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The terminology used in the stock market: Beginners go through the guide.
All aspiring investors and traders must be erudite about the stock market, its concepts, terms, and its working principles so that they approach the art of investing more professionally. There are several terms used in the stock market, but we shall look into some basic terms that help beginners understand the stock market.
Individual stock brokers or brokerage firms are called the agents of the stock market. They do all the buying and selling (trading) of stock and securities for their clients
The asking price is the lowest price offered by a trader to sell his shares in the stock market.
At the money or ATM
ATM is a situation when an option's strike price matches the market price of an underlying stock or securities.
The bear market is the market situation facing a downturn. In this case, it is understood that the aggregate of indices of top stocks performs low.
A bid price is the highest price offered by a trader to buy shares from the stock market.
This is just the opposite of the bear market. A bull market is experienced when there is a rush of trade for stocks in the stock market due to various factors. Lesser volume, more traders, market news, and geo-political and socio-economic factors can influence the market.
It is the highest price a trader chooses to pay to buy shares of a stock.
Blue chip stocks
Blue chip stocks are the reputed companies that have the ability to perform well regardless of the market trends (bull or bear market).
Stocks valued between $1 to $5 are called penny stocks. They are affordable and can be purchased by commoners with average earning potential.
A bond is a loan taken by a company that gets money from investors after they buy bonds.
A call option is a contract between a buyer and a seller to exchange security at a specified price. The buyer of a call option can hold a right, but not an obligation to buy an agreed quantity of a stock or security.
A Closing-price is the last price at which a stock is traded at the end of the trading session.
The first traded price of the stock at the beginning of the trading session is called the opening price.
It is the last traded price of a stock of a previous trading session.
Convertible securities are those that can be converted into another security by the same issuer. Usually, these are convertible bonds or regular interest-paying stocks.
A defensive stock provides consistent dividends and stable earnings regardless of the stock market trends.
The face value of a stock is the price fixed by the company before issuing the stocks in the stock market. This value is the original value mentioned on the certificate.
The market value of a stock gets determined by the investors who trade or invest in the stock. The market value of the stock is dynamic as it gets influenced by the demand and supply of the stock (volume).
A moving average is an indicator or technical analysis often used to analyze the direction of the trend of a stock or stock market. It calculates the average of all the closing price points of the stock over a specific time period. A moving average is calculated continuously.
The stocks which come at low-price and give exponential returns over time are called multi-bagger stocks.
In the concept of a 'one-sided market,' the market price of the stock is determined by the issuer, and the action of the investor or trader cannot determine the price of the stock. Ex: Issuing IPO is a one-sided market.
A capital of a company or a firm is a fund/cash or a liquid asset to ensure the running costs of a business. A capital of a company typically includes equipment, inventory, and other assets like land.
A collateral is a loan offered by the brokers or any other individual against the shares owned by the loan recipient.
Days payable outstanding
DPO is a ratio that tells the average time taken (in days) by the company to pay bills to their creditors.
Days sale outstanding
DSO is the ratio that tells the average time taken (in days) by the company to collect bills of sale from their creditors.
A dividend is a share of profit given by the company to its shareholders. Sometimes the dividends of the investors are re-invested in the company.
Dividend payout ratio
DPR is the amount of dividends given to shareholders from the total net income of the company.
It is the comparison of the amount of dividend paid per share every year by the company. It is often expressed in percentages.
Statistics or alpha-numeric variables are called indicators, which help to forecast the market situation and trend. Investing communities and traders highly rely on market indicators.
A limit order is an instruction option given to traders or investors, allowing them to set the price to buy or sell the stock or securities. A buy-limit order will be executed at the limit price set by the trader, whereas a sell-limit order will be executed at the limit price set by the trader.
It is a process of converting stocks, assets, and securities into cash or cash equivalent forms. There are two situations where the liquidation process happens.
- Voluntary liquidation is when the company deliberately sells its assets to raise funds for investments.
- Forced liquidation is when the company’s assets are sold off by banks or financial institutions during bankruptcy.
Quarter-on-quarter is an analytical term that compares the quarter portion of a year to the previous quarter of the same year. ( each quarter of a year represents 3 months of the fiscal year in sequence)
Year-over-year or year-on-year is a financial comparison of two or more measurable events over a year.
The word S.W.O.T. is an abbreviation of strength, weakness, opportunity, and threat. In SWOT analysis, a stock is analyzed in the aspects of strength, weakness, opportunity, and threat.
Rights issue is the invitation given to its existing shareholders to buy newly issued shares to raise additional capital. Rights issue offered at a discount price. If any shareholder falls short of money to buy the right, he can let it expire by itself.
Stock split refers to breaking up the quantity of the stock into two pieces. This method of splitting helps the shareholders to double their positions, benefiting companies by increasing their volume.
in this, shareholders are given additional shares to their shareholders without any additional cost depending upon the number of shares they own. Ex: Let's say company X issues a bonus of 1:3. This means the company issued three bonus shares for every share held by the shareholders.
Frequently Asked Questions
Indices can provide valuable insights into market trends and can be used to forecast future market movements. However, it is important to remember that past performance is not always indicative of future results.No matter if you are a professional or just a beginner in the stock market, you must know or be aware of the terms used in the stock market. Getting familiar with the stock market terms is not just a matter of increasing your knowledge. But also a matter of improving your financial language or vocabulary that helps you in presentations.