10 Important Stock Market Terminologies and their meaning

Stock Market Terminologies for beginners | Share market terminologies PDF download | trading terms for beginners | Intraday trading terms

This post was most recently updated on December 27th, 2022

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 your 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 and 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

Stock Market Terminologies
Stock Market Terminologies

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 maybe 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. Offer for sale is different from an initial public offering (IPO), as the company is not raising new capital, but is instead selling existing shares that are already outstanding.

The offer-for-sale process typically involves the following steps:

  1. The company hires an investment bank to act as the underwriter of the offer for sale. The underwriter is responsible for determining the offering price of the shares, and for marketing the offer for sale 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 offer for the sale 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 offer for sale is typically oversubscribed, which means that there is more demand for the shares than there are shares available.
  5. The offer for sale is completed, and the shares begin trading on the stock exchange. The first day of trading is typically characterized by high volatility and large price movements.

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 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.

What is the difference between fundamental analysis and technical analysis in the stock market?

Fundamental analysis and technical analysis are two different approaches to stock market analysis.

Fundamental analysis involves the study of a company’s financials, including its revenues, earnings, cash flow, assets, liabilities, and management team, in order to determine the intrinsic value of the company’s shares. Fundamental analysts believe that a company’s true value is reflected in its financials and that by analyzing these financials, investors can determine whether a company is undervalued or overvalued.

Technical analysis, on the other hand, involves the study of historical price and volume data in order to identify patterns and trends that can be used to make trading decisions. Technical analysts believe that market movements are driven by investor psychology and that by analyzing price and volume data, investors can identify trends and patterns that can be used to make trading decisions.

What is a Bhav copy in the Indian stock market?

A Bhav copy, also known as a trade report, is a document that contains detailed information about the trades that occurred on a specific day in the stock market. Bhav copies are published by the stock exchanges and are available to the public on the exchange’s website.

Bhav copies typically include the following information:

  1. The date and time of the trade
  2. The name and symbol of the stock
  3. The quantity and price of the trade
  4. The buyer and seller of the stock
  5. The net change in the stock’s price

Bhav copies are an important source of information for investors, as they provide a detailed overview of the trading activity in the market. Investors can use the bhav copies to track the performance of individual stocks, identify trends and patterns in the market, and make informed investment decisions.

You can download the Bhav copy from the BSE website.

FAQs on Stock Market Terminologies

  1. What is an IPO?

    An IPO, or initial public offering, is the process by which a company raises capital by selling shares of stock to the public for the first time. The IPO process is complex and involves many different steps, including hiring an underwriter, filing a prospectus, conducting a roadshow, and setting the offering price.

  2. What are buybacks, bonus issues, and stock splits?

    Buybacks, bonus issues, and stock splits are three different types of corporate actions that can affect the value of a company’s shares. A buyback is when a company buys back its own shares from the market, a bonus issue is when a company issues additional shares to its existing shareholders, and a stock split is when a company increases the number of outstanding shares by dividing each share into multiple shares.

  3. What is an offer for sale?

    An offer for sale, also known as a secondary offering, is when a company sells additional shares of stock to the public. Offer for sale is different from an IPO, as the company is not raising new capital, but is instead selling existing shares that are already outstanding.

  4. What are margin, leverage, stop loss, and target price?

    Margin, leverage, stop loss, and target price are all common terminologies used in intraday trading. Margin is the amount of money that a trader must deposit with their broker in order to open a position, leverage is the ability to control a large position with a small amount of capital, stop loss is an order to close a position when it reaches a specific price, and target price is a price at which a trader expects to exit a position with a profit.

  5. What is the difference between fundamental analysis and technical analysis?

    Two distinct methods of stock market analysis are fundamental analysis and technical analysis. Technical analysis examines past price and volume data, whereas fundamental analysis examines a company's financials. Technical analysts think that market movements are influenced by investor psychology, whereas fundamental analysts think that a company's true value is represented in its financials.

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