Posted on April 16, 2019
Being familiar with basic terms of the stock market is essential for everyone who is looking forward to trade or/and invest! Stock market terminology consists of frequently used industry-specific jargon. Traders use these terms frequently to explain their trading strategies, indices, stock market patterns and other components of the stock trading industry. As equity enthusiasts, it is imperative for them to know these terms thoroughly in order to trade proficiently. Furthermore, it also enhances their understanding of the relationship between stock markets and events happening in the economy.
Before getting into other technicalities involved in trading, here is a concise glossary with a few key terms that a new investor should know before they start investing in the trade market.
Agent:
An agent is a brokerage firm that buys and sells shares on behalf of investors.
Ask/Offer:
An ask/offer is the lowest price at which an owner agrees to sell his shares.
Assets:
Assets are the property owned by a company, such as cash, equipment, land, technology etc. that comprises the total wealth of said company.
At the money:
An agent is a brokerage firm that buys and sells shares on behalf of investors. At the money is a situation where the options strike price is the same as the price of underlying securities.
Bear Market:
A bear market is a condition in which prices of securities fall 20 percent or more from their recent highs amid negative investor sentiment.
Beta:
A beta is the measure of a stock’s volatility in relation to the market.
Bid:
A bid is the highest price a buyer is willing to pay for a stock. It is the opposite of ask/offer.
Blue Chip Stock:
Blue chip stock are stocks of big, well-established and financially sound companies that pay steadily increasing dividends over time to their stockholders. Blue chip stocks typically have a market capitalisation in thousands of crores.
Bond:
A bond is a promissory note issued by a company or a government to its shareholders. It is proof of the shares that one holds in a public-listed entity, for a particular amount of time.
Book:
A book is an electronic record of all the positions held by a trader. A book shows the total amount of long and short positions that the trader has undertaken.
Broker:
A broker is a person or a firm who arranges trades between a buyer and a seller for a commission when the deal is executed.
Bull Market:
A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term "bull market" is 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.
Business Day:
A business day is a common unit of time in the stock market. Any day in which normal business operations are conducted is called as a business day. This is generally considered to be Monday through Friday from 9 am to 5 pm local time, and excludes weekends and public holidays.
Call Option:
Call options are an agreement that gives the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other instruments at a specified price within a specific amount of time.
Convertible Securities:
Convertible Securities are Securities (bonds, debentures, preferred stocks) issued by an issuer that can be converted into other securities.
Derivatives:
A derivative is a security whose price is derived from one or more underlying assets. The common underlying assets include stocks, bonds, commodities, interest rates, currencies and market indexes.
Diversification:
Diversification means reducing the investment risk by purchasing shares of different companies operating in different sectors.
Debentures:
Debentures are a form of debt instrument, which are not secured by physical assets or collateral.
Defensive Stock:
A defensive stock is a peculiar type of stock that provides a constant rate of dividends even in the periods of economic down turn due to non-cyclical nature.
Delta:
A Delta is ratio of the changes in the price of the fundamental asset and a similar change in the price of a derivative.
Hedge:
A hedge is a strategy or an attempt in reducing the risk of unfavourable price movements of assets.
Face Value:
Face value is a cash value that the holder of a security is going to earn from the issuer of the security at the time of maturity.
One-sided Market:
One-sided market is a market that only has potential sellers or only potential buyers but not both.
Spread:
Spread is the difference between the bid and the ask prices of an equity share. A trader may perceive it as the difference between the amount at which they would like to buy and the amount at which they would like to sell a particular stock.
Volatility:
Volatility is fluctuations in the price of an equity share. Highly volatile stocks witness ups and downs during trading sessions. These are high-risk bets, which can bring a large number of profits for the skilled intra-day trader.
Volume:
Volume shows the average number of shares of a stock which are traded during a particular time period. It can also convey the number of shares, which you are allowed to purchase of a given stock.
Yield:
Yield is return generated and realised on an investment over a particular amount of time and is expressed in terms of percentage based on the invested amount.
Conclusion
This article covers some of the most important stock market terms that every new investor should know and understand. It provides an overview to get started with the investment journey.
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