Even though there are many Stock Market Terms a Beginner should know about, but there is a handful of them that are used very often. If you are just entering the stock market, this basic knowledge of Share Market Terminology terms is vital.
In this blog, we’ll present a basic guide for beginners to understand the key terms used in the stock market. Lets have a look:
Table of Contents
- Share Market Terminology
- 25 Basic Stock Market Terms
- What is a Stock?
- What is a Stock Market?
- What is a DEMAT Account?
- What is Dividend?
- What is an IPO?
- What is a Bull Market?
- What is a Bear Market?
- What do you mean by Going Long?
- What is Index?
- What is Averaging Down?
- What do you Mean by Market Capitalization?
- What do you mean by Margin?
- What do You Mean by Shorting?
Stock Market Terms are concepts unique to this industry. Such terms are frequently used when we read or talk about the market. These terms are often used by experts and novices to talk about stock market strategies, charts, indices, and other aspects. You will often find these Stock Market terms when reading Financial Articles on money control, economic times, etc.
25 Basic Stock Market Terms
Buy, Sell, Ask, Bid, Ask-Bid Spread, Bull, Bear, Limit Order, Market Order, Volatility, Going Long, Going Short, Averaging, Capitalization, IPO, Dividend, Broker, Exchange, Portfolio, Margin, Averaging Down, Authorized shares, Secondary Offering, Stock Symbol etc.
Below is a Basic guideline of Some Stock Market Terms that are Most Commonly Used in the share market:
What is a Stock?
A Stock represents ownership in a publicly-traded company. When you buy a company’s stock, you become part-owner of that company.
What is a Stock Market?
A Stock Market is a marketplace where you buy and sell shares. The Stock market facilitates the sale and purchase of stocks between individual investors, institutions, and companies.
What is a DEMAT Account?
A Demat Account (short for a Dematerialized account) is an account where you hold your purchased Stocks in electronic format. You can open your DEMAT account with Zerodha- India’s No.1 Stock Broker.
What is Dividend?
A Dividend is a payment from a Company’s Profits to its share holders. Shares must be bought before the Ex-Dividend date or ex-date to be entitled to receive Dividend on Record Date.
What is an IPO?
IPO (Initial Public Offering) is the process by which a private company can go public by sale of its stocks to general public. Through the IPO, the company gets its name listed on the stock exchange.
What is a Bull Market?
A Bull market is a market condition where Investors are expecting the price to rise. A bull market occurs when the price of an investment rises at least 20%.
What is a Bear Market?
A Bear market is a market condition where Investors are expecting the price to fall. A bear market occurs when the price of an investment falls at least 20%.
What do you mean by Going Long?
It means you’re expecting that the company’s stock prices will increase. So that you can buy at low price and sell at high.
What is Index?
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 represents whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market.
What is Averaging Down?
To reduce the average cost or purchase price of the shares that they hold, investors buy more shares when the share price starts falling. They buy at a price that results in an overall lower average purchase price for that share. For example, you bought a stock at Rs 50. Then the stock price starts falling. You bought the stock again at Rs 40 and Rs 30. Hence, the average price of your investment will be lower i.e. Rs 40. This approach helps to effectively increase profits by reducing their purchase price.
What do you Mean by Market Capitalization?
Market Cap. refers to the Total value of the company’s share Capital. Market capitalization = Total number of shares issued by the company x Present Market Price of the Share. They are divided or classified as large-cap, mid-cap or small-cap companies based on their Market Capitalization.
What do you mean by Margin?
Trading on margin means borrowing money from your stockbrokers to purchase stock. It allows the traders to buy more stocks than you could normally be able to with your available Funds. More Margin results in More Profits/Losses.
What do You Mean by Shorting?
Shorting is a technique used when you’re expecting that the company’s stock price will fall. In this, we can earn Profits from Falling Stock Price. Shorting means Selling First and Buying Later. For Example, You sell 100 Shares of Rs. 10 Each and the stock Price Falls to Rs. 8 and you buyback 100 Shares at this price. Then you will earn Rs. 200 (2×100) as Profits.
This isn’t an exhaustive list. As you invest in the stock market, there are many more terms that you will come across. You should also find yourself a mentor who can guide you through the learning process of how to invest. Contact us for any support you need.
Happy Investing! Do check our other Share Market Basics Related Articles on our Blog.