TomorrowMakers

As you start your investment journey, you would hear a lot of new terms. Here is a glossary to get you started.

25 Stock market terms for beginners

When female investors begin investing, they may not only do their own research but also speak with friends and family members who would have been investing in equities since long. However, as they continue their journey they might come across several terminologies that are used by individuals and publications which track the markets.

Unfortunately, because of gender stereotypes, it is believed that women can't handle money matters. However, research has shown that women turn out to be successful investors.

Therefore, women must neither get overawed by these terms nor remain ignorant. One can create a check-list of stock market-related terms and keep adding new ones every time one comes across it. To get started, here is a handy glossary to help you out with 25  terms related to the stock markets:

  1. Share market: Anywhere you can buy or sell shares. All stock exchanges across India are part of the Indian share market. Any shares that you buy or sell outside the exchanges are also part of this share market.
  2. Stock exchange: This is a specific facility where stocks are listed for sale/purchase. All stock exchanges in India are now digital, and you can access them online through a brokerage firm.
  3. Over-the-counter: If you trade a security that is not listed in a stock exchange, you are making an over-the-counter trade.
  4. Stock: Stock is a general term used to refer to a certificate indicating ownership in a company.
  5. Share: A share is a stock certificate of a particular company. So, if an investor says that she owns 100 stocks – she is most likely referring to shares from 100 different companies. On the other hand, if she says she is buying 100 shares, she is referring to shares of a single company. 
  6. Bull market: When stock prices in a market are generally rising, it is called a bull market.
  7. Bear market: The exact opposite of a bull market is a bear market – when the stock prices in the market are generally falling it is called a bear market.
  8. Order: It is a show of intent to buy or sell shares in a given price range. For example, you may place an order to buy up to 100 shares of Company A, at a maximum price of Rs. 80 per share.
  9. Bid: Your bid is the amount that you are willing to pay for a share.
  10. Ask: Ask is the price at which you are willing to sell a share.
  11. Bid-ask spread: This is the difference between the amount people are willing to spend to buy a share and the amount at which the shareholders are willing to sell a share. A trade can only happen when this spread is resolved. That is, if the lowest price at which a share for Company A is being sold is Rs. 40, and the highest price someone is willing to pay for such a share is Rs. 38 – no trade can happen. The trade can only happen when the bid and ask prices match.
  12. Market order: An order to sell/buy shares at the market price is called a market order. It is advisable to avoid placing market order as the trade price can be very volatile. 
  13. Limit order: An order to sell shares above a set price or buy shares below a set price is called a limit order. You should always use limit orders to trade shares.
  14. Day order: An order that is good only till the end of the trading day is called a "day order". If the order does not get executed by the time the market closes, it would be cancelled.
  15. Good-till-cancelled order: An order that will stay open until it is either executed or manually cancelled. Such orders may stand for weeks if no shares are available to trade in the price range specified. For example, if you place a GTC order to buy a share of Company A for Rs. 50 or less and the share is currently trading at Rs. 70. If it takes the share to hit Rs. 50 price point a week later, the order will be executed then. If it were a day order, it would have been cancelled at the end of the trading day itself.
  16. Liquidity: Liquidity refers to how easily a stock can be sold off. A share that can be sold off quickly i.e. has high trade volumes is said to be highly liquid.
  17. Trading volume: The number of shares being traded on a given day is called trading volumes.
  18. IPO/Initial Public Offering: The first time a company offers its share for trading on a stock exchange. Typically, you buy shares from the previous owner of the share and not the company directly. In case of an IPO, you get to buy the shares directly from the company.
  19. Market capitalisation: Market capitalisation is simply the value of the company as per the stock market. That is, the current value of all its shares put together. 
  20. Mutual Funds: Mutual funds is a way of investing across a large number of stocks by pooling your funds with other investors. This allows you to diversify your investment even if you have limited funds. Further, a fund manager takes care of selecting the right stocks to invest in.
  21. Exchange-Traded Funds: These are mutual funds that you can trade like shares on the stock exchange. They usually track an index.
  22. Index: A benchmark that is used by investors and portfolio managers to measure market performance. Nifty and Sensex are such benchmarks. If your portfolio returned 10%, that may sound really good. But if the Sensex returned 12% during the same period – your portfolio did not perform very well. 
  23. Portfolio: Portfolio is simply the collection of all the investments an investor has made.
  24. Intra-day trading: Intraday trading is about buying and selling stocks on the same day so that all positions are closed before trading hours are over on that day.
  25. Dividends: Dividend is a part of the profit distributed by a corporation among its shareholders. When a company earns profit during a financial year, a part of that profit is usually distributed as dividends among its share holders.

This list is not exhaustive. There are many more terms that you will come across as you invest in the share market. Reach out to us for any help that you need. You should also find a mentor to guide you through the process of learning how to invest. 

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