Stock Market Terminology: 38 Basic Terms Of Stock Market And Concepts A Trader and An Investor Should Know.

Understanding the stock market can be seen as a challenging task. Some confusing terms and concepts will frustrate you, but being familiar with these terms will surely help you.

These stock market terms will improve your stock market vocabulary and help you become a better and successful investor.

In this blog, we are going to present an elementary guide for beginners to help them understand the basic stock market terms used in the share market. 

Table of Contents

• What is the Stock Market?

• What do Stock Trading Terminology mean?

• Basic terms used in the stock market

•  What Is the Stock Market?

The term stock market refers to several exchanges in which shares of publicly held companies are bought and sold. Such financial activities are conducted through formal exchanges and via over-the-counter (OTC) marketplaces that operate under a defined set of regulations. 

Both “stock market” and “stock exchange” are often used interchangeably. Traders in the stock market buy or sell shares on one or more of the stock exchanges that are part of the overall stock market.

The leading U.S. stock exchanges include the New York Stock Exchange (NYSE) and the Nasdaq. 

• What do Stock Trading Terms mean?

Stock market terminologies are industry-specific stock market terms that are frequently used when we read or talk about the stock market.

Experts and novices often use these terms to talk about strategies, stock market charts, indices, and other elements of the stock market. 

Basic Stock Market terms

• Initial Public Offering (IPO): A company’s first issue of shares to general public. IPOs are issued by smaller, younger companies seeking funds for expansion and growth, but large companies also practice this to become publicly traded companies. 

• Portfolio: The portfolio is a collection of all the investments that an investor has made right from purchasing a share for the first time.

• Market Capitalization: It simply means the value of a company according to the stock market. That is the current value of all the shares of a company put together.

• Intra-Day Trading: Intraday trading means buying and selling your desired stocks on the same day so that before trading hours get over, all your trading positions will be closed within the same day.

• Market Order: A market order is an order to buy and sell shares at the market price. Several investors don’t go with this Order because the trade price in the market order remains volatile. 

• Day Order: A day order is an order that remains good till the end of the trading day. If the Order does not perform by the time the market closes, the Order will be canceled. 

• Share Market: A share market is a market in which shares of a particular company are purchased and sold. The stock market is a definite example of a share market.

• Bull Market: It is a market where investors talk about the stock market performing in an upward trend, or it is a certain period where the prices of multiple stocks are increasing.

• Bear Market: It is a market where investors talk about the stock market performing in a downward trend, or it is a certain period where the prices of multiple stocks are falling.

• Annual Report: An annual report is a yearly report that every company prepares to impress the shareholders of their company. The annual report consists of lots of information about a company, from cash flow to management strategy. Several people read the annual report to look at the company’s solvency and judge their financial position.

• Averaging Down: Averaging down means the investor buys more stock when the price of a particular stock goes down. This decreases the average purchase price of your specific stock.Several investors use this strategy if they feel that consensus about a specific company is wrong, so they expect the stock price to jump back and earn profit.

• Arbitrage: Arbitrage means purchasing something like foreign money from one place and selling it to another place where the price of the foreign money is higher than buying place. For example: if stock is trading out $20 from one Market and $21 on other markets, the trader must buy shares at $20 from one Market and sell them for $21 on the different Market, getting the difference amount between both the markets price.

• Dividend: A dividend means when the company earns profit, a particular portion of their earnings is distributed to shareholders or the people who own the company stock on a quarterly or annual basis. Not every company pays dividends, and if you’re after penny stocks, you’ll likely not get any dividends.

• Bid Price: A bid price is nothing but the amount that you desire to pay for a particular share.

• Ask Price: Ask price is a specific price at which you are looking to sell a share.

• Trading Volume: Trading volume means the number of shares that are traded on a particular day.

• Quote: The stock’s latest trading prices contain information that is given in a quote. Sometimes, the quote is delayed by 20 minutes unless you’re an actual stockbroker working in an existing trading platform.

• Agent: A brokerage firm is said to be an agent when it acts on behalf of the client in buying or purchasing of shares. At no point of time in the entire transaction the agent will own the shares. 

• At the money: A situation at which an options strike price is identical to the price of the underlying securities. Options trading activity tends to be high when options are at the money. 

• Assets: Everything the company owns on its name, including the cash, equipments, land, technology etc. which shows the total wealth of the company. 

• Blue Chip Stock: Stocks of large, well-established and financially-sound companies which hold a record of consistently increasing rate of paying the dividends over decades to its stock holders. Blue chip stocks typically have a market capitalization in thousands of crores. 

• Broker/Brokerage Firm: A registered securities firm are called broker/brokerage firm. Broker’s acts as an advisor for purchase and sell of listed stocks, they do not own the securities at any point of the time. But they charge a commission for their service. 

• Bonds: It is promissory note issued by companies or government to its buyers. It speaks about the specified amount held for a specified time period by the buyer. 

• Call Option: An option that is given to investor the right but not obligation to buy a particular stock at a specified price within a specified time period. 

• Commodities: Product used for commerce that are traded on a separate, authorized commodities platform. Commodities include agricultural products and natural resources. 

• Derivatives: A security whose price is derived from one or more underlying assets. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. 

• Face value: It is the cash denomination or the amount of money the holder of the individual security going to earn from the issuer of the security at the time of maturity. It is also known as par value. 

• Delta: The ratio that compares the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the hedge ratio. It has a range from 0 to 1. 

• Defensive Stock: A stock that provides a constant dividends and stable earnings even in the periods of economic downturn i.e. even in the extreme critical situations of the stock market these companies continue to pay the dividends at a constant rate. 

• Mutual Fund: A pool of money managed by experts by investing in stocks, bonds and other securities with the objective of improving their savings. These experts will create a diversified portfolio from these funds. 

• Odd Lot: A number of shares which are less than or greater than but not equal to the board lot size. For example, if the board lot size is 100 shares, an odd lot would be 95 or 102 shares. Usually odd lots are difficult for trading and it is not accepted easily in the market. 

• Out-of-The-Money (OTM): For call options, this means the stock price is below the strike price. For put options, this means the stock price is above the strike price. The price of out-of-the-money options consists entirely of “time value.” 

• Price Earnings (P/E) Ratio: A valuation of companies last traded share price to its latest reported 12 months earnings per share. For example, if the last traded share price of any X company is 40$ and earnings over a last 12 months per share is  2 , then the P/E ratio of that X company is 20$ (40/2) 

• Risk: A probable chances of investments actual returns will be reduced then as calculated. Risk is usually measured by calculating the standard deviation of the historical price returns. Standard deviation is directly proportional to the degree of risk associated. 

• Put Option: An option that is given to investor the right to sell a particular stock at a stated price within a specified time period. Put option is purchased by those who believe that particular stock price is going to fall down than the stated price. 

• Strike Price: The price at which the holder of an option can buy (in case of call option) or sell (in case of put option) the securities they hold when the option is executed. 

• Stock Split: An attempt to increase the number of outstanding shares of a company by splitting the existing shares. It is usually done to increase the availability of shares in the market. The usual split ratio is 2:1 or 3:1, i.e. one share is split into two or three. 

• Thin Market: A market in which there are comparatively low number of bids to buy and offers to sell. Since the number of transactions is low the prices are very volatile.