Hedging
A strategy used to offset or reduce the risk of adverse price movements in an asset.
93. Liquidity Ratio
A financial ratio that measures a company’s ability to pay off its short-term debts.
94. Debt-to-Equity Ratio
A measure of a company’s financial leverage, calculated by dividing its total liabilities by shareholders’ equity.
95. Return on Equity (ROE)
A measure of financial performance calculated by dividing net income by shareholders’ equity.
96. Price-to-Book (P/B) Ratio
A financial ratio used to compare a company’s market price to its book value.
97. Insider
An individual who has access to non-public, material information about a company.
98. Buyback
A process by which a company repurchases its own shares from the market.
99. Float
The total number of shares available for trading by the general public.
100. Bid Price
The highest price a buyer is willing to pay for a stock.
101. Dividend record date
Dividend record date is the date on which the company reviews its records to determine its shareholders
Understanding these terms can significantly enhance your investment knowledge and decision-making abilities. Whether you are a beginner or an experienced investor, knowing these basics will help you navigate the stock market more effectively. Happy investing!