Glossary of Basic Stock Market Terms

In our last chapters, you’ve learned about bonds, currency, commodities and more. Now, it's time to know commonly used terms in the stock markets. Before starting investments in the stock market, it is important to understand these terms.

• Bull Market:

A financial market characterised by rising asset prices, investor optimism, and an overall positive economic outlook.

• Bear Market:

A market condition where prices of securities are falling, often accompanied by a pessimistic sentiment among investors.

• Dividend:

A portion of a company's profits distributed to shareholders as a return on their investment.

• Blue Chip Stocks:

These are the stocks of companies that are large and financially stable with a history of reliable performance.

• Market Capitalisation:

The total value of a company's outstanding shares of stock, calculated by multiplying the share price by the number of shares.

• Diversification:

Spreading investments across different assets to reduce risk and enhance potential returns.

• Volatility:

The degree of variation in trading prices over time; high volatility indicates greater price fluctuations.

• ETF (Exchange-Traded Fund):

ETF is an investment fund that is traded on stock exchanges. It holds assets like stocks, bonds, or commodities.

• Liquidity:

The ease with which a security or asset can be sold or bought in the market without impacting its price.

• Market Order:

An instruction to buy or sell a security immediately at the current market price.

• Limit Order:

An order to buy or sell a security at a specified price or better.

• Short Selling:

It is the sale of securities borrowed by anticipating that they can be bought back at a lower price, enabling a profit.

• Day Trading:

Buy and sell activity of securities on the same trading day to take advantage of short-term price fluctuations.

• Options:

Financial derivatives that give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price.

• Margin Trading:

It involves borrowing of funds to raise the size of a trading position beyond what would be possible with one's capital.

• P/E Ratio (Price-to-Earnings Ratio):

It is a valuation ratio which is computed by dividing the market price per share by the earnings per share.

• Dividend Yield:

A financial ratio expressing the yearly dividend income of a company as the percentage of the stock's market price currently.

• Index:

A benchmark that measures and represents the performance of a set of stocks.

• Beta:

A measure of a stock's volatility in relation to the market, helping assess risk.

• IPO (Initial Public Offering):

It is the first sale of stock by a company to the public, marking its transition from private to public ownership.

• Dividend Reinvestment Plan (DRIP):

A program allowing shareholders to reinvest their cash dividends into extra shares automatically.

• Earnings Per Share (EPS):

A company's net profit is divided by its number of outstanding shares, indicating its profitability.

• Moving Average:

A statistical calculation used to analyse data points, smoothing out fluctuations and identifying trends over a specified period.

• Ticker Symbol:

A sequence of letters that represent a particular publicly traded company's stock on a stock exchange.

• After-Hours Trading:

The buying and selling of securities occurs after the regular market hours, typically between 4:00 PM and 8:55 AM IST.

• Derivative:

It is a financial contract whose value is derived from the performance of an underlying asset, index, or rate.

• Candlestick Chart:

A type of financial chart representing price movements in stocks, securities, and derivatives.

• Market Sentiment:

The overall attitude or mood of investors towards a stock or financial market.

• Securities and Exchange Board of India (SEBI):

The regulator that oversees the Indian stock market and other securities markets.

• Day High/Low:

The highest and lowest prices at which a security or market is traded during a specific day.

• Broker:

An individual or firm facilitating financial instruments' buying and selling on behalf of clients.

• Golden Cross/Death Cross:

Technical analysis terms referring to the crossing of short-term and long-term moving averages, indicating potential trend reversals.

• Pump and Dump:

A fraudulent scheme where the stock's price is artificially inflated and then sold off at a higher price.

• Market Maker:

A financial institution or individual facilitating the selling and buying of securities in the market.

• Economic Indicator:

A statistic providing insights into the overall health and performance of an economy.

• Liquidity Trap:

A situation where interest rates are low and savings are high, but private spending is still weak.

• Value Investing:

An investment strategy focusing on stocks believed to be undervalued based on fundamental analysis.

• Cyclical Stocks:

Stocks of companies whose performance is closely tied to the economic business cycle.

• Algorithmic Trading:

Using computer algorithms to execute trading strategies, often at high speeds and frequencies.

• Market Bubble:

A situation where asset prices significantly exceed their intrinsic value, often followed by a sudden decline.

• Leveraged ETF:

An exchange-traded fund using financial derivatives to amplify returns, often with higher risk.

• Risk-Adjusted Return:

A measure of an investment's performance considering its level of risk.

• Market Timing:

The strategy of entering and exiting financial markets based on predictions of future price movements.

• Overbought/Oversold:

Technical analysis terms indicating potential reversal points based on a security's recent price movements.

• Stock Screeners:

Tools or software helping investors filter and select stocks based on specific criteria or parameters.

• Resistance:

A price level at which a stock or the market, in general, has had difficulty rising above in the past.

• Common Stock:

Shares in a company that represent ownership and voting rights.

• Current Ratio:

It is a liquidity ratio measuring the company's capability to cover its short-term debts with its short-term assets.

• Debt-to-Equity Ratio:

A financial ratio calculated by dividing the company’s debts and shareholder’s equity.

• Equity Income:

Income generated from investments in stocks or other equity securities.

• Expense Ratio:

The percentage of a fund's assets deducted annually for fund management and operating expenses.

• Futures:

Financial contracts obligating the buyer to purchase or the seller to sell an asset at a predetermined future date and price.

• Growth Stocks:

Shares in companies are anticipated to grow at an above-average rate when compared to other companies.

• Head and Shoulders Pattern:

A reversal pattern identified by three peaks; a higher peak between two lower peaks, resembling a head and shoulders.

• Mutual Funds:

It is an investment fund which pools money from several investors to invest in diversified portfolios of stocks, bonds, or other securities.

• Preferred Stock:

Shares in a company with a higher claim on its assets and earnings than common stock.

• Profit Margin:

A financial metric representing the percentage of a company's profit.

• Risk Tolerance:

An investor's ability to endure the potential loss of an investment without significant distress.

• Stock Split:

This is a corporate action where a company divides its shares into multiple shares to boost liquidity.

• Value Stocks:

Shares in companies considered undervalued relative to their fundamentals and intrinsic value.

• Volume-Weighted Average Price (VWAP):

The average price of a security traded throughout the day, weighted for volume.

• Asset Allocation:

The strategic distribution of investments among various asset classes to achieve specific financial objectives.

• Arbitrage:

The simultaneous sale and purchase of an asset in different markets to profit from price discrepancies.

• Ask:

The lowest price the seller is ready to accept for a security.

• Bid:

The high price the buyer is ready to pay for a security.

• Bid-Ask Spread:

This is the difference between the highest price the buyer is keen to pay (bid) and the lowest price a seller is ready to accept (ask).

• Buyback:

When a company repurchases its own shares from the open market to reduce the number of outstanding shares.

• 52-Week High:

The highest trading price of a security during the last 52 weeks.

• 52-Week Low:

The lowest trading price of a security during the last 52 weeks.

• Upper Circuit:

A maximum allowable price movement upward for a security within a trading session.

• Lower Circuit:

A maximum allowable price movement downward for a security within a trading session.

• All-Time High:

The highest trading price of a security since its inception.

• All-Time Low:

The lowest trading price of a security since its inception.

• Long Position:

Holding an asset with the expectation that its value will rise.

• Short Position:

Selling an asset expecting that the value will decline.

Apart from these 75 terms, there are several other terms as well in the stock market. You’ll learn about these terms and the stock market in detail in our other chapters.