10 Important Stock Market Terminologies – Examples and PDF Download

If you’re new to the world of investing, the stock market can seem overwhelming with its own language of technical terms and jargon. However, understanding these terms is essential to making informed decisions and maximizing your returns. In this article, we will provide you with a beginner’s guide to 10 important stock market terminologies and their meaning.

The stock market a.k.a share market in India may be confusing and daunting, and it is filled with jargon and technical phrases that can be challenging to comprehend. Here are some frequently used Stock Market Terminologies.

If you are looking for a Share Market Terminologies PDF for your reference, then you can bookmark this page for future reference.

Consider reading – Investing for Beginners guide in India.

Stock Market Terminologies Covering Broader Market Concepts

High-level share market terminologies that most people use while having conversations about the stock market:

1. Stock: A stock is a financial instrument that represents a share of ownership in a company. When you buy a stock, you are buying a small piece of the company, and are entitled to a share of the company’s profits and losses. Examples of stocks are Reliance, TCS, ITC, etc.
2. Stock exchange: A stock exchange is a marketplace where stocks are traded and bought and sold. The stock exchange is where investors can buy and sell stocks, and where the prices of stocks are determined. Stock exchanges in India are NSE(National Stock Exchange) and BSE (Bombay Stock Exchange)
3. Market capitalization: Market capitalization, or market cap, is a measure of the size and value of a company. The market cap is calculated by multiplying the number of shares outstanding by the current market price of the stock.
4. Dividend: A dividend is a payment made by a company to its shareholders, out of the company’s profits. Dividends are usually paid on a regular basis, such as quarterly or annually, and can be a source of income for investors.
5. Bull market: A bull market is a market where prices are rising and investors are optimistic. A bull market is typically characterized by rising stock prices, high investor confidence, and strong economic growth.
6. Bear market: A bear market is a market where prices are falling and investors are pessimistic. A bear market is typically characterized by falling stock prices, low investor confidence, and weak economic growth.

Consider reading – Best dividend paying stock in India

Financial Statements Terminologies for a Company or Stock

Financial statements are an important tool for understanding and analyzing a company’s financial performance and situation.

Financial statements provide a detailed picture of a company’s revenues, expenses, assets, liabilities, and equity, and are used to assess the company’s financial health and stability.

Here are some common Stock Market Terminologies involving financial statements and their definitions:

1. Income statement: The income statement, also known as the profit and loss statement, is a financial statement that shows the revenues, expenses, and net income of a company over a specific period of time, such as a quarter or a year. The income statement provides information about the company’s profitability and performance.
2. Balance sheet: The balance sheet is a financial statement that shows the assets, liabilities, and equity of a company at a specific point in time. The balance sheet provides information about the company’s financial position and is used to assess the company’s financial stability and health.
3. Cash flow statement: The cash flow statement is a financial statement that shows the inflows and outflows of cash and cash equivalents over a specific period of time. The cash flow statement provides information about the company’s liquidity and ability to generate cash and is used to assess the company’s financial health and stability.
4. Revenue: Revenue is the total amount of money that a company earns from its operations and sales. Revenue is a key measure of a company’s performance and is used to assess the company’s profitability and growth.
5. Expense: An expense is the cost of goods or services that a company incurs in the process of generating revenue. Expenses are deducted from revenue to calculate the company’s net income.

Financial Indicator Terminologies for a Company or Stock

There are many different financial indicators that are used to measure the health and performance of a company.

These indicators provide valuable insights into a company’s financial situation and can be used to assess the company’s strengths and weaknesses and to make informed investment decisions. These are some important Stock Market Terminologies you will hear most investors talk about.

Here are some common Stock Market Terminologies involving financial indicator and their definitions:

1. Earnings per share (EPS): Earnings per share is a measure of the profitability of a company, and is calculated by dividing the company’s net income by the number of outstanding shares of stock. A higher EPS indicates that the company is more profitable, and is, therefore, more attractive to investors.
2. Price-to-earnings ratio (P/E ratio): The price-to-earnings ratio is a measure of the valuation of a company, and is calculated by dividing the market price of the stock by the earnings per share. A lower P/E ratio indicates that the stock is undervalued, and may be a good investment opportunity.
3. Return on equity (ROE): Return on equity is a measure of the efficiency of a company, and is calculated by dividing the net income by the shareholder’s equity. A higher ROE indicates that the company is using its resources effectively, and is generating higher returns for its shareholders.
4. The debt-to-equity ratio (D/E ratio): The debt-to-equity ratio is a measure of a company’s financial leverage, and is calculated by dividing the total debt by the shareholder’s equity. A higher D/E ratio indicates that the company is more leveraged, and may be riskier for investors.
5. Current ratio: The current ratio is a measure of a company’s liquidity, and is calculated by dividing the current assets by the current liabilities. A higher current ratio indicates that the company has more liquidity, and is, therefore, more able to meet its short-term financial obligations.

Consider reading: Zero debt companies in India.

Stock Market Terminologies When You Buy or Sell a Stock

When you buy or sell a stock, there are many different terminologies that you need to be familiar with in order to understand the process and make informed investment decisions.

Here are some common Stock Market Terminologies used when buying or selling a stock, and their definitions:

1. Buy: When you buy a stock, you are purchasing a share of ownership in a company. Buying a stock gives you a claim on the company’s profits and losses, and entitles you to a share of the company’s assets and liabilities.
2. Sell: When you sell a stock, you are selling your share of ownership in a company. Selling a stock means that you are giving up your claim on the company’s profits and losses, and are entitled to receive the market value of your shares.
3. Market order: A market order is an order to buy or sell a stock at the current market price. Market orders are executed immediately, and are typically used when you want to buy or sell a stock as quickly as possible.
4. Limit order: A limit order is an order to buy or sell a stock at a specific price. Limit orders are not executed immediately, but are instead executed when the stock reaches the specified price. Limit orders are typically used when you want to buy or sell a stock at a specific price, rather than at the current market price.
5. Stop loss order: A stop order is an order to buy or sell a stock when it reaches a specific price. Stop orders are not executed immediately, but are instead executed when the stock reaches the specified price. Stop orders are typically used to limit losses or to protect profits.
6. Short selling: Short selling is the process of selling a stock that you do not own, with the intention of buying it back at a lower price in the future. Short selling is a risky strategy and can result in significant losses if the stock price goes up instead of down.

Stock Market Terminologies for Derivatives Trading

Derivatives are financial instruments that derive their value from the value of another asset, such as a stock, bond, or commodity.

Derivatives are traded on financial markets and are used to hedge risk or to speculate on the price movements of underlying assets.

Here are some common Stock Market Terminologies used for derivatives trading, and their definitions:

1. Future: A future is a type of derivative that gives the holder the obligation to buy or sell an underlying asset at a specific price on a specific date in the future. Futures are commonly used to hedge against market risk or to speculate on the price movements of underlying assets.
2. Option: An option is a type of derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a specific date. Options are commonly used to hedge against market risk or to speculate on the price movements of underlying assets.
3. Call option: A call option is an option to buy an underlying asset at a specific price on or before a specific date. Call options are typically used when an investor expects the price of the underlying asset to go up.
4. Put option: A put option is an option to sell an underlying asset at a specific price on or before a specific date. Put options are typically used when an investor expects the price of the underlying asset to go down.
5. Strike price: The strike price is the price at which the option can be exercised. For a call option, the strike price is the price at which the holder can buy the underlying asset. For a put option, the strike price is the price at which the holder can sell the underlying asset.
6. Expiration date: The expiration date is the date on which the option expires, and can no longer be exercised. Options typically expire on the third Friday of the month but can have different expiration dates depending on the terms of the option.

What is IPO in the Stock Market?

An IPO, or Initial Public Offering, is the process by which a company raises capital by selling shares of stock to the public.

An IPO is a significant event for a company, as it marks the first time that the company’s shares are traded on a public stock exchange.

The IPO process typically involves the following steps:

1. The company hires an investment bank to act as the underwriter of the IPO. The underwriter is responsible for determining the offering price of the shares, and for marketing the IPO to potential investors.
2. The company files a prospectus with the securities regulator, which contains detailed information about the company, its business, its financials, and its management team. The prospectus is an important document, as it provides potential investors with information about the company and its risks.
3. The underwriter conducts a roadshow, where the company’s management team meets with potential investors to discuss the company’s business and its prospects. The roadshow is an important part of the IPO process, as it helps to build investor interest and to determine the offering price of the shares.
4. The company sets the offering price of the shares and begins the process of selling the shares to the public. The IPO is typically oversubscribed, which means that there is more demand for the shares than there are shares available.

What is Offer For Sale in the Share Market?

An Offer for Sale, also known as a secondary offering, is when a company sells additional shares of stock to the public.

OFS vs IPO: Unlike an IPO, where new shares are created to raise fresh capital, an OFS involves selling existing shares, making it a secondary market activity.

Steps in the OFS Process:

1. Hiring an Underwriter: The company collaborates with an investment bank, appointing it as the underwriter. This entity plays a crucial role in setting the share price and marketing the OFS to potential investors.
2. Filing a Prospectus: A detailed prospectus is filed with the securities regulator. This document is vital as it offers insights into the company’s operations, financial health, and management, guiding investors to make informed decisions.
3. Conducting a Roadshow: The management team embarks on a roadshow, engaging with potential investors to showcase the company’s potential and business strategy. This step is pivotal in generating investor interest and determining the share price.
4. Setting the Offering Price: The company decides the price at which shares will be offered, followed by the actual sale to public investors. Often, OFSs witness oversubscription, indicating higher demand than the available share quantity.
5. Completing the OFS and Commencing Trading: Post the OFS, the shares are listed for trading on the stock exchange. The initial trading day often sees significant price volatility and notable trading activity.

Understanding OFS for Investors: Grasping the nuances of an Offer for Sale is essential for stock market participants. It represents an opportunity to invest in an established company, though it’s crucial to consider the potential for high volatility, especially during the initial trading period.

What are Share Buybacks, Bonus Issues, and Stock Splits in the Stock Market?

In the stock market, buybacks, bonus issues, and stock splits are three different types of corporate actions that can affect the value of a company’s shares.

1. Share Buybacks: A buyback, also known as a share repurchase, is when a company buys back its own shares from the market. Buybacks are typically used to reduce the number of outstanding shares, which can increase the value of the remaining shares.
2. Bonus issues: A bonus issue, also known as a stock dividend, is when a company issues additional shares to its existing shareholders. Bonus issues are typically used to distribute the company’s profits to shareholders, and do not require any payment from the shareholders.
3. Stock split: A stock split is when a company increases the number of outstanding shares by dividing each share into multiple shares. For example, a 2-for-1 stock split would divide each share into two shares, resulting in twice as many outstanding shares. Stock splits are typically used to make the shares more affordable, and do not affect the value of the company.

What is a Rights Issue in the Share Market?

A rights issue is when a company offers its existing shareholders the right to purchase additional shares at a discounted price.

Rights issues are typically used by companies to raise capital, and the additional shares are issued at a price that is lower than the current market price.

Rights issues are typically structured as follows:

1. The company announces the rights issue and sets the offering price of the additional shares. The offering price is typically lower than the current market price of the stock.
2. The company sends a rights certificate to each existing shareholder, which gives the shareholder the right to purchase additional shares at a discounted price.
3. The shareholder has the option to either exercise the rights, and purchase the additional shares at the discounted price, or to sell the rights to another investor.
4. If the shareholder chooses to exercise the rights, they must pay the offering price of the additional shares, and the company will issue the new shares to the shareholder.

Stock Market Terminologies Used in Intraday Trading

Intraday trading is the practice of buying and selling securities within the same trading day. Intraday traders aim to take advantage of short-term price movements and volatility in the market and typically hold their positions for a few hours or less.

Here are some common Stock Market Terminologies used in intraday trading, and their definitions:

1. Margin: Margin is the amount of money that a trader must deposit with their broker in order to open a position. Margin is typically a small percentage of the total value of the position, and allows traders to leverage their capital to trade larger positions.
2. Leverage: Leverage is the ability to control a large position with a small amount of capital. Leverage is typically provided by the broker, and allows traders to amplify their returns or losses.
3. Stop loss: A stop loss is an order to close a position when it reaches a specific price. Stop losses are used to limit losses and are typically placed at a level that is below the entry price for a long position, or above the entry price for a short position.
4. Target price: A target price is a price at which a trader expects to exit a position with a profit. Target prices are used to manage risk, and are typically placed at a level that is above the entry price for a long position, or below the entry price for a short position.
5. Technical analysis: Technical analysis is the study of historical price and volume data in order to identify patterns and trends that can be used to make trading decisions. Technical analysis involves the use of various charting techniques, indicators, and oscillators, and is commonly used by intraday traders to identify entry and exit points.

Difference between Fundamental Analysis and Technical Analysis in the Stock Market

Fundamental Analysis: Delving into Financial Health

• Core Approach: Fundamental analysis is akin to a deep dive into a company’s financial health. It scrutinizes a company’s revenues, earnings, cash flow, assets, liabilities, and the competence of its management team.
• Objective: The goal is to unearth the intrinsic value of a company’s shares.
• Belief System: Fundamental analysts operate on the belief that a company’s true worth is mirrored in its financial statements. By dissecting these financials, they aim to gauge if the stock is undervalued or overvalued, guiding investment decisions.

Technical Analysis: Understanding Market Psychology through Data

• Core Approach: Technical analysis shifts focus from financials to the study of historical market data — primarily price and volume.
• Objective: This method seeks to spot patterns and trends in stock prices that could indicate future market behavior.
• Belief System: Technical analysts hold the view that stock market trends are a reflection of investor psychology. They use this analysis to predict market movements and make informed trading decisions.

Fundamental vs. Technical Analysis: A Comparative Snapshot

• Data Source: Fundamental analysis relies on financial reports and market data; technical analysis uses historical trading data.
• Investor Outlook: Fundamental analysis is often favored by long-term investors, while technical analysis is popular among traders and short-term investors.
• Strategy Focus: The former evaluates the company’s actual value, while the latter focuses on market trends and investor behavior.

Key Takeaway for Investors: Understanding these two contrasting yet complementary approaches empowers investors to make more nuanced decisions. Whether you lean towards the thorough financial scrutiny of fundamental analysis or the pattern recognition of technical analysis, mastering both can be a significant advantage in the dynamic world of stock market investing.

Consider reading: Best Bluechip Stocks in India

Bhav Copy in the Indian Stock Market

Essence of Bhav Copy: A Bhav Copy, commonly referred to as a trade report, is a pivotal document in the Indian stock market landscape. It encapsulates comprehensive details of all trading activities that transpired on a specific day.

Accessibility: Stock exchanges are the primary publishers of Bhav Copies. These are readily accessible to the public and can be found on the respective exchange’s website, ensuring transparency in market operations.

What Does a Bhav Copy Include?

• Trade Timestamp: It records the exact date and time each trade occurred.
• Stock Identification: Information about the stock, including its name and trading symbol.
• Trade Specifics: Details of the quantity traded and the price at which trades were executed.
• Market Participants: Identification of the buyer and seller in each transaction.
• Price Fluctuations: The document also highlights the net change in the stock’s price over the trading day.

Why Bhav Copies Matter to Investors:

1. Performance Tracking: Investors leverage Bhav Copies to monitor the performance of specific stocks.
2. Market Trends: They are instrumental in identifying market trends and patterns.
3. Informed Decisions: By providing a granular view of market activities, Bhav Copies enable investors to make more informed investment decisions.

Investor Insights: For anyone engaged in the Indian stock market, understanding and utilizing Bhav Copies can be a significant tool in crafting a successful investment strategy. They offer a window into the market’s pulse, aiding in strategic planning and analysis.

You can download the Bhav copy from the BSE website.

Final Thoughts on Stock Market Terminologies

In wrapping up, understanding stock market terminologies is absolutely crucial for anyone planning to venture into the world of investing.

They form the foundational language of investing and can make a huge difference in your trading experiences.

The more you familiarize yourself with these terms, the better equipped you’ll be to make informed, strategic investment decisions.

Remember, knowledge is power in the stock market, and being fluent in these terminologies can be your key to unlocking this power.

We hope this article has been helpful in making these stock market terminologies more accessible and understandable. It’s important to continue learning, so make sure to stay updated with the latest investment trends and market updates.

As they say, the world of investing never sleeps, and with the right grasp of stock market terminologies, neither will your financial growth.

(Note: Investing in the stock market involves risks, and it’s important to do your due diligence or consult with a financial advisor before making any investment decisions.)

FAQs on Stock Market Terminologies