Key stock market terms you should know – Part 2

Let us understand the key stock market terms in a simple manner. In part- 1, we had discussed the terms associated with equity markets. Here, in part – 2, we discuss the terms that are largely stock and/or company specific.

Dec 20, 2019 12:12 IST India Infoline News Service

Result Analysis
We had discussed about the key stock market terms largely associated with equity markets in part - 1. Here, in the second and last set of key stock market terms we explain the terms which are largely stock and /or company specific.
 
Share/Company specific terms
  1. Share: Shares represent ownership of a company. When an individual buys shares in your company, they become one of its owners. Shareholders who run a company and are involved in making key decisions, such as whether a business should be sold, etc. In order to grow and develop, companies need to invest capital in their businesses. Stock markets provide them with an opportunity to raise money by selling parts of their businesses as shares, also known as ‘equities’. The advantage of raising money in this way is that the business owners don't have to pay the money back or pay interest to the investors. Instead, shareholders are entitled to a share of the distributable profit of the company, known as dividends.
  2. Shareholder: An individual, institution or corporation that legally owns one or more shares in a public or private corporation are called shareholders. Shareholders have a claim on the company’s ownership.
  3. Portfolio: A collection of investments owned by an investor makes up his or her portfolio. You can have as less as one stock in a portfolio, but you can also own an infinite amount of stocks and/or other securities.
  4. Dividend: It is a portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock. It is generally paid on common or preferred shares. The issuer or its representative provides the amount, frequency (monthly, quarterly, semi-annually, or annually), payable date, and record date. The exchange that the issue is listed on sets the ex-dividend/distribution (ex-d) date for entitlement. An issuer is under no legal obligation to pay either preferred or common dividends.
  5. Bonus Shares: Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares.
  6. Initial Public Offering (IPO): An IPO represents the first time a company sells stock to the public. Before an IPO, a company is private with a few shareholders, typically the founders and sometimes professional investors. Through the IPO, the company gets listed on the stock exchange. An IPO often serves as a way for companies to raise capital for funding current operations and new business opportunities.
  7. Delisting: Delisting involves removal of listed securities of a company from a stock exchange where it is traded on a permanent basis. It can be done either on voluntary decision of the company or forcibly done by SEBI on account of some wrong doing by the company. There are certain norms which a company needs to follow while listing on the stock exchange. In case the company fails to do so, then SEBI takes the action which generally leads to delisting of the company from the stock exchange.
  8. Liquidity: This refers to how easily securities can be bought or sold in the market. A security is liquid when there are enough units outstanding for large transactions to occur without a substantial change in price. Liquidity is one of the most important characteristics of a good market. Liquidity also refers to how easily investors can convert their securities into cash and to a corporation's cash position, which is how much the value of the corporation's current assets exceeds current liabilities.
  9. Lot size: Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. In other words, lot size basically refers to the total quantity of a product ordered for manufacturing. In financial markets, lot size is a measure or quantity increment suitable to or précised by the party which is offering to buy or sell it.
  10. Blue-chip stocks: Blue chip stocks are shares of very large and well-recognized companies with a long history of sound financial performance. These stocks are known to have capabilities to endure tough market conditions and give high returns in good market conditions. Blue chip stocks generally cost high, as they have good reputation and are often market leaders in their respective industries.
  11. Penny stock: Penny stocks are those that trade at a very low price, have very low market capitalisation, are mostly illiquid, and are usually listed on a smaller exchange. Penny stocks in the Indian stock market can have prices below Rs10. These stocks are very speculative in nature and are considered highly risky because of lack of liquidity, smaller number of shareholders, large bid-ask spreads and limited disclosure of information.
  12. Short selling: This terms refers to the selling of a security that the seller does not own (naked or uncovered short) or has borrowed (covered short). Short selling is a trading strategy. Short sellers assume the risk that they will be able to buy the stock at a lower price
  13. Demat account: It is the short form for ‘Dematerialised account’. The demat account is similar to a bank account. Just as money is kept in your saving account, similarly bought stocks are kept in your demat account.
  14. Sector: A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Infosys and Tata Consultancy Services (TCS).
  15. Stock Symbol/Ticker: A one to three-character, alphabetic root symbol, which represents a publicly traded company on a stock exchange. For e.g. Infosys symbol on NSE is Infy.
To read ‘Key stock market terms you should know –Part 1’ click here.

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