Are you a trader or investor ? you must be aware about important Stock market terms. In this post i will explain about 27 important terms related to stock market that you must know.
If you are new and don’t have basic knowledge about stock market then must read our post about Stock market basics.
Important Stock market terms
Stock market, Share market and Equity market are basically same, where the process of buying and selling the shares, bonds, debentures are performed with the help of stock exchange.
Stock exchange is a place where the operation of buying and selling or shares, debentures and bonds is performed. BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) are Indian Stock exchanges, Similarly other country have their own stock exchanges like in USA New York stock exchange etc.
Commodity is a product or a raw material which has some market value, meaning it can be bought or sold. The term “commodity market” denotes the place where commodities or products are bought or sold. A commodity market has its own set of rules and regulations like any other market but it is clearly not a share market as physical form of goods are traded here. In commodity market weather plays a big role on commodity prices, as most agricultural products are traded here. Some of the examples of commodities are aluminum, copper, gold, silver, crude oil etc.
Some of similar stocks are grouped together to form an index on the basis of their performance, company size, industry, market capitalization etc. The BSE Sensex includes 30 stocks and the NSE comprises 50 stocks. Others indices like the Bank Nifty, Auto, Infra, IT, Pharma etc, some other indices based on market cap like the BSE Midcap or the BSE Small cap, and others.
Sensex is an index on BSE , basically is a group of 30 companies, which have been selected based on some criteria like company performance, company size, industry , their market cap etc.
Nifty is an index on NSE , basically is a group of 50 companies, which have been selected based on some criteria like company performance, company size, industry , their market cap etc.
When share price in market generally rising then we call is bull market.
Bear market is opposite of Bull market, in Bear market the price of share go down.
Stock market crash
A stock market crash is a sharp dip in share prices of stocks listed on the stock exchanges. Due to various economic factors like election, war, terrorist attack, pandemic (recently covid 19) etc, a reason for stock market crashes is also due to panic and investing public’s loss of confidence.
Some famous stock market crashes are in 1929, on Black Thursday, 1987 – Black Monday, 2008 lehman brothers crisis, 2020 covid 19 pandemic.
Circuit breakers are designed to temporarily halting the trade for certain time period. Circuit breakers automatically stopped trading when prices hit predefined levels, In Indian stock exchanges, an index-based market-wide circuit breaker system applies at three stages of the index movement on either side, at 10 per cent, 15 per cent and 20 per cent.
FIIS reders to Foreign Institutional Investors, are firms that invest in Indian Stock market but they don’t belong to India i.e. they can be from different countries.
FIIs can be any Hedge Fund, Mutual Fund, Pension Fund, Insurance companies from either the U.S.A. or any othere country in the world. FIIs cash flow is very important for our country and economy for growth purpose. CLSA,Morgan Stanley, J.P. Morgan etc are some example of FIIS..
DIIS refers to Domestic Institutional Investors, are big Indian firms and companies that invest in our stock market. These are generally Insurance Companies, Mutual Funds, Liquid Funds, etc. LIC , HDFC, Top Banks are the example of DIIS in India.
Retail Individual Investors are investors like you and me, who contribute a small amount of money to get good returns in long term.
Stock brokers are some financial firms who helps a common person to buy and sell shares in the share market. There are two types of brokers – discount brokers and full-service brokers.
A discount broker mostly charge a small amount as brokerage with limited services. whereas a full-service broker charge a higher amount compare to discount broker.
But they offer you some additional services like expert advice, stock pick recommendations, asset allocation advice, research reports, market insights etc.
A demat account is similar to banking account, but in banking account you store your money and in demat account you hold your shares in dematerialized form, as the name suggest.
A trading account is an account that a broker provides you to buy or sell shares during market hours. When you open your account with a broker they provide you access of your trading terminal to start trade. To open a demat and trading account go to the link.
The General meaning of trading is buying and selling of shares.
Intraday or day trading refers to same meaning, buying and selling the shares on same day, after the market open whatever order you place and before closing the market if your square off your positions that will be Intraday or day trading.
Market volatility means share price will increase their upper and lower range of trading in compare to low volatility, you will notice a large fluctuation in share price in either direction.
High volatility means that a stock’s price moves a lot. Even if you were the best trader in the world, you would never make any profit on a stock with a constant price (zero volatility). In the long term, volatility is good for traders because it gives them opportunities. But on other side there is a big risk also, it can also hit your stop loss several times. Means for a trader neither higher volatility is good nor the lower.
Swing Trading is a strategy that focuses on taking some profit in short term trends and cutting losses quicker. The gains may be lower, but when done consistently over time, they can compound into excellent annual returns. Swing Trading positions are usually held a few days to a couple of weeks. For swing trading you must be expert in reading charts and picking market trends, To know about top chart patterns read our post Top chart patterns.
In simple term the derivative means you predict and betting on future or we can say an agreement between the two agreed parties for executing the agreement from time to time or at the maturity of an agreement. common things involved in the derivatives are Stocks, Interest rates, and Currency exchange rates, Bonds..etc. Future and Options are important terms of it.
Margin buying is not good for a new trader. Here your broker will provide you some extra margin that will allows you to buy more stocks that’s worth multiple times of your original amount. The best thing is, you can earn a large profit if your trade is on the winning side. On the other side if you goes wrong then you will have to be ready to get a huge loss.
Example: Let’s say you have an amount of Rs.10,000. so normally you can only buy shares of 10k. But buy using margin, you can buy shares for Rs.150,000 (in intraday)
Short selling is trying to genrate profit in a bear market. Normally we buy at low and sell at high. In a short sale, we predict the market based on some indicator and trend, if market start to fall then we sell at high and book profit at low near the support zone. Most of the market professionals earns good profit by using short sell method.
In Share market investment refers to putting your money in some good shares for long term period to generate good returns on it. You can invest you money in share market either direct buying some good shares or you can go with mutual fund.
Market Capitalization (Market Cap) of a company is the amount required to buy that company at its current market price. It is calculated as market price per share of the company multiplied by total number of outstanding shares.
For example, a company which has issued 10 Lakh shares and currently trades at Rs. 2 (Current Market Price) would have Market Cap of Rs. 20 Lakh (10 Lakh * Rs. 2).
We can categorize all the share market company on the basis of their market cap. A company with a market cap above 20,000 crore is under large cap company , they are also known as blue chip company.
A company having market cap less than 20,000 crore and above 5000 crore is known as mid cap company. and finally a company have market cap less than 5000 crore is known as small cap company. Reliance, TCS, HDFC etc are the examples of some large cap companies.
Mutual funds are financial products built to provide good returns to the investors and eventually create wealth. For example, equity mutual funds invest in equities(stocks) and debt mutual funds invest in debt instruments like bonds.
Balanced and hybrid mutual fund invest in both equities and bonds. We have create a detailed post on mutual fund and their different types, to read it go to the link.
SIP refers to Systematic Investment Plan (SIP), is a way of investing money in mutual funds, where one invests a fixed amount of money, regularly either weekly or monthly basis.
The amount of investment can start with as low as Rs. 100 and one can choose different periods varying from –Daily, weekly, bimonthly or monthly.
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