Stock Market Glossary: Various Terminologies of Stock Market

As a debutant investor have you often wondered what these phrases like “earnings movers” or “intraday highs” meant. Or for that matter about the flashes of red or green that cross the bottom of your TV screen.Before one could start trading you must familiarise yourself with the industry-specific jargon used in the stock markets frequently. Even if one is not into trading it will be interesting to understand trading strategies, indices, stock market patterns, and other components of the stock trading industry. It will also enhance your knowledge of the relationship between stock markets and events happening in the economy. Read this stock market Gloassary

Let us look at the ABC of the basic terms that one needs to know as an investor.

• Agent: An agent is a brokerage firm that carries out the buying or selling of shares on behalf of the investor in the stock market.

• Arbitrage: Arbitrage refers to buying and selling the same security, currency, or commodity in different markets or in derivative forms to benefit from the different prices for the same asset. For example, if stock of company ABC is trading at Rs.400 on one market and Rs.420 on another, the trader could buy X shares for Rs.400 and sell them for Rs.420 in the other market, pocketing the difference.

• Averaging Down: When an investor buys more of a stock as the price keeps decreasing as a result the average purchase price decreases. This is a strategy one can use if you believe that the consensus about a company is wrong and you can expect the stock price to rebound later.

• Broker: Is a  person who buys or sells an investment on behalf of the investor or trader in return for a commission. There are two types of brokers: discount brokers and full-service brokers. 

• Bear Market: It refers to a period in which the prices of the shares fall consistently. More precisely when the price of an investment falls at least 20% or more from its 52-week high. It is the start of a downward trend in the stock market.

• Bull Market: A bull market situation is one in which the prices of the stocks are expected to rise over a prolonged period. It is a period where one is encouraged to buy stock. A stock or a sector can be bullish at one point in time and bearish at another point in time. 

• Beta: It measures the correlation between the price of an equity share and the overall movement of the stock market. The beta of the market is assumed to be 1. A stock’s beta greater than 1 shows a higher risk than the market. A beta of less than 1 indicates that the stock is less risky than the market.

• Bid: The bid price is the highest price that a trader is willing to pay to go long (buy a stock and wait for a higher price) at that moment. 

• Blue Chip Stock: These are equity shares of companies that are financially stable and well-established. They generally have a relatively huge market capitalization and offer a stable record of significant dividend payments with a reputation of sound fiscal management. The expression is derived from blue gambling chips, which is the highest denomination of chips used in casinos.

• Board Lot: Each stock exchange defines a standardized trading unit that relies on the per-share price. They may be in lot sizes are 50, 100, 500, 1000 units. The purpose of a board lot is to avoid odd lots and facilitate easier trading

• Bonds: It is a fixed income investment that is issued by the government or a company to its buyers. It is a specified amount which an investor lends to the issuer of the bond for a specified period at a variable or fixed interest rate. They are safer than stocks with lower returns.

• Call Option: They are financial contracts In which the buyer of the option gets a right not an obligation to purchase the underlying stock, bond, or another asset at a specified price and within a specific period. A call purchaser profits when the underlying asset increases in price.

• Close Price: It is the last price at which a stock was traded on a specific trading day.

• Convertible Securities: A security like preferred stocks, bonds, debentures which are issued by an issuer capable of being converted into other securities of that issuer.

• Day Trading: The purchase and sale of a security within the same trading day, before the close of the markets on that day, is called day trading or intraday trading. Such traders who participate in day trading are referred to as “active traders” or “day traders.”

• Defensive Stock: During the tenure of recession or an economic downturn, a defensive stock provides consistent dividends and stable earnings regardless of the state of the overall stock market. Such stocks receive a constant rate of dividends due to their  stability during the various phases of the business cycle

• Delta: A delta refers to the ratio of the change in the price of a derivative in response to the change in the price of the underlying asset. A higher delta infers a  higher sensitivity to the price changes in the underlying asset.

• Dividend – A payment of a company’s earnings to its shareholders in the form of cash or stock.

• Face value: A term used to denote the nominal value of a security that one will obtain from the issuer of the security when the security matures at the specific date.

• Fill or kill or FOK: An order to purchase or sell a stock that must be executed immediately in its entirety, else, the entire order is canceled. No partial fulfillments are permitted.

• Float – This is the number of shares that can be traded after deducting the shares held by insiders.

• IPO – It is an Initial Public Offering that happens when the private company becomes a publicly-traded company.

• Margin trading  –Margin trading is also referred to as intraday trading in India and various stockbrokers provide this service. It involves buying and selling of securities in one single session.

• Moving Average Is the average price per unit of an equity share concerning a specific period. Some popular time frames used to study the moving average of a stock include 50- and 200-day moving averages.

• Portfolio – A collection of investments owned by you. A collection of investments owned by an investor makes up his or her portfolio. 

• Short Selling: This simply means selling a stock which the seller does not own at the time of the trade. All types of investors, namely retail and institutional investors, are permitted to short sell. It’s a strategy to take advantage of a share that you believe will decrease in price. Once you sell short, you can buy back the shares at a lower price point and take the difference in price as your profit.

• Spread This is the difference between the bid and the ask prices of an equity share. 

• Volatility: Is the market fluctuations in the price of an equity share. Highly volatile stocks will witness severe ups and downs during trading sessions. They are highly risky bets which can bring large amounts of profits for the skilled intra-day trader.

• Volume: It is the average number of shares of stock that are traded during a particular period usually the average daily trading volume. 

• Yield: Is the return on an investment which you get after receiving a dividend on a share. You can compute the yield by dividing the annual dividend received by the price paid for the stock.
   

The Bottom Line

A thorough understanding of your stock market terms will make you a better trader. It will take some time to grasp the intricacies of securities trading, but once you get a grip, the stock market will lure you into its grasp.Hope this Stock market glossary helps you.