20 Stock Market Terminology: Every Trader must Know

Many new traders enter the field of trading without the basic knowledge of stock markets and this creates confusion for them as well as for those who are working with them. While internet has all answers these days, but it is always better to know the meanings of certain terms before entering the stock markets than searching on the web every time. So without much preface, let’s understand which are these terms which are most commonly used in the stock market trading world:

‍

20 Stock Market Terminology for Beginners

1. Shares and Stocks

Shares represent the ownership of a company in the form of a financial instrument which can be purchased, sold and traded in a similar manner by any holder. The outstanding shares of a company which are available in the market for trading are called  the company’s stock.

‍

2. Futures and Options

While shares represent the live and current ownership of the company, futures and options are contracts which give the holder right to sell or buy the shares at the fixed rice in the future. Future contracts give the holder the right and the obligation to sell or buy the shares at a future day, whereas the options contracts give the holder the right, but not the obligation to buy or sell the shares at a later date. There are derivative instruments and are valid for a fixed period of time.

‍

3. Primary Market

There are two types of markets where shares of the company are sold. The primary market is the market where the company sells its shares to the public for the first time. Here, the buyers cannot sell the shares allotted to them to anyone, as the selling in only done by companies. Companies sell their shares to raise money from the markets. This is done through an IPO.

‍

4. Secondary Market

The secondary market is the market where a company’s shares are exchanged between different types of investors. This is a marketplace where other instruments are also traded such as futures and options, ETFs, etc.  

‍

5. Bull Market

This is the market condition when prices of shares are increasing and the value of the markets is going up. A bullish market is seen as a positive sign for the economy. Uptrend in a single stock, or a sector or the economy on the whole can be called bullish.

‍

6. Bear Market

A bear market is the opposite of bull market where prices keep falling and the wealth keeps depreciating. This can be due to fear in the markets or pessimism about the stock or company’s future or negative news about any sector.

‍

7. IPO

Initial Public Offer or IPO is the process through which stock markets sell their shares for the first time to public with the intention to raise money. An IPO is followed by the listing of the shares in the secondary markets, where the price of the shares fluctuate as per the concepts of demand and supply and overall market factors.  

‍

8. Intraday Trading

This is the form of trading where securities such as stocks, futures, options etc, are purchased and sold within a single day without taking delivery of the same with the aim to make profits from the daily price fluctuations and volatility in the markets.

‍

9. Delivery Trading

In delivery trading, the stocks or shares are purchased and taken into the demat account. Delivery trading can be overnight in the form of BTST (Buy today sell tomorrow) or STBT (sell today buy tomorrow), or for swing trading (holding shares from three days to 14 days. Short term, (holding shares for upto three months), medium term (three months to six  months) or long term (holding shares for more than six months)  

‍

10. Stock Exchange  

A stock exchange is a platform where all the buying and selling of these financial instruments take place. The shares which are eligible to be traded are listed on the stock exchanges who manage the buying and selling orders for the shares. Stock exchanges around the world are now managed electronically, which means that the buying and selling of the shares and their latest prices is completely digitized and automated.

‍

Read Here : Top 35 Indian Stocks and Trading Blogs

‍

11. Depository

A depository is an important part of the stock trading, since it is with a depository you can pen your demat account. There are different depositories associated with different stock exchanges. For example, the National Securities Depository Limited or NSDL is the depository for National stock exchange, whereas the Central Depository Services (India) Ltd or CDSL is the depository associated with the Bombay Stock exchange.

‍

12. Stock Broker

A stock broker is a market participant who helps you in placing your buying or selling orders on the stock exchange in electronic form, and charges a commission against it. While many stock brokers claim to open your demat account with them, the reality is that a demat account is opened with a depository and a broker only facilitates in opening of the demat account.

‍

13. Index

An index is the cumulative indicator of the prices of all stocks listed on a particular exchange or in a sector or category. An index is the average price. For example, Nifty is the average price of the 50 top stocks listed on the National Stock Exchange, whereas Sensex is the price of 30 top stocks listed on the Bombay Stock Exchange.

‍

14. Market Cap

The market capitalization of a company is the value of all its outstanding shares which are available in the secondary market, irrespective of whether they are available freely or owned by investors. The companies on the stock exchange are divided in three segments on the basis of their market capitalization – large cap refers to companies whose market capitalization is above Rs. 10,000 crores, mid cap is where the market capitalization is between 500 crores and 10,000 crores, whereas small cap is the segment where market capitalization of companies is less that Rs. 500 crores.

‍

15. Long Position

A long position is a buy position where the shares of the company are purchased, with the hope that the stock prices will move up.

‍

16. Short Position

A short position is when the shares of a company a first sold, with the aim to buy them at a lower price. A short position is created when the trader expects the stock prices to fall.

‍

17. Rally

A rally is when the prices of a stock move in the upward direction at a fast pace. A rally occurs during the bullish phase of the market.

‍

18. Correction

A correction is when the prices of a stock or a share move in a downward direction successively. This happens due to a negative news relating to the stock.

‍

19. Technical Analysis

This is the method of analyzing the share markets solely on the basis of price movements and the chart patterns formed because of the price movements on a hourly, daily, weekly or a monthly basis.

‍

20. Fundamental Analysis

Fundamental analysis is the method of evaluating and predicting the stock price movements based on the financials and performance of the particular company, its sector and economy in general.

‍