Basic Stock Market Terminology


Stock markets terminology is very important to learn, as experts and amateurs frequently use these terms. So, to understand the trading strategy, terminology & patterns you must be aware of these terms in order to trade and perform well in stock market and understand its basics.

Basic terms you must learn

  • Agent

An agent is a brokerage firm which do buying and selling on behalf of the investors in stock market.

  • Ask/Offer

It refers to the price at which the shareholder of a company is ready to sell his shares in stock market.

  • At the money

Under this scenario, the strike price of an option is equal to the price of the underlying asset which it represents.

  • Stock Broker

The person/professional who is selling and buying in stock market on behalf of trader and investor and in lieu gets commission. A stock broker is registered as a trading member with the stock exchange and holds a stock broking license. They operate under the guidelines prescribed by SEBI.

  • Bear Market

It refers to scenario where stock market and its shares are continuously falling.

  • Bull Market

It refers to scenario where stock market and its shares are increasing for a prolonged period of time.

  • Beta

It measures the association between price of one share and the overall movement of stock market. Beta of stock market is assumed to be 1 (One). A stocks beta of more than 1 (One) shows a higher risk than that of stock market. A beta of less than 1 show that stock is less riskier than the stock market.

  • Bid

Price which buyer of a stock is ready to pay for a particular stock.

  • Blue Chip Stock

These are equity shares of companies which are well-established and financially stable. These generally have a relatively huge market capitalization.

  • Bonds

A bond is a fixed income investment which is issued by the government or a company to its buyers. It shows a specified amount which an investor lends to the issuer of the bond for a specified period of time at a variable or fixed interest rate.

  • Book

It is an electronic book/record which contains all the buy and sell order history of a particular stock which have remained pending.

  • Call Option

In this, the buyer of the option gets a right not an obligation to purchase the underlying asset at a specified price and time.

  • Close Price

This is the final price of a stock in stock market at end of a trading day at which stocks of a company are traded or sold.

  • Convertible Securities

It is a security like preferred stocks, bonds, debentures which are issued by an issuer capable of being converted into other securities of that issuer.

  • Debentures

It is a form of fixed-income instrument which is not backed by security of any physical assets or collateral of the issuer.

  • Defensive Stock

These are stock that earns a constant amount of dividend even at the time of recession.

  • Delta

A delta relates to the ratio of change in the price of a derivative in response to change in the price of the underlying asset. A higher delta suggests higher sensitivity of the delta to the price changes in the underlying asset.

  • Face value

It relates to the amount of money or the value in cash that the holder of a security will obtain from the issuer of the security when the security matures at the specific date.

  • Moving Average

It refers to the average price of an equity share with respect to a specific period of time. Some popular time frames emphasis on 30 day and 200-day moving averages.

  • One-sided Market

It refers to a situation where in a market only contains potential sellers/ buyers instead of both being present simultaneously. Market makers show only the bid price or an offer price indicating that market is heading in one direction.

  • Spread

It refers to the difference between the bid and the ask prices of an equity share. You may perceive it as the difference between the amount at which you would like to buy and the amount at which you would like to sell a stock.

  • Volatility

It refers to the fluctuations in the price of an equity share. Highly volatile stocks witness severe ups and downs during trading session.

  • Volume

It shows the no. Of shares traded upto a particular point of time in stock market for a particular stock.

  • Yield

You may use the yield to calculate the return on an investment which you get after receiving dividend on a share. You can find the yield by dividing the annual amount of dividend by the price paid for the stock.

  • Domestic Retail Investors

These are individuals who transact in the markets.

  • Domestic Institutional Investors (DII)

These are large corporate entities based in India (For example: LIC of India).

  • Foreign Institutional Investors (FII)

FIIs are Non-Indian corporate entities such as foreign asset management companies, hedge funds and other investors.

Also Read : Beginners Guide to Stock Market

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