If you’re new to the world of trading and investing, you might find it challenging to navigate the complex jargon of the stock market. Well, you’re not alone.
Investing and trading in the stock market can be an exciting but daunting experience, especially for beginners. With so many technical terms and concepts to understand, it can be overwhelming to get started.
However, understanding the basics of the stock market is crucial to making informed investment and trading decisions and achieving financial goals.
In this article, we will be discussing 10 important stock market terms every trader and investor should know. So, grab a cup of coffee, sit back, and let’s dive in!
A stock exchange is a marketplace where stocks or shares of publicly traded companies are bought and sold. In India, the two major stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The stock exchange provides a platform for companies to raise capital by selling their shares to the public. Investors and traders can buy and sell shares in the stock exchange through brokers like Zerodha, Upstox, and Angel Broking.
The stock exchange plays a crucial role in the economy by facilitating the flow of capital and promoting economic growth.
Stock Market Indices
Stock market indices are a measure of the performance of the stock market as a whole or a specific sector. They provide investors with a benchmark against which they can compare the performance of their investments.
The two most popular indices in India are the BSE Sensex and NSE Nifty. The BSE Sensex is a benchmark index that reflects the performance of the top 30 companies listed on the Bombay Stock Exchange.
The NSE Nifty is a benchmark index that reflects the performance of the top 50 companies listed on the National Stock Exchange.
A stockbroker is a professional who facilitates the buying and selling of stocks on behalf of clients. They act as intermediaries between buyers and sellers and charge a commission or a fee for their services.
They provide valuable advice and guidance to investors on making informed investment decisions. Stockbrokers must be registered with the Securities and Exchange Board of India (SEBI) to operate in the Indian stock market.
Popular stock brokers in India include Zerodha, Upstox, Kotak Securities, Angel Broking, etc.
A demat account is an electronic account used to hold securities such as shares, bonds, and mutual funds. It is mandatory for traders to have a demat account to trade in the Indian stock market.
Demat accounts eliminate the need for physical share certificates and provide a secure and convenient way of holding securities.
Demat accounts are maintained by depository participants (DPs) who are authorized by the Depository Participants Association of India (DPAI).
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An initial public offering (IPO) is the first time a company offers its shares to the public. It is an important event for investors as it provides an opportunity to invest in a company’s growth.
The process of IPO involves several steps, including filing a prospectus with the regulatory authorities, setting the price of the shares, and allotting the shares to investors.
Some IPOs can also be oversubscribed, meaning that the demand for shares exceeds the supply, which can result in a significant increase in the share price.
Market capitalization refers to the total value of a company’s outstanding shares. It is calculated by multiplying the number of outstanding shares by the current market price.
Market capitalization is an important metric for investors as it provides an indication of the size of the company and its financial strength. Companies with a high market capitalization are often considered more stable and less risky than companies with a low market capitalization.
Liquidity refers to the ease with which an asset can be bought or sold without affecting its price. In the stock market, liquidity is a crucial factor as it enables investors to buy and sell shares quickly and at a fair price.
Highly liquid stocks are those that have a large volume of trading activity and are easy to buy and sell. Illiquid stocks, on the other hand, have low trading volume and can be difficult to sell.
Bull and Bear Market
A bull market is a market in which stock prices are rising, and investors are optimistic about the future. A bear market is a market in which stock prices are falling, and investors are pessimistic about the future.
Understanding the difference between a bull and bear market is important for traders because it can impact their trading strategy.
Market & Limit Order
- A Market Order is an order to buy or sell a security at the prevailing market price. Market orders are executed immediately and at the best available price. They are commonly used when the trader wants to buy or sell a security quickly and is less concerned about the price at which the trade is executed.
- A Limit Order, on the other hand, is an order to buy or sell a security at a specified price or better. The limit order will only be executed if the market price reaches the specified price or better. Limit orders are commonly used when the trader wants to buy or sell a security at a specific price and is willing to wait for the market to reach that price.
A clearinghouse is an organization that facilitates the settlement of trades in the stock market. The clearinghouse acts as an intermediary between buyers and sellers, ensuring that securities are delivered and payments are made on time.
The clearinghouse also guarantees the performance of trades, reducing the risk of default. In India, the two major clearinghouses are the National Securities Clearing Corporation (NSCC) and the Indian Clearing Corporation Limited (ICCL).
The clearinghouse plays a crucial role in maintaining the integrity of the stock market and protecting the interests of investors.
In conclusion, understanding these 10 important stock market terms is crucial for any trader or investor in India.
Whether you are a seasoned investor or a new trader, having a good understanding of these terms will help you make informed investment decisions and navigate the stock market with confidence.
Click here to read more about the 5 Expert Strategies to build your Trading Psychology as a trader.
FAQ – Frequently Asked Questions
What is a bear market?
A bear market is a market in which stock prices are falling, and investor confidence is low.
What is a bull market?
A bull market is a market in which stock prices are rising, and investor confidence is high.
What is the difference between a stock and a share?
A stock is a general term used to refer to ownership in a company, while a share refers to a specific unit of ownership in a company.
What is insider trading?
Insider trading is the buying or selling of securities based on non-public information by someone who has access to such information.
What is the Securities and Exchange Board of India (SEBI)?
The Securities and Exchange Board of India (SEBI) is the regulatory body that oversees the functioning of the securities market in India.