Do you wish to invest in the stock market but fail to understand it’s technicalities? Well, you don’t have to worry as today we have bought to you a glossary of fifty stock market terms. This will help you understand the mechanism of the stock market and establish a strong foundation before you dive deep into the pool of investing.
In this article, we have covered a detailed list of stock market terms from the extreme basic to the advanced level. So let us begin.
1. What is the stock market?
A stock market is a place where buyers and sellers interact to trade in shares of a publicly listed companies. When you buy a share, you become a part owner of the company.
शेयर बाजार एक ऐसी जगह है जहां खरीदार और विक्रेता कंपनी के शेयरों में व्यापार करने के लिए बातचीत करते हैं। जब आप एक शेयर खरीदते हैं, तो आप कंपनी के एक हिस्से के मालिक बन जाते हैं।
Recommended reading: What is a stock market and how does it work?
2. What is a Share?
A share indicates a unit of ownership in a particular company. As a shareholder of a company, you hold a percentage of ownership of the company and are liable for the company’s profits and losses. You also get the additional benefits such as dividends, bonus shares and rights issue.
Recommended watch: What is a share?
3. What is a Stock?
A stock is the collection of shares of a single company or collection of shares of multiple companies.
स्टॉक एक कंपनी के शेयरों का संग्रह या कई कंपनियों के शेयरों का संग्रह है।
BSE meaning in Hindi:
बॉम्बे स्टॉक एक्सचेंज (बी.एस.ई) भारत का सबसे पुराना और सबसे बड़ा प्रतिभूति बाजार है| जिसे 1875 में शुरू किया गया था। आज की तारीख में 5,400 से ज्यादा स्टॉक्स का व्यापार बी.एस.ई. पे होता है।
The National Stock Exchange (NSE) was established after the Harshad Mehta Scam in 1992. It is a leading stock exchange in India and fourth largest in the world. Over 1,600 stocks are listed on NSE.
NSE meaning in Hindi:
एन. एस. ई., बी.एस.ई. की तरह स्टॉक एक्सचेंज जिसकी स्थापना १९९२ में हुआ था| भारत और दुनिया में एन. एस. ई. सबसे ज्यादा और सबसे विकसित स्टॉक एक्सचेंज है|
6. Nifty or Nifty 50
Nifty 50 is a basket or collection of the 50 largest most active stocks listed on NSE. It helps investors gauge the overall market sentiments. The term Nifty 50 is a combination of National Stock Exchange and Fifty (50).
Nifty or Nifty 50 meaning in Hindi.
निफ़्टी या निफ़्टी ५० एक इंडेक्स है , जिसे एन. एस. ई.इस्तमाल करता है पूरे भारतीय स्टॉक मार्किट वर्तमान स्तिथि को दर्शाने के लिए |
7. Sensex or Sensex 30
Sensex is BSE’s flagship index. It is a basket of 30 biggest, most actively traded stocks listed on the BSE. The term Sensex is a combination of sensitivity index.
Sensex or Sensex 30 Meaning in Hindi:
सेंसेक्स ३० इंडेक्स का इस्तमाल बी.एस.ई. करता है जो स्टॉक मार्किट के वर्तमान दशा को अंकित करता है | इसकी गणना में ३० शेयर्स का इस्तमाल किया जाता है |
8. Demat Account
Demat or Demat Account is an electronic account which holds financial assets like shares, mutual funds, ETFs, bonds, sovereign gold bonds, ULIPs etc. in digital form. A demat account is opened with a broker like Samco Securities, which is India’s best stockbroker.
Demat Account Meaning in hindi:
डीमैट अकाउंट एक ऐसा अकाउंट है जिसमे शरधारको का शेयर्स की सारी जानकारी होती हैं | भारत में NSDL और CDSL दो प्रमुख कंपनी है जो
डीमैट अकाउंट को मेन्टेन करती है और इसे सामान्य शेयरधारको से बैंक और स्टॉक ब्रोकर जोड़ता है |
A collection of investments owned by the investor is called portfolio. An investor may have just one stock or multiple securities in a portfolio. It contains a diverse range of financial instruments like shares, bonds, futures, options, etc.
A derivative is a financial instrument that derives its value from the underlying asset or group of assets. Futures and options are examples of derivatives. Usually, underlying assets are market indexes, shares, commodities, currencies..
Futures are financial contracts to buy or sell an asset at an agreed-upon future date at a predetermined price. They are often used to protect against price fluctuation of the underlying asset or help prevent or minimise losses from unfavourable price movements. It can also be used as a leveraged to speculate on the price movement of the underlying asset and profiteer from it.
Futures contract are traded in lot sizes having different expiry dates and set prices that are known to the investor at the time of the contract itself. There are many types of futures contracts, such as commodity futures, stock futures, currency futures, etc.
Recommended reading: A detailed guide on future contracts
Options are financial contracts that provide the buyer the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before the maturity date. Options are traded in lots. The specified price is known as the strike price. The amount paid in exchange for acquiring the right to buy or sell the underlying asset is known as option premium. In case the buyer does not exercise this right, his loss is limited to the option premium, he has paid. In case of the seller, the potential losses that can be incurred by him are limitless; however, the profit is limited to the option premium paid by the buyer in case the buyer refuses to exercise his right. There are two types of options: Call options and Put options.
Recommended reading: A detailed guide on options
13. Call Option
A call option gives the buyer the right but not the obligation to buy an underlying asset at the strike price on or before the expiry date. The buyer of a call option speculates that the market is bullish, and the prices of the underlying asset will increase. If at the expiry date, the price of the underlying asset is below the strike price, the buyer refuses to exercise his right. His loss is limited to the premium paid. If the price of the underlying asset is above the strike price, the profit is the current stock price minus the strike price, multiplied by the lot size, with the premium deducted as a cost of the call option.
14. Put Option
A put option gives the buyer the right but not the obligation to sell an underlying asset at the strike price on or before the maturity date. The buyer of the put option expects the price of the underlying asset to go down. If the price of the underlying asset is below the strike price, the gain is the difference between the strike price and current price of the stock, multiplied by the lot size. In case the strike price is above the stock price, the buyer loses the premium paid.
15. Open Interest
Open interest refers to the total number of outstanding derivative contracts that are yet to be settled. From the time the buyer and seller initiate the contract until the counter-party closes it, the contract is termed to be open. Open-interest provides an accurate picture of the derivatives trading activity and whether the money rolling in the derivative market is rising or declining.
Recommended reading: What is open interest and how to check open interest?
16. Annual Report
Annual Report is the financial assessment of the company. It provides a sneak peek at the financial condition and operations of the company. Annual report is intended to provide shareholders with in-depth knowledge of various parameters that constitute the performance of the company in a specified financial year. It is an overview of the company’s operations and its intended or unintended results in the past or previous financial year.
The annual report is scrutinised by investors to determine the future potential of the company based on past performance. Annual reports contain a basic description of the industries the company is part of, audited statements of income, financial situation, cash flow, and may even include management’s discussion and analysis, the market price of the stock and dividends paid. It can be described as the resume of the company with reference to the previous financial year.
Recommended reading: What is annual report and how to check annual reports?
Arbitrage is the simultaneous purchase and sale of the same securities in different markets to benefit from the momentary price variations prevailing in different markets. Arbitrage ensures that the minor price differences in the same securities in different markets are eliminated, leading to uniformed prices across market exchanges.
18. Averaging down
Averaging down is carried out when the investor acquires more stock as the price of the stock steadily declines after the initial purchase, resulting in lower average cost per share. It is undertaken by an investor when he feels that the share is trading lower than the perceived value, and the general consensus of the market is wrong.
19. Bear Market
Bear Market is the industry-specific jargon which indicates a downward trend in the overall condition of the market. It means that the cumulative market prices of the stocks listed on the stock market are declining. If the stock price of a particular stock is plunging, it’s considered to be bearish. Bear Market is typically caused by investors’ pessimism, fear and negative sentiments about the market or the economy.
20. Bull Market
Bull Market is the exact opposite of Bear Market. It means that the market is on an upward spiral. It is a result of investors’ palpable excitement and optimism about the market or the economy. It means that the aggregate market prices of the stocks are rising.
Recommended reading: What is bull and bear market?
21. Active Return
Active Return refers to the excess returns generated by the portfolio as compared to the benchmark, index or market as a whole. Active returns are the additional returns outside the purview of the portfolio exposure to risks and returns to the investments benchmark, index or market and is a consequence of the portfolio’s strength and the active management decisions taken by the portfolio manager, i.e. the deliberate decision to underweight or overweight the assets.
Volatility refers to the degree or the extent in fluctuation in the prices of the stock. Highly volatile stock witness abnormal highs and lows during the trading session, while low volatile stocks experience ups and downs to a lesser degree. Investing in highly volatile stocks can result in enormous gains or tremendous losses.
Beta measures the volatility in the prices of the stock as compared to the overall movement of the market.. If the stock has a beta value of 2, it means for every 1 point change in the entire market, the prices of the stock change by 2 points. So if the stock market declines by 1 point, the price of the stock will decrease by 2 points and vice-versa. The beta is an important measurement to gauge the risk a stock is adding to a portfolio. High beta stocks are risky as they are more volatile to the swings of the market; however, there is a higher return potential. Similarly, low beta stock presents a lower risk but correspondingly lower returns as well.
Alpha is the relative return on investment as compared to the overall market, or the benchmark index. Alpha shows how well or poorly a stock has performed in comparison to the overall market. Sometimes, a stock may provide a nominal rate of return such as 5% but that 5% would be the result of the general movement in the market and not an actual barometer of the performance of an investment. Hence, Alpha is a precise measurement of performance of a stock independent of the market movements. Alpha tracks the historical active return of an investment. Therefore an Alpha of 10% means that the investment outperforms the overall market by 10%. Similarly, -10% means that investment underperforms the overall market by 10%.
25. Blue Chip Stocks
Blue Chip stocks belong to the top 100 well-established companies which have high market capitalisation with an array of high-quality, widely accepted products and services. These companies often have a history of providing hefty dividends to their shareholders and are appreciated for their sound and effective management practices. They often drive and lead the market in times of a booming economy and optimistic investors’ sentiments. Blue chip stocks have an envious record of stable and reliable growth in the times of adverse market conditions and economic downturns. They represent a significant chunk in the stock market, and the movement in the prices of these stock can have outsized ramifications on the overall trend of the market.
The broker is an intermediary between the stock exchange and the investors or traders who facilitate the transfer of funds and shares in exchange for a commission. A broker is a middleman that facilitates the trade between the buyers and sellers. A broker can also refer to a firm when it acts as an agent of the investors and arranges transaction between the buyers and sellers. The firm charges specific fees for these services.
The bid is the maximum amount a buyer is willing to pay to acquire a stock. A buyer may purchase stock only if the price does not exceed the bid price he has placed.
Ask is the minimum amount a holder of a security is willing to sell for. A seller will sell the security only if the bid price matches or exceeds the ask price.
The close refers to the time when all the trading and investing activities ceases. The closing time of the stock markets in India is 3.30 pm. The closing prices of the day are determined during this time which has a significant bearing on the next day’s opening price.
Recommended reading: 40 commonly used trading terms you must know
30. Absolute Returns
Absolute Return is simply the rate of return on an investment attained over a specific period. It basically measures the gain earned, and loss suffered expressed as a percentage over the initial investment over a particular period.
Recommended watch: How to calculate returns on Mutual funds?31. Compound Annual Growth Rate
Compound Annual Growth Rate is the annual rate of return earned by the investor. CAGR will help you evaluate the yearly return on an investment compounded annually throughout the duration of the investment. CAGR considers the time value of money as opposed to absolute returns.
32. Internal Rate of Return
Internal Rate of Return is the rate at which the future cash flows are discounted to arrive at the net present value of 0. The Internal rate of returns assumes that the cash flows are periodic increments to an investment. It is an important metric to estimate the profitability of potential investments.
33. Extended Internal Rate of Return (XIRR)
Extended Internal Rate is the internal rate of return on total investment in case of inconsistent cash flows because of erratic increments and redemptions occurring throughout the investment lifespan. XIRR is applicable when there are cluttered and multiple transactions occurring at various times spread over a period of time. Hence, External Internal Rate of Returns reflects the real-life scenarios as compared to Internal Rate of Return when it comes to mutual funds.
A dividend is an amount distributed to the shareholders of the company, in proportion to the shares held by them. A dividend is the reward to the shareholders for placing trust in the management and believing in the potential of the company through the invested amount, and it often originates from a company’s net profits. However, the distribution of dividends is not guaranteed; a company can keep the entire profit to itself as retained earnings. The investor may choose to reinvest the dividends and increase his shareholdings in the company or may choose to receive it in cash. Also, a company may still distribute dividends even if it has not made any profits just to maintain the established and steady record of making periodic dividend payments.
Recommended reading: What is dividend?
Stock Market Index typically tracks the aggregated movement in the prices of all the shares listed in the stock market as compared to the previous day prices to determine the market performance. It may also track the cumulative movement in the prices compared to the past prices of a hypothetical portfolio of a basket of securities belonging to a particular industry or collated and grouped based on market capitalisation. It serves as an indicator of changes in the stock market. The index serves as a benchmark for evaluating the active returns of a portfolio. It serves as a reference against which to assess the performance of a portfolio.
36. Initial Public Offering
Initial Public offering is the initial offering or sale of securities to the public. Here the owners or private investors sell their ownership in the company and offer it for sale to the public. IPO is the route for the companies to raise capital for future growth and development. Initial Public Offering is one of the main reasons for the existence of the stock market.
Recommended reading: Detailed guide on IPO
Leverage in the stock market means borrowing capital to invest in more shares than one is financially capable of buying with the singular motive to boost profits. Leverage means amplification of comparatively smaller investment force into a correspondingly greater profit. Leverage can result in exponential gains; however, it can also result in massive losses. Explore leverage products provided by Samco by clicking here.
A margin account allows the investor to borrow money from the broker to buy additional securities. The difference between the total value of securities in the investor’s Demat account and loan taken from the broker is called margin. Trading on margin is leveraging funds to its utmost use by purchasing additional securities than one can afford. Hence for a relatively smaller amount, you can buy a correspondingly greater amount of securities. However, like any leverage, it can result in massive profits but also can result in significant losses.
39. Initial Margin
Initial Margin is the amount that the buyer must transfer before he can borrow money from the broker or before the broker can lend him the money to buy additional securities. This is the mandatory amount that the buyer is obliged to transfer before he can buy more securities on margin. Initial Margin is calculated as a percentage of the total value of shares in the investor’s Demat account. E.g., if the buyer wants to invest in 100 shares worth Rs 20, but he cannot afford Rs 2,000, and he has a margin account with the broker where the initial margin requirement is 50%; he is required to pay Rs 1,000 upfront to the broker before the broker lends him the balance amount, i.e. Rs 1,000.
40. Maintenance Margin
Maintenance Margin is the minimum amount the buyer must maintain in order to keep the position open. The maintenance margin is calculated as a percentage of the total investment at the time of purchase, and the investor must ensure that the market value of the assets doesn’t fall below the maintenance margin after deducting the margin requirement. Continuing with the previous example, let’s say the maintenance margin for Rs 2,000 investment is 40% of the total value, i.e. Rs 800. Now if the price of the stock drops to Rs 15, then after accommodating the investor’s 50% margin requirement, i.e. Rs 750, the balance left is Rs 750. Hence there is a deficit of Rs 50, for the required maintenance margin. In such a case, the buyer must deposit additional funds to restore the account to the maintenance margin or liquidate certain positions in order to meet the maintenance margin requirements.
41. Margin Call
Margin Call is the intimation provided by the broker to the seller that the value of the borrowed funds has fallen below the maintenance margin and the buyer must either add more funds to the account or sell off some assets to provide for the difference between the equity share’s current price and the maintenance margin. If you do not meet the margin call, then the broker will sell off some open positions to bring the account to maintenance margin requirement.
42. Moving Average
Moving Average is the average price per share for a specific period of time. Some standard time frames are 200 days, 100 days and 50 days moving averages.
Recommended reading: What is moving average in technical analysis?
43. Short Selling
Short-selling means selling equity shares that the investors don’t own and are not present in their Demat account. But the investor must cover his position before the close of the day. So if the price of the stock that the investor has shorted falls, the investor can buy the shares at a lower price than the price he had sold them and make a profit.
However, if the price of the stock that the investor has shorted rises, the trader must honour the obligation of buying back the shares before the clearing period irrespective of a higher price point and suffer a loss. Short-selling is based on the speculation that the market is bearish, and the prices of the shares will fall. The investor profits from declining prices of stock.
Recommended reading: Beginners guide to short selling
44. One-sided market
It refers to rare occurrences wherein a market contains only potential buyers and potential sellers without both being present simultaneously. It is a situation where the market is heading in only one direction. In such a case, the market makers quote only the bid price or only the ask price.
Pyramiding is a method of leveraging the hiked up margin to increase the position size with the appraisal in the margin obtained by utilising the unrealised profits from the increment in the value of current holdings of the same security. The investor who uses pyramiding uses the increased unrealised value of the current holdings to buy more of the same security. This is usually a slow method of increasing one’s position size as opposed to purchasing securities on cash as the margin increments allow for smaller purchases.
46. Growth Stocks
Growth stocks are considered to have the potential and the ability to outperform the market in the future. Growth companies have generated considerable, sustainable, and better-than-average returns in the market and are expected to continue providing substantial returns. In simple words, growth stocks are backed by healthy and consistent earnings and robust performance in the past and are touted to continue their growth pattern in the future as well.
Recommended watch: What are growth stocks and how to analyse growth stocks?
47. Value stocks
A value stock is a stock that the investor feels is trading at a market price below their intrinsic value. Value stocks are considered undervalued but are expected to reach its real inherent value. Value investing means uncovering the actual intrinsic value of the stocks through evaluation of financial statements, often ignored intangible assets, of the concerned company then develop the patience to wait for the prices to fall below their intrinsic value. Investors purchase value stocks when they are trading below their intrinsic value and sell them when the prices reach their true worth. Intrinsic value is the net present value of all future cash flows expected to be generated through the lifespan of the business. Warren Buffet, the legendary investor, is the most successful practitioner of value investing.
Recommended watch: What are value stocks and how to analyse value stocks?
48. Large-cap stock
Large-cap stocks are stocks of well-established companies with a market capitalisation above Rs 20,000 crores. Large-cap stocks are generally considered to be low-risk as they have a strong presence in the market, and have a history of providing potent and stable returns. Information about large companies is easily accessible. Most of the companies disclose timely information about the operations, products, expansion plans through media such as newspapers.
Recommended reading: What are large cap stocks and top 7 large cap stocks to buy in India now.
Recommended watch: How to analyse large cap stocks?
49. Mid-cap stocks
Mid-cap stocks are stocks of companies with a market capitalisation between Rs 5,000 crores and 20,000 crores. Mid-cap stocks attract investors as they provide the possibility of earning exponential returns in the long-term. However, mid-cap companies are discrete about the internal operations of the company and expansion plans, as they endeavour to trump over the competition, and hence are furtive about the information of the company. This makes it cumbersome for the investors to judge the potential of the stocks. Therefore, conservative investors stay away from such stocks.
Recommended reading: What are mid cap stocks and top mid cap stocks to buy in India now.
Recommended watch: How to analyse mid cap stocks?
50. Small-cap stocks
Most small-cap companies are early start-ups and entrepreneurial ventures that present the opportunity to earn astronomical returns. Understandably they are companies with inconsistent returns and low revenues. Many of these companies can go bust. But at the same time, many such companies are unicorns that are trading abysmally below their intrinsic value. The information about these companies is not readily available. Hence these small-cap stocks are a winner for investors with a long investment horizon and an appetite for high risks.
Recommended reading: What are small cap stocks and best small cap stocks to buy in India
Recommended watch: How to analyse small cap stocks?
Securities Exchange Board of India is the regulator that oversees the stock market in India. It provides a platform for investors and traders to trade efficiently, and for companies to raise capital fairly. It protects the interests of the investor and ensures accurate information is provided to the investors. It curbs fraudulent activities that can sink the stock market and obliterate the investors and traders wealth. It ensures that the company has prepared the financial statements with due diligence, and no incorrect information is provided to deceive the investors. It establishes a code of conducts for brokers, intermediaries and investors.
Now that you know these terms, you can go ahead and open a demat account with Samco to start trading and investing.
1. We have covered a lot of stock market abbreviations and their full form used in stock markets
2. Understanding the stock market terminologies , and possessing a sound knowledge of the stock market universe.
3. You are ready and equipped to open a Demat account with Samco securities to start investing and trading. Make us a part of your investing journey!