It is always a wise move to get yourself acquainted with the common terms related to a field before getting into it. Here are some important terms that every beginner should know before starting his/her journey as an investor or a trader.
Let us look at a few terms related to the stock market –
- Demat Account: Demat account means an account where all your dematerialized shares are stored. It is important to note that considering a demat account meaning to be the same as a trading account is a misunderstanding of the two terms.
- Trading Account: A trading account is essentially a link connecting your bank account and your demat account. All stock market transactions take place via your trading account.
- Broker: A broker is the person/entity that is registered with SEBI to buy/sell stocks on behalf of investors or traders.
- Brokerage: It is the commission charged by your broker while buying or selling stocks.
- Order: When you request your broker to buy or sell a share, it is called an Order.
- Stop Loss: When you want your broker to sell the shares automatically as the share prices go down below a certain point, then you place a stop loss order mentioning the price at which you want to sell.
- Market Order: When you want to buy a particular share at the current market price, it is known as a market order.
- Limit Order: When you want to buy a particular share at a particular price, then it is called a limit order.
- Day Order: It is the type of order which expires at the end of a trading session if not executed before closing time.
- Market Cap: Market Cap stands for market capitalization, which can also be referred to as the size of the company.
- Valuation: It is the total monetary value of a company, which is decided by a group of experts.
- Margin: It is the amount of loan given by the broker for trading purposes.
- Debt: Total amount of debt which a company has to pay.
- Annual Report: It is the report where a company describes its past years’ performances, ongoing projects and the future plans.
- P/E ratio: It stands for Price to Equity ratio. It is calculated by dividing the market price of the share by earnings per share.
- CAGR: It stands for Compounded Annual Growth Rate. It gives us the average growth rate of a company over a period of time greater than one year.
- Dividend: Sometimes some companies decide to share their profits with their shareholders. When this happens, the profit received per share is called a dividend.
- IPO: When a company’s shares get listed on the stock exchange for the first time, it is known as an Initial Public Offering (IPO).
- Bullish Sentiment: When the tendency of the market or a particular stock is to go up, then it is called as having a bullish sentiment.
- Bearish Sentiment: When the tendency of the market or a particular stock is to go down, then it is called as having a bearish sentiment. When the tendency of the market or a particular stock is to go down, then it is called having a bearish sentiment and the strategy of investors and traders will be bearish market trading.
- Trading Session: The time period when trading is allowed on a particular day.
- Volatility: It is the tendency of a stock to go up or come down very quickly.
- Penny Stocks: Shares which have a very low price, typically below Rs. 10 are known as penny stocks.
- Blue-chip stocks: Stocks which have a fairly high price are called blue-chip stocks. Also, Blue-chip companies generally have a very large market cap.
- Square-off: When you sell a stock, it is also called squaring off your position.
We have seen some of the most important terms used while trading in the stock market. At the same time it is necessary to acknowledge that learning is a constant process, thus you will have to keep learning more terms, definitions, their uses, applications and more, to keep your trading profitably in the market.