The
Stock Market has its own vocabulary which may seem very complex for beginners. Here is a list of these commonly used terms to help you better understand the world of Trading and Investing in the Stock Market -
What is a Bull Market?
When the sentiment of the market is positive and the market participants believe that the prices of the shares are going to rise, that phase is referred to as the Bull Market.
What is a Bear Market?
When the sentiment of the market is negative and the market participants believe that the prices of the shares are going to fall, that phase is referred to as the Bear Market.
What is Going Long?
Going Long means that you have entered into a Buy position. In this situation, you are hoping to benefit from a rise in share prices.
What is Going Short?
Going Short means that you have entered into a Sell position. In this situation, you are hoping to benefit from a fall in share prices.
What is Squaring off?
When you set off or close an existing position, it means that you are squaring off your position. Squaring off is nothing but the act of closing your position and booking a profit or loss.
What is Long Unwinding?
Long Unwinding means selling or squaring off an existing long position. This action is done either to book profits on a long position or to exit a long position in anticipation of bearishness.
What is Short Covering?
Short Covering means buying back or squaring off an existing long position. This action is done either to book profits on a short position or to exit a short position in anticipation of bullishness.
What is Opening Price?
Opening Price is the first price at which a stocks trades on opening of the exchange.
What is Closing Price?
Closing Price is the last price at which a stock trades at in a particular session. This makes it the most recent price of a stock until the next trading session. However, in Indian equities, closing price is calculated as the weighted average price of the last 30 minutes.
What is the Day’s High & Low Price?
It is the Highest & Lowest price at which a stock trades during that particular trading day respectively.
What is 52 Week High/Low?52 week high is the highest point at which a stock has traded during the last 52 weeks (which also marks a year) and likewise, 52 weeks low marks the lowest point at which the stock has traded during the last 52 weeks.
What is All Time High/Low?
Similar to 52 Week High/Low, the All Time High price is the highest price the stock has ever traded since it got listed. Similarly, All Time Low price is the lowest price the stock has traded since it got listed.
What is Volume?
Volume is the total number of shares that were traded during a particular time period. The word “traded” includes shares that were both bought and sold. For example, if A buys 100 shares of XYZ Ltd from B, the Volume which got traded for XYZ Ltd is 100 shares.
What is an IPO?
IPO stands for Initial Public Offering and is the process through which a private company goes public by selling its stocks to the general public for the first time.
What is Liquidity?
Liquidity is the ease with which you can convert a particular asset into cash. For example, Bonds with a fixed maturity of 1 year, 3 years, 5 years etc are not very liquid assets as we cannot convert it into cash until its maturity. On the other hand, stocks listed on the Stock Exchange are relatively more liquid assets as they can be sold and converted into cash with ease
What is Volatility?
Volatility in simple words refers to Fluctuations in the Price of a stock. Highly volatile stocks witness very severe up and down movements during trading sessions whereas less volatile stocks witness a lower degree of up and down movements. The concept of Volatility is very important when learning to Trade Options
What is Beta?
Beta measures the volatility of a particular stock in relation to an Index. For Example, if the stock of XYZ Ltd has a Beta Value of 2, it means that for every 1% change in the Index, the stock price of XYZ Ltd will change by 2%
What is Upper/Lower Circuit?
In order to protect the Investors from excessive volatility, the Stock Exchange sets up a price band within which a stock can be traded on a particular trading day. The highest price the stock can reach that day is called the Upper Circuit and the lowest price is called the Lower Circuit. These restrictions help in controlling excessive volatility when stock prices react to the latest news relating to the economy, the company etc
What is Delivery?
Stock Exchanges in India follow a T+2 settlement process. This means that when you buy or sell shares, the shares will be either be credited or debited to the Demat account in the next 2 working days. Thus the act of receiving shares into the Demat account is known as taking Delivery of Shares.
What is an Intraday Position?
An Intraday Position is a trade that is usually initiated in the early market hours with the expectation of squaring off the trade before the market closes. In this type of a trade, you do not take delivery of shares.
What is Tick Size?
Tick size can be defined as the minimum price movement a security can show on an exchange. The price of a security always moves in multiples of the tick size on an exchange. For Example, if a stock has tick size of Rs. 0.10 and it is trading at Rs. 100, then the next ideal movement can be 100.10, 100.20 or even 99.90. However it will never be 100.02 or 99.96 as the tick size is only in multiples of 0.10
What is Averaging?
Averaging is buying additional shares after the original investment is made, if the price of the shares starts to decline. The Additional Investment would be done at a lower price which would thus reduce the Average Cost of the total investment. This is beneficial to reduce losses in case the price falls even lower or to increase gains in case the price moves upwards
What is Market Lot or Lot Size?
This is a term used while dealing in contracts in the derivative market. Market Lot or Lot Size represents the minimum quantity to be bought or sold in order to deal in a particular derivatives contract. For Example, if 1 Futures contract of XYZ Ltd has a lot size of 50 shares, it means that you have to deal with a minimum of 50 shares to get exposure in that particular futures contract
What is Margin?
Margin, in simple words, means a loan taken by the Investor from his/her stock broker. It is not like a traditional bank loan with interest, rather it is in the form of credit given by the stock broker. Margin requires you to deposit either cash or securities with your stock broker as collateral. Based on the value deposited, you will be credited with the margin that can be used for margin trading
What is Margin Trading?
Margin Trading is simply buying and selling securities on margin. Here, the trader does not actually pay money to buy, or receive money to sell the security, only the settlement amount is credited or debited to the traders account. This practice of margin trading is commonly used for Intraday Trading where the settlement amount is reflected in the traders account at the end of the day. It is also used while trading Futures and Options.
What is Market Capitalization?
Market Capitalisation is nothing but the market value of the company. It is calculated by multiplying the current market value of the company by the number of shares in issue. For Example, if the Current Market Price of XYZ Ltd is Rs. 100 and it has 1 Lakh shares in issue,
Market Capitalisation = Rs. 100 x 1 lakh shares = Rs. 1 crore
What is Bid and Ask?
Bid is the amount a buyer is willing to pay for a security, while Ask refers to the amount the seller is willing to receive to sell the security
What are Block and Bulk Deals?
A Block Deal is a transaction between 2 parties where either the minimum quantity of shares exchanged is 5,00,000 or the minimum transaction value is Rs. 5 Crores (or Rs. 50 Million). A Bulk Deal on the other hand is a trade where the total quantity of shares bought or sold is more than 0.5% of the number of shares of a listed company.
These deals help give the market participants a perspective of the big investors’ interest in a particular stock
What is Hedging?
To put it in simple words, Hedging is an alternate investment made in addition to the original investment which is intended to set off potential losses that may be incurred on the original investment
What is Over-the-Counter?
Over the Counter Trading is a transaction between 2 parties which is carried out directly without any centralized exchange or broker. Thus without any exchange, such transactions are not regulated.
