Key stock market terms you should know –Part 1

Let us understand the key stock market terms in a simple manner. This is the first set which targets the terms that are largely associated with equity markets.

December 19, 2019 11:17 IST | India Infoline News Service
Two businessmen planning to invest in stock exchange across the table with highlighted world map
The stock market as a whole is a very broad and dynamic system. There are various interconnected systems that work together to form the stock market. Common terms used in the stock markets can be associated solely with the workings of the stock market, with the companies listed on the stock market, equities representing the companies, trades taking place within the market place and much more. To make the terms simpler and more relatable, they will be categorized according to the systems they are most often used in association with. The first set of key market terms are largely associated with equity markets.
Stock market related terms
  1. Share market: A share market is the medium through which the exchange of shares takes place between the seller and the buyer. Share market is the place where companies sell their shares to the public to generate the funds. In the world of finance, there are two main markets in the capital market i.e. primary market and secondary market.
    • Primary market:  This is also known as a New Issue Market i.e. where new securities are issued. Corporations, national & local governments, and other public sector institutions can get financing through the sale of new stock through the primary market. The primary market is where new securities or financial instruments are sold – investors buy these securities directly from the issuers, such as a company selling shares for the first time in an initial public offering, or a government selling bonds.
    • Secondary market: The secondary market, also known as the aftermarket, is the market where previously issued financial instruments, such as stocks are bought and sold. It is where investors sell to other investors. The secondary market is actually formed by another layer of investors who deal with a primary market investor to buy and sell financial securities such as bonds, futures, and stocks. These dealings happen in the proverbial stock exchange.
  2. Bear market: It is the trading talk term used when the stock market is in a downward trend, or a period of falling stock prices. This is the opposite of a bull market. If a stock price plummets, it’s very bearish.
  3. Bull market: When the stock market as a whole is in a prolonged period of increasing stock prices the term used is bull market. It is the opposite of a bear market. A single stock can be bullish or bearish too, as can a sector.
  4. Index: It is a statistical measure of the state of the stock market, based on the performance of stocks. This is a benchmark that is used as a reference marker for stock market participants. Sensex and Nifty are examples of a stock market index.
  5. Market Capitalization (Mcap): It is the total value in rupee terms of all of the company’s outstanding shares. It is calculated by multiplying all the outstanding shares with the current market price of one share. It determines the company’s size in terms of its wealth.
  6. FIIs: Foreign institutional investors (FIIs) are those institutional investors which invest in the assets belonging to a different country other than that where these organizations are based. FIIs play a very important role in any economy. These are the big companies such as investment banks, mutual funds, etc., who invest considerable amount of money in the Indian markets. With the buying of securities by these big players, markets tend to move upward and vice-versa. They exert strong influence on the total inflows coming into the economy.
  7. Stock exchange: A stock exchange is a place where securities, shares, bonds and other financial instruments are listed and bought and sold by traders or brokers. To be able to trade on a stock exchange, securities must be listed on it. Stock exchanges help companies to raise funds. Therefore, the company needs to list themselves on the stock exchange. There are two major stock exchanges in India viz. National Stock Exchange of India (NSE) and Bombay Stock Exchange (BSE).
  8. Rally: A rapid increase in the general price level of the market or of the price of a stock is known as a rally. Depending on the overall environment, it might be called a bull rally or a bear rally.
  9. Securities and Exchange Board of India (SEBI): The SEBI is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations. The objective of SEBI is to ensure that the Indian capital market works in a systematic manner and provide investors with a transparent environment for their investment.
  10. Volume: It is the number of shares of stock traded during a particular time period, normally measured in average daily trading volume. Volume can also mean the number of shares you purchase of a given stock. For instance, buying 2,000 shares of a company is a higher-volume purchase than buying 20 shares.
  11. Volatility: It is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time.
  12. Broker/brokerage firm: It is a securities firm or a registered investment advisor affiliated with a firm. Brokers are the link between investors and the stock market. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities but acts as an agent for the buyer and seller and charges a commission for these services.
  13. Intra-day trading: Intraday trading, also called day trading, is the buying and selling of stocks and other financial instruments within the same day. In other words, all positions are squared-off before the market closes and there is no change in ownership of shares as a result of the trades.
  14. Margin: A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan and the price of the securities is called the margin.
  15. Over-the-counter: If you trade a security that is not listed in a stock exchange, you are making an over-the-counter trade.
We will discuss the remaining key market terms in Part – 2

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