15 basic stock market terms you must know

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15 basic stock market terms you must know

 

Stock market has always been a hot and an interesting avenue for investors as millions are withdrawn and invested daily in the stock market which drives the investors crazy and gives them a ride for their money. However if you are aware of these terms which are most commonly used in the stock market, it will make your life much easier, especially, if you have no idea about stock market and are just starting up!

 

Bull Market

It is a market where the trader and the investors speculate that the prices of the securities in general will rise and will give them a favorable return in the future. Bull market can be because of various factors like new government policy or a new investment project in the country.

 

Bear Market

In this type of market the investor believes that the prices of the shares will go down and thus he/she is interested in pulling his money out from the market and investing it in some other alternate investment. So, if the markets are falling on daily basis, it means that markets have entered a bear phase.

 

Margin Money

It is a term which is more commonly used in margin trading where you can receive a call from your broker to increase the sum of money in your account, as when the price of the security has changed one has to put in extra money in order to meet the requirement.

 

Beta

Beta measures the volatility of the security in the market and thus derives the relationship between one stock and another. The beta of the market as a whole is always one and if the beta of a particular share is greater than one then the security is more aggressive in comparison to the market and vice-versa.

 

Dividend

It is that part of the profit that the company declares to be distributed among its shareholders at the end of the year or anywhere in the middle of the year. Announcing a dividend gives a boost to the company’s share price. Many companies may not follow the dividend policy and may issue bonus shares or retain the profit of that fiscal year.

 

Spread

This is the difference between the bid and the ask prices of a stock, that is the amount someone is willing to buy the stock for and the amount someone is willing to sell the stock for. Generally spreads are used in futures and options market.

 

P/E Ratio

It is the valuation ratio which is most commonly used in the stock market to value the price of the share. It is calculated by dividing the market price per share to its earning per share. This term is often used to determine how expensive a stock is. So, if the P/E ratio for an industry is 20 and the P/E ratio of a company in that industry is, say 27, we can say that the company’s share is expensive.

 

Support Price

It is a price of the share below which the share is not expected to fall in the market. However many support levels of a share can be broken every day and a new support price is made every time an old support breaks. When a stock breaks its support price, it is generally a good time to sell it. This term is mostly used in technical analysis. When it comes to fundamental analysis of a stock, support price do not make much sense.

 

Short Sell

Short selling refers to the selling of a stock which you do not own or you borrow it from someone. It is carried out when you speculate that its future price will go down. Once the prices fall, it is bought back thus you make a profit. Short selling is done by the traders when they are sure that the level of risk of a particular transaction is very high with that stock. So, basically when you short sell, you sell a stock without owning it (say at Rs 200) and then you expect price to fall (say it reaches Rs 150). Thus, per share you have made Rs 200-150 = Rs 50.

 

Squaring Off

When a trader who has purchased a certain amount of stocks of a particular company in a day, sells the same amount of shares on the same trade day in the market, it means that the trader has squared off his/her positions.

 

Blue Chip Stocks

These are the stocks of the leading companies which are the major players in the market and have the biggest market capitalization (as in the companies are in NIFTY50 or SENSEX30 companies). These companies offer a stable dividend policy and have experienced management and sound profits and turnovers. An example of blue chip companies will be TCS, Infosys, Reliance etc. From US market, examples of blue chip companies are Coca-Cola, McDonald’s, Wal-Mart, Procter & Gamble etc.

 

Rally

A rapid increase in the general price level of the market or of the price of a stock.

 

Volatility

There are daily movements and fluctuations in the price level of the stocks in the stock exchange. When the price of a particular share fluctuates beyond the probable means and goes extremely up and down in a single/multiple trade days, it is said to be a volatile stock.

 

Yield

This usually refers to the measure of return on an investment that is received from payment of dividend on a particular stock price.

 

Trade Volume

The number of shares traded on a particular days is known as the trade volume of that day in the exchange market.

 

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