- Date : 26/11/2021
- Read: 5 mins
There are quite a few terminologies related to the stock market that a woman should be familiar with if she wishes to invest on her own. This article aims to list some important stock market terminologies.
Gender stereotypes have often prevented women from handling money independently in the past. Things have been changing over the years, and there is an increasing interest among women to participate in stock market investing. Are you one of them? Industry jargon should not impede your journey, so here’s a quick look at some common terms.
- Stock market:
The marketplace where an individual can buy or sell shares. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are two prominent stock markets in India.
- Listed stock:
This implies all the stocks of companies that are bought and sold on the stock market. The issuing company has to abide by the rules and regulations set by the regulatory authority. They are also required to pay fees to list their stocks.
The Securities Exchange Board of India is the regulatory authority for stock markets.
- Equity stock:
Also called equity shares, common stock represents the ownership of a company. The shares earn capital appreciation and dividends regularly.
The returns from equity investment can be by means of capital appreciation (sale price – cost price) or through dividends (amount paid by the company out of current year profits).
This is a certificate of ownership of any investment product – bonds, shares, or contracts (derivatives) – that is issued on purchase of the said instrument.
- Pre-open session:
The pre-open session of a stock market is for 15 minutes (9.00 am – 9.15 am). Order entry, modification, and cancellation take place during this time.
- Trading session:
The stock market is open for active trading between 9.15 am and 3.30 p.m. All traders can actively buy and sell stocks during this period. The pre-open session’s orders are matched and executed in this time frame.
- Demat/trading account:
To trade in the stock market, you need to have a trading account that is opened with an agent or brokerage firm. There is no concept of physical shares; the shares are held in digital form in the Demat account.
Equity investments are taxable only on sale; they are taxed under the head capital gains. If you have held the investment (equity stock) for over 12 months, then it is taxed as long term capital gains (10% applicable on gains above Rs. 1 Lakh in a financial year). If the stock is sold within 12 months, then it is assessed under short term capital gains and taxed at 15%. Cess and surcharge are applicable in addition.
Risk is the probability of an unfavourable outcome. It is the chance of downside, which could be as severe as losing the invested amount entirely.
- Individual risk profile:
You will have to assess your own risk profile and understand your appetite before choosing the stocks you want to invest in. Your risk profile could be high, moderate or low. You will have to invest in stocks that align with your risk appetite.
- Risk-return relationship:
Risk – return in capital markets have a linear relationship. The higher the risk, the higher is the potential for returns and vice versa. Note the word potential and when the potential returns can be high, the downside can also be quite steep!
- Market phases:
The returns from equity investment can fluctuate due to the various phases in the market – an upward trending market is called a bull market; a downward trending market is called a bear market. You may be required to re-balance your portfolio in line with market phases to reduce risk.
- Long position:
Going long means buying a stock. A long position can also be interpreted as having a positive outlook on the stock that one intends to buy.
- Short position:
A short position refers to selling a stock. A short position can also be looked at as a negative outlook, where the owner of the stock wants to sell the same.
- Blue-chip stock:
These are large-cap stocks that have a steady track record of creating wealth for their equity shareholders (owners). Such companies have very strong financials, also termed as fundamentals. E.g. TCS, Reliance etc.
- Defensive stock:
These stocks have a steady order book even during turbulent times in the market/economy. For instance. FMCG and pharma stocks tend to show a steady financial performance during tough times. Hence, they are considered defensive stocks.
- Dividend yield stock:
A company that declares regular dividends is termed dividend yield stock. Dividends could be interim (half-yearly) or annual.
- Primary and secondary market:
The primary market is the market where the stock is first introduced for trading publicly in the form of IPO (initial public offering) or FPO (follow-on public offering). The public bids for shares at the price range indicated. These stocks after the IPO are available for regular trading in the secondary market. They can be bought and sold at market-determined prices during trading hours.
- Diversification: Investing in different stocks to reduce risk is termed diversification. As a beginner, one should consider investing in multiple stocks across industries to reduce the overall risk.
- Stock market index: This is a select set of prominent stocks which give an overall indication of the trend and investor sentiment in stock markets. Sensex and Nifty are very prominent indices in Indian stock markets.
Related: How to invest in stocks like a pro?
Although this list is not comprehensive, it should give you enough confidence to embark on your investing journey. Women often do things very meticulously. It is time to add the feather of trading in the stock market as well to one’s cap!