76 popular stock market terms for beginners is a list of terms comprising multiple common stock terms, methods, concepts and financial ratios which will help beginners in understanding the common stock market lingo. Knowing stock market terminologies will further enhance a beginner’s knowledge about the markets and will help him/her in taking better investment decisions. This article is a great way to kick-start your stock market journey.
To kick-start your journey as a stock market investor/trader, you must first understand what the stock market is and how it functions.
The stock market is a place where hundreds of thousands of market participants come together to buy and sell shares of publicly listed companies. The stock market provides the companies with fair market valuation due to the forces of supply and demand.
The stock market helps traders/investors in providing a regular source of income and it also helps companies in raising capital from the public to fund their operations. Now that you know what the stock market is, Here are 76 of the popular stock market terms a beginner should know.
Arbitrage
Arbitrage is the act of buying a trading asset and selling it into another exchange within seconds. Arbitrage allows an investor to profit from the imbalance in an asset’s price on different stock exchanges.
The term Arbitrage originates from a French word “arbitre” which means “arbitrator” or “judge”. While this term has been used for centuries, it was first used in a financial context in the 19th century.
The term “Arbitrage” in the stock market is mostly known as an algorithmic trading strategy. Arbitrage is most commonly referred to as a very short-term strategy in which a trader buys an asset from one exchange and sells it into another to make a profit from the difference in the price of an asset.
Arbitrage is a very simple yet an effective profit-making strategy for beginners. Strategies like these cannot be executed by a human. Therefore, they are executed by algorithms.
Arbitrage fills up the indifference between the prices of a similar asset in two different exchanges. In the course of making a profit, the demand and supply created by arbitrage traders makes the price of an asset similar in all of the exchanges. Arbitrage as a term is much commonly used as it is one of the most famous algorithmic strategies.
Ask
“Ask” as a term refers to the minimum price a seller is willing to sell his securities to the buyer. Ask is also called the offer price. Ask is always used together with another term known as “bid”. Together “bid and ask” make a spread which indicates the liquidity of the asset that is being traded.
Origin of the term “Ask” comes from an old English word “Ascian”, which means “To ask”. The first usage of this term dates centuries back to the time of Dutch east India company.
The term “Ask” in the stock market is used to indicate the price at which a seller is willing to sell his securities. Understanding this term benefits beginners as well as experienced traders in a variety of ways. For example, it helps them in knowing their potential buying price, it also helps them in analyzing volatility of a stock, etc. This is why, “Ask” as a stock market term is very crucial to understand.
This term is used very frequently as it is not only limited to the stock markets. Bid and Ask spreads represent the demand and supply forces of a security that is traded across all types of markets.
Asset Allocation
Asset allocation is an investment strategy which allocates an investor’s capital across different asset classes while considering factors such as an investor’s goal, risk tolerance and time period of investment. Asset allocation helps an investor in achieving his investment goals while reducing his risk at the same time.
The origins of this concept can be traced back to the early 1950s. Asset allocation as a concept was first introduced by Harry Markowitz in one his paper called “Portfolio Selection” in 1952.
Investors use this term as a method for reducing their risk through diversification. Asset allocation helps beginner investors in keeping their risk management in check while earning higher returns.
Asset allocation is a very effective method as it reduces an investors susceptibility to make major losses in any one asset class. And promotes a very balanced portfolio that gives a stable return in any market situation. Asset allocation as a term if often used by professionals. Every experienced investor uses this method because of its simplicity and effectiveness.
Asset Classes
Asset classes refers to a group of investment securities that are similar in characteristics. These asset classes are subjected to similar rules and regulations and are used by different investors based on their own preference.
The first mention of this concept is a subject of debate but broadly it is believed that Harry Markowitz, an American economist introduced this concept for the first time in his paper called “Portfolio Selection’ in 1952.
In the stock market, “Asset Class” as a term is used to differentiate various investment securities. Primary asset classes include Equity, Bonds, REITs, etc. This is why it becomes very crucial for beginners to know about different asset classes as it helps them diversify their portfolios and mitigate risk.
Asset classes offer an investor with multiple choices for investing. Investing across multiple asset classes becomes very crucial at the time of market instability. Asset classes is a classic terminology in investment philosophy. Hence, it is used by the majority of investors very often.
Averaging Down
Averaging down is an active investing strategy in which an investor buys additional quantities in a falling stock from his existing portfolio. Averaging down is kind of similar to another investment strategy called “Dollar cost averaging”. This investment philosophy is based on the fact that good stocks will eventually recover and start going up.
Both the origin and the first usage of this term is not clear but it is believed that this term was introduced several years ago.
Fundamentally better stocks are frequently traded at a discounted price due to market selloffs. Investors take advantage of these situations and average down on a stock they think will rise up again in the future. Averaging down as a term is important for beginners to know as this strategy helps an investor in buying good stocks at a cheap level. However, one should also note that this strategy can get risky if the stock continues to decline.
This method helps an investor in maximizing his profits by dollar cost averaging in stocks from his existing portfolio. This is why this investment strategy is often used by retail investors as well as professional fund managers.
Bear Market
Bear market is a market situation where the prices of stocks continue to decrease over a long period of time. Bear markets can also be identified when the prices of stocks fall over 20% from their recent highs. This generally happens due to pessimism in the market participants over an economic slowdown.
The origin of this term can be traced back to the 17th century. The term “Bear market” with reference to the stock market was first used in the book “A Plan of the English Commerce” by Daniel Defoe in 1720.
The term “Bear market” is used whenever the prices of stocks decline over 20% from their recent highs. Beginners should always remember that both bull and bear markets represent a natural cycle in the market and they have been occurring ever since the very beginning of the stock market.
Bear market as a term is very important for everyone as it impacts on the overall economy of a nation. In a bear market, investors should remain cautious and examine the markets very closely. The term “Bear market” is often used at the time when the overall stock market declines very fast in a much lesser period of time.
Beta
Beta is a measure which compares a stock’s historical volatility to the overall market. A beta of higher than 1 shows that the stock is more volatile and a beta less than 1 shows that the stock is less volatile compared to the overall market.
The term “Beta” was first introduced as a part of Modern Portfolio Theory (MPT) by Harry Markowitz in 1952. Since then, beta is being used as a method of calculating the risk within an investor’s portfolio. It helps investors in analyzing which stocks to buy/sell from their portfolio.
Understanding Beta is also important for beginners because it helps them in making better decisions when it comes to stock picking. Beta plays a crucial role in investing. Beta is also used in a very famous calculating model known as Capital Asset Pricing Model “CAPM”. This model calculates expected returns on an investment.
Beta is commonly used by investors, professional analysts and agencies to assess the risk of a portfolio.
Bid
“Bid” as a term refers to the maximum price a buyer is willing to pay for buying securities from a seller. Bid is also known as the auction price. Bid is commonly used with another term called “Ask”. Together Bid and Ask represent the forces of demand and supply of a stock.
The origin of the term “Bid” comes from an old English word “Bydan”, which means “To offer” and the first usage of this term with reference to the stock market dates back to the period of Dutch east India company.
The term “Bid” is used to represent the price at which a buyer is willing to buy a stock. Understanding this term becomes very crucial for beginners as it helps in analyzing factors like liquidity and volatility of a stock. This is why this term is often used while analyzing securities across all types of markets.
Bid-Ask Spread
Bid-ask spread represents the demand and supply forces of a stock. Bid refers to the highest price a buyer is willing to pay for buying a stock and Ask refers to the minimum amount a seller is willing to sell his stocks for. The difference between these two is called a spread.
“Bid” which originated from an old English world “Bydan” means “To offer”, whereas “Ask” which originated from the word “Ascian”, means “To ask”. The first usage of this spread dates back to the very beginnings of the stock market.
Bid-Ask spread represents the potential buying/selling prices of a stock. Beginners should know about this term to avoid potential slippage while trading/investing. Bid-Ask spread helps an investor/trader in analyzing the volatility and liquidity of a stock. This is why this spread is also used by professional fund managers and proprietary traders.
Blockchain
A blockchain is an unchangeable digital ledger which records transactions across a network of computers. Blockchain has become the most widely used phenomenon because of its ability to provide a decentralized network which does not involve any third person. Every transaction made on the blockchain is transparent and everyone has a record of it on their own computer.
A person or a group of people going with the widely known name of Satoshi Nakamoto coined this term in their whitepaper in 2008.
Newcomers must learn about this concept as this is one of the fastest-growing technologies in the world. A lot of opportunities have been revolving around the concept of blockchain and Web 3. Blockchain can revolutionize the way the internet works with the features it provides.
Here are 3 of the key features of blockchain –
- Transparency
- High security
- Permanent storage of data
After its first introduction in 2008, blockchain has been one of the most trending topics and has been used widely all across the world.
Blue-Chip Stocks
Blue chip stocks refers to the shares of a large-cap company which has a market capitalization of over multiple billion dollars. Blue chip companies are among the top companies in their sector and have had very steady and stable financial growth for decades.
The term “Blue chip” originates from the game of poker. In poker, the blue chips are the highest of value compared to other chips. The first use of this term with reference to the stock market can be seen in the 1920’s where the term “Blue chip” was used for large companies that are well-established and financially stable.
Beginners should start their investing journey with blue chip stocks as they are less volatile compared to other companies and they often pay out dividends to their investors. Blue chip stocks are given much importance as these stocks are the most dependable compared to other stocks in terms of decent returns with regular dividends. This term is commonly used by investors, financial analysts and media anchors.
Bond
Bonds are debt instruments issued by the Government and companies to raise funds from the general public. Bonds are regarded as one of the safest investments as the returns on them are fixed. The holders of these bonds are called as the creditors of the company/Government.
The term “bond” comes from an Middle English word “Bond” which means “ a binding agreement”. In financial terms, “Bond” as a term was first used by the Roman Empire to finance general public work.
Beginners should know about this instrument as bonds are an alternate investment option. Investors favor bonds at the time of market uncertainty as they offer a guaranteed rate of interest even in the difficult times.
Investors also use bonds for diversifying their portfolio and creating a regular source of income, this is why bonds are most commonly used by almost everyone who wants stable returns.
Bull Market
Bull market is a market situation where the prices of stocks continue to increase over a prolonged period. A bull market generally lasts more than a bear market and it can be identified when the prices of stocks rise by 20% or more from their recent lows. This happens due to optimism in the market participants due to an economic boom.
The term “Bull market” originated in the late 18th century. At the time, the market was compared to a bull, which attacks with its horns in a down to upwards motion. Since then, this term has been used to define the rising price of stocks.
It is important for beginners to understand this concept because both bull and bear markets represent a natural cycle of the market. These cycles have been happening since the very start of the stock market.
Bull market impacts the overall economy of a nation. A bull market has the power of making the economy of a nation much stronger than the way it was before. As a term, bull market is mostly used by market participants to address the rising prices of stocks.
Buyback
Buyback means a repurchase of shares. Buyback of shares happen when a company buys its own outstanding shares in cash or borrowed funds from the secondary market. A company does a buyback when it feels that its shares are undervalued or it can also do this to boost the prices of its shares.
While the origin of this term is not known, Companies started using this method to boost their share prices in the 1980’s. That is when the term “Buyback” gained popularity. In the stock market, buyback as a term is used to describe the action of a company buying back its own excess shares.
Beginners must know about this concept as it affects the share prices of a company and it can also provide good investment opportunities for beginner investors. Buyback of shares is also a very crucial part of the financial management within a company.
This term is often used whenever a company decides to repurchase its own shares due to the above-mentioned reasons.
Capitalization
Capitalization or market capitalization means the total amount of funds a company has been able to raise through stocks. Capitalization is calculated by multiplying the price of a company’s shares by the number of shares a company has issued.
“Capitalization” as a term comes from the Latin word “capitalis”, which means “of the head”. With reference to the stock market, this term was first used to define a company’s total equity. Since then, capitalization has been used to describe the total market value of a company.
This term helps beginners in classifying companies as large-cap, mid-cap and small cap based on their market valuation. Capitalization is a key metric for financial analysts and investors to assess the financial health of a company and make investment decisions based on that. Hence, this method is used quite often by analysts and investors to analyze a company.
Capital Gains
Capital gains is an investment income earned from buying a stock at a lower price and selling it on a higher price. Capital gains are of two types and they attract different rates of tax. Long-term capital gains which are the gains made from selling a stock after a year, and Short-term capital gains which are the gains made from selling a stock in less than a year. The tax levied on Long-term capital gain is lower compared to that of short-term capital gains.
This term has originated from the act of investing in capital assets. “Capital gains” as a term gained popularity in the late 19th century when the stock market was getting more advanced. The term “Capital gains” has been used to describe the gains realized on the sale of a stock for decades.
Understanding this term is fairly important for beginners as it is a fundamental concept of investing. It helps investors and analysts in making investment decisions like deciding the duration of the investment, planning taxes, etc. Hence, this term is often used at the time of a sale of an asset.
Common Stock
Common stock is the stock which is held by the majority of the investors within a corporation. Common stock refers to the ownership offered by stock which gives the holders of this stock the right to vote, right to receive dividends and right to choose the board of directors.
This term originated at the very beginning of the stock market. And was first used when corporations started to form. “Common stock” as a term has been in use to define a type of stock that gives its holders ownership since then.
Understanding this term can help beginners in knowing how the big corporation raises funds through different financial modes. The major part of a corporation’s funds is raised through this method. In return, the investors are entitled to the corporation’s assets, but only after preference shareholders and bondholders.
This term is commonly used as it is a very fundamental part of the corporate’s financial structure.
Current Ratio
Current ratio is the measurement of a company’s ability to pay for its short-term obligations. Current ratio is also called the liquidity ratio and working ratio. It is calculated by dividing a company’s current assets with its current liabilities.
Current ratio as a term originated in the developing phase of financial analysis. While the exact origins of this term are not known, the term “Current ratio” has been in use since decades. It has been in use to describe the short-term financial health of the company.
This term helps beginners in knowing how analysts and investors analyze the fundamentals of a company before investing in it. This is why this ratio becomes an important factor for investors and analysts in determining the financial health of the company.
This ratio is centered around the very core of a company’s fundamental analysis. Hence, it is used majorly in stock reports, news, etc.
Day Trading
Day trading is the act of buying/selling stock and existing from the position the very same day. Day trading is the speculation of stocks with the use of technical analysis. Unlike investors, day traders do not look for a company’s fundamentals, they profit from the daily fluctuation in the price of a stock.
This term has developed with the markets over time. Day trading as a term has gained much popularity as electronic trading took over. It is often used to describe the act of buying and selling stocks within a day to profit from the tiniest fluctuation in a stock’s price.
Nowadays, this term has become a popular term but beginners should always remember that day trading is very risky. A beginner should get familiar with the nuances of day trading before doing it.
Day trading is a high-risk, high-reward strategy. It has also become a regular source of income for many traders all around the world. It is one of the most famous terms when it comes to finance and investment.
Debt-to-Equity Ratio
Debt-to-equity (D/E) ratio measures a company’s financial leverage by dividing all of the liabilities of a company with its total equity. A company with a higher (D/E) ratio is perceived to be riskier than the one with a lower (D/E) ratio. It is also called as leverage ratio and risk ratio
Debt-to equity ratio has become a fundamental part of analyzing the company. While the origins of this term are not well defined, this term has been in use for decades. It has been used in order to analyze a company’s financial health and risk profile.
Debt-to-equity ratio helps beginners in order to understand how the fundamental analysis of a company is done. D/E ratio is a very important factor to consider as it shows how much debt is the company using to fund its own operations versus its equity.
This term is commonly used by analysts and investors for analyzing the fundamentals of a company’s financing model.
Diversification
Diversification is a risk mitigation strategy which spreads out an investor’s capital across a variety of assets. Diversification focuses on a healthy mixture of all kinds of assets rather than a single asset oriented portfolio. Commonly, a diversified portfolio is spread across asset classes like debt, equity and real-estate.
The term “diversification” has been used since decades and it reflects a “play it safe” attitude towards investment. Diversification is used to minimize the inherent risk of an investor. Rather than solely focusing on stocks, an investor diversifies his portfolio across other asset classes. It is very important for beginners to know about diversification as it is one of the best investment strategies to minimize risk.
Diversification plays a crucial role in reducing an investor’s mental stress during a tough time. This strategy makes sure that an investor’s portfolio is stable during all types of markets. This is why this term has gained popularity and is commonly used by all investors.
Dividend
Dividend is the way through which a company transfers its profits or retained earnings to its shareholders. Dividends are distributed on a per share basis, Meaning, If you have 100 shares and the declared dividend is 1rs per share, then you will receive Rs.100 as dividends.
The term “Dividend” originates from a Latin word “dividendum”, which means “something to be divided”. It was first used in the 17th century when companies started sharing their profits with their investors. Since then, this term refers to the act of companies distributing their profits amongst shareholders.
This term is important for beginners to know as it is a very crucial part of investing in the stock market. Some investors invest in stocks with the only aim of earning passive income through dividends. Dividends are most commonly distributed quarterly and when invested back into the stock, they can generate wealth for the investor faster.
Dividend Yield
Dividend yield is a financial ratio which measures the amount of dividend a company pays out annually in relation to its stock price. Dividend yield is always expressed in a percentage terms. It is calculated by dividing the annual dividend paid by the stock price on a per share basis.
This term originates from the term “Dividend”. As a term, dividend yield is used to find out the exact percentage that a company gives out as dividends to its investors.
This term helps beginners in knowing the exact percentage of an amount an investor earns in the form of dividends. It is given much importance as dividends are a source of passive income which helps investors in dealing with inflation.
Dividend yield as a term is most commonly used by financial analysts and investors at the time of assessing their portfolios.
Dollar-Cost Averaging
Dollar-cost averaging is the practice of investing in the stock market at fixed intervals with a fixed amount. Dollar-cost averaging is also called Systematic investment plan (SIP). An investor following this method does not have to worry about timing the market.
This term is used to describe the act of investing regularly with a fixed amount to minimize the effects of the market volatility. This method also builds the habit of disciplined investing amongst the beginner investors.
It saves the investor from investing all of his capital at a single price point. Dollar-cost averaging is one of the most renowned investment strategies. It is a widely used term used by investors all around the globe.
Dow Jones Industrial Average (DJIA)
Dow Jones Industrial Average is a U.S. stock market index which consists of 30 of the most prominent companies listed on New York Stock Exchange (NYSE) and NASDAQ. Dow Jones Industrial Average is one of the most watched and oldest indices in the world.
“Dow Jones Industrial Average” originated from the names of Charles Dow and his business partner Edward Jones. This index was created in the year of 1896. Since then, it is looked upon as the benchmark of the U.S. stock market.
Beginners can know the overall economic trends just by looking at the Dow Jones Industrial Average. It also helps other investors and analysts in tracking the market sentiment and making investment decisions based on that.
Dow Jones Industrial Average has been one of the oldest and the most covered indices in the world.
Earnings per share is a financial ratio which shows a company’s profitability on a per share basis. Earnings per share is calculated by dividing the company’s net profit by its outstanding shares. This ratio shows the company’s ability to generate profit for its stockholders. EPS has been used by analysts and investors to analyze the profitability of a company for decades.
Earnings per share (EPS) breaks down the company’s profitability in an easy-to-understand ratio for beginners. It is also an important metric to consider while analyzing the valuation of a company’s stock and evaluating the overall performance of the company.
A company has to report this ratio frequently and it is commonly used in financial reports.
Economic Bubble
Economic bubble is a situation where assets trade at a price much higher than their intrinsic value. Economic bubble is also known as a market bubble or a financial bubble. This bubble bursts after a quick correction in the prices of assets. This correction is often called a market crash.
Economic bubble as a term originated from the 1711-1720 British south sea bubble, at the time, it referred to the inflated stocks of their companies. Since then, this term has been used in the market to define the unsustainable demand causing the prices of assets to rise and inflate to a degree to which they are not supported by their intrinsic value.
This term cautions beginner investors and saves them from buying super-inflated assets. Understanding the importance of this term also helps investors in making wise investment decisions. This term is widely used when investors think that there is a bubble forming in the market.
Equal Weight Rating
Equal Weight Rating represents an analyst’s neutral outlook towards a stock. The Equal Weight Rating is the middle rating between an overweight rating and an underweight rating. However, in a portfolio, an Equal Weight Rating is given to a stock when it is expected that the performance of a stock will be similar to that of other stocks in the portfolio.
Equal Weight rating is a rating method used by an analyst to define a neutral stance on a stock. This method was developed largely as a response to the Dot com bubble of the late 1990s. Also, Equal Weight Rating helps beginner investors understand how portfolios are built and actively managed.
This term is important for investors as it gives a professional’s perspective towards a particular stock. It is often used by rating agencies and investment analysts in their reports.
Equity Income
Equity income is the income an investor earns by holding equity/stocks of a company. Equity income is also known as Dividend income. Investors who want to earn high equity income generally invest in stocks that have a higher dividend yield.
The term “Equity income” originates from the word “Equity”, which means “ownership in a company”. This term has been existing since the 17th century when companies first started distributing their profits amongst investors.
Understanding this term is important for beginner investors as it unveils a potential source of income from the stock market. It is a crucial term for investors who want to have a higher passive income from their investments.
This term is commonly used by stock market participants when referring to the dividends of stocks.
Exchange
An exchange is a place where market participants buy and sell investment securities. An exchange also bridges the gap between an investor who wants to invest his capital and a company which is looking to raise funds.
The term “Exchange” comes from an old French word “eschangier” which means ‘to exchange or trade”. This term was first used in the 14th century. Initially, an exchange referred to a place where traders used to meet to buy and sell physical goods. But as of today, majority of exchanges operate electronically.
Understanding this term is important for beginners because an exchange provides a way for them to invest and grow their wealth. An exchange is also a very crucial part of a functioning economy. It plays a major role in fueling the economy with investments.
This term is widely used all across the globe as it is a very fundamental part of any country’s economy.
Exchange Traded Funds (ETFs)
An Exchange Traded Fund (ETF) is an investment product which can consist of a group of stocks, bonds, commodities or all of these together. An Exchange Traded Fund generally tracks a particular market sector or an index. It can also be traded like a stock on the exchange.
Exchange Traded Funds originated in the 1990’s. The first ever ETF, named SPDR S&P 500 ETF (SPY), was launched in the year 1993 in the U.S. Since then, ETF as a term is used to define an investment product which works a bit similar to mutual funds.
A beginner investor should know about ETFs. Unlike a mutual fund, ETFs can be bought and sold just like stocks and are structured in a way that they can track a variety of assets. ETFs are also important for investors because they provide a means to invest in multiple assets under a same investment product in a lesser cost compared to a mutual fund. This term has gained much popularity and its being used often.
Expense Ratio
Expense ratio is the fees for having the ownership of a mutual fund or an ETF. Expense ratio is calculated by dividing the total expenses incurred by the fund by the total net assets of the fund. This fee is deducted from the total net profit of the fund and is given to the fund manager.
This term has originated to define the cost of investing in a mutual fund or an ETF. As these fees can have a huge impact on the overall returns of a fund, understanding this term helps a beginner investor in calculating the overall returns of a fund after deducting the costs associated with it. It also helps investors compare multiple mutual funds and make wise investment decisions.
This term is commonly used by investors and analysts when analyzing a mutual fund or an ETF.
Futures
Futures are a type of derivative contracts which obligates the participants to buy and sell an asset at a pre-decided date and price. Futures are majorly used for short selling purposes. The value of a futures contract increases or decreases based on the performance of its underlying asset.
The use of futures contracts dates back to the 18th century but it later evolved with the wide use of financial instruments. The first ever stock index’s future contract was introduced in the 1980’s.
The term “Futures” helps the beginner in understanding how professional traders and investors make money from the market in different ways. Futures is a very crucial financial instrument for investors as it lets them hedge against market uncertainty. Market speculators also make use of the futures contract by trading in futures actively.
Futures is a fundamental part of the stock market, hence, as a term, futures is widely used by the majority of market participants.
Going Long
Going long refers to the act of purchasing a stock with the expectation that it will rise in value. Going long as a term is used to assert an investor’s bullish view in a stock. It also indicates an investor’s ownership in the underlying stock. Going long is completely opposite of the term “Going short”.
Origin of this term is not known but it is likely that this term was developed at the very beginning of the stock market itself in the early 16th century.
Beginners should know about this term as it is a very basic stock market concept. Going long is an extremely important term for the investors because investors generate wealth over time by having ownership in stocks. It is a core concept in the stock market and hence it is frequently used by all the market participants.
Going Short
Going short refers to the act of selling a stock with the expectation that it will decrease in value. Going short as a term is used to assert an investor’s bearish view in a stock. This term is also called “Short selling”. Going short works completely opposite of the term “Going long”.
Origin of this term is not known but it is likely that this term was developed at the very beginning of the stock market itself in the early 16th century.
Beginners must know about this term as it is a very fundamental concept of the stock market and knowing about this term helps beginners in getting their basics right. “Going short” as a term is also important for investors as it lets them make profit from the falling prices of stocks in the stock market.
This term is a core concept in the stock market and hence, it is widely used amongst all of the market participants.
Growth and Income Funds
Growth and Income fund is a type of mutual fund or an ETF that aims to provide an investor with both capital appreciation and a regular source of income. Growth and Income fund does this by investing in both growth and value stocks. To meet its objectives, these funds can invest in stocks, bonds and real estate.
Growth and Income funds are known to generate wealth for an investor over time along with providing a regular source of income through stock dividends or interest payments. Understanding this term helps beginner investors in getting to know the wide variety of investment products for earning money from the stock market.
Growth and Income funds are also important for investors as it meets 2 of the main goals of any investor. This fund is often mentioned by fund managers.
Growth Stocks
Growth stocks are the shares of a company which grow at a rate much faster than the overall market. Growth stocks do not offer dividends because these companies reinvest all of their profits in order to accelerate their growth. Investors in these stocks expect capital appreciation as the value of these stocks rise.
Philip Fisher was a pioneer of growth investing and he popularized the term “Growth stocks” in his book “Common Stocks and Uncommon Profits” which was published in 1958. Since then, this term is referred to as an investing strategy suitable for long-term capital appreciation.
Beginners should understand this term as it helps them build a defined long-term investment strategy. This strategy is also important for investors because it helps them diversify their portfolios by buying a combination of growth and income stocks.
Growth stocks as a term is commonly used as an investment strategy by investors and financial analysts.
Head and Shoulders Pattern
Head and Shoulders pattern is a bearish chart pattern which signals a potential trend reversal from the recent high of a stock. Head and Shoulders pattern is an indication that the stock might go from a bullish to bearish trajectory. This chart pattern is used by traders to short sell the stock when the neckline of this pattern breaks.
This pattern is given this name as it looks similar to a human head and two shoulders. Head and shoulders pattern was first introduced by Richard Schabacker in his book “Technical Analysis and Stock Market Profits” in 1932.
Beginners should know about this term as it cautions them about a potential; trend reversal in a stock. It is also important for traders because this pattern gives them the opportunity to go short in a stock and earn money from the trend reversal.
Head and Shoulders pattern is a frequently appearing pattern which is often used by intraday traders.
Index Funds
Index fund is a passively managed mutual fund or an ETF which duplicates the performance of its underlying index. Index fund investors get the exposure of all the stocks that are a part of its underlying index. The expense ratio of an index fund is also less compared to other actively managed mutual funds.
Index fund as a concept was first introduced by John Bogle, the founder of an investment firm called The Vanguard Group. He launched the first ever index fund called The Vanguard 500 which tracked the performance of S&P 500 in 1975.
Index funds are one of the best choices for beginners to invest in. They are equally important for experienced investors because these funds provide better returns compared to most of the stocks. They also reduce an investor’s efforts of picking and analyzing stocks.
Index funds have been one of the most popular financial instruments and they are most commonly used by fund managers and investors.
Inflation
Inflation is a situation when a country’s economy experiences a sustained rise in the prices of goods and services . Inflation decreases the purchasing power of money over time. Meaning, a person with Rs. 1000 would have been able to buy many things two decades ago, compared to what he is able to buy now with the same amount.
Inflation as a term comes from the Latin word “inflare” which means “To blow up”. This term was first used to describe “An increase in the amount of money” in 1838. Since then, this term has been used to describe the increase in the prices of goods and services.
Beginners should understand this concept and invest a portion of their income to not lose the value of their money to inflation. This term is also important for investors because it helps them choose investments that beat the rate of inflation within an economy.
Inflation is a very popular term and is often used by analysts, economists and investors.
Initial Public Offering (IPO)
Initial Public Offering (IPO) is a process of raising funds from the public investors by listing a private company’s shares on the stock exchange for the first time. Initial Public Offering also offers a chance for the early stage investors of a company to cash out their investments by selling their stakes to the public in this process.
The first use of Initial Public Offering was done by the Dutch East India Company by offering their shares to the general public in the early 16th century. Since then, IPOs have been used in order to raise capital from the public.
Beginners should know about this concept as it is a very fundamental concept in the stock market. IPO’s provide an investment opportunity to the interested investors. They also help a company to get a fair valuation in the stock market.
IPO has been one of the most trending stock market terms in recent days and it is a frequently used term in media and financial reports.
Limit Order
A limit order lets a trader buy or sell a stock at a specified price. A limit order for buying/selling of stocks will only be executed if the stock reaches the specified price level. This method of executing trades saves a trader from taking a trade at uncertain price levels. Limit orders are most commonly of two types –
1) Day limit order and 2) Good ‘til cancelled order
Limit order originated with the evolution of electronic trading. Since then, traders have been using this type of order to take the trade at a level they desire.
Limit orders can help a beginner trader to prevent slippages and other issues associated with market orders. Limit order is a very important method for controlling the price levels at which a trader trades.
This term is commonly used by experienced traders to reduce the effects of volatility in the stock market.
Liquidity
The ability of an asset to be convertible into cash with ease is called liquidity. Highly liquid stocks are the stocks which can easily be bought and sold in the open market at a fair price. In simple words, the more buyers and sellers present in a stock, higher is the liquidity of that stock.
The term “Liquidity” comes from the Latin word “liquidus” which means “flowing”. First use of this term can be traced back to the 17th century. Since then, this term is used to describe the volume present in an asset.
Beginners should know about this term as high liquidity in a stock indicates that more people are interested in trading that particular stock. Liquidity is also a good indicator which ensures the stability of investment and determines the financial health of a company.
Liquidity is one of the most common stock market terms and is widely used by financial analysts and investors.
Margin
Margin is the collateral that an investor has to deposit with their broker in order to borrow more funds for investing in stocks. Margin increases the purchasing power of an investor. Buying on margin is also called leveraging positions. After borrowing money, the investor is liable to pay fixed interest on the borrowed amount at defined intervals to the broker.
Margin as a term comes from the Latin word “marginalis” which means “of the border”. Initially, this term was used to define a goods seller’s profit but over time, the meaning of the term changed to the act of an investor giving collateral for borrowing more funds from the broker.
Beginners should be aware of this term as it shows a different way of investing in the stock market. Margin is also crucial for investors because it lets them leverage their positions which eventually results in the profit maximization. It should be noted that leveraged positions are risky and only experienced investors should buy on margin.
This method is commonly used by investors for borrowing more funds from the broker in order to maximize their profits.
Market Index
Market index is the average of a group of stocks that represent a particular segment of the overall stock market. Market index is calculated based on weighing methods like market-cap weighting, fundamental weighting, etc. These indexes represent a benchmark for the group of stocks they cover. Some of the famous indices are Nifty, S&P 500 and NASDAQ.
Charles Dow along with his co-founder established the first ever market index called Dow Jones Industrial Average which tracked the industrial sector of the stock market in 1896. Since then, market indices have been used to track the performance of a group of stocks.
Beginners should know about this term as market index can help them understand the overall condition of the stock market and the economy. It also plays a very crucial part at the research and analysis. Investors often invest in funds which track the performance of these indices and earn decent profits.
This term has been around for a long time and is used by almost every market participant to look at the overall mood of the market.
Market volatility
Market volatility refers to the wide fluctuations in the prices of stocks both upwards and downwards. Market volatility indicates an instability in the market and it is considered to be a risky time for trading. Extreme volatility can be caused by a change in the market sentiment due to a market event, news, etc.
Though this term has been used for decades, the origins of market volatility are not clear.
Beginners should know about this concept as market volatility can affect their risk management. Investors also give a huge amount of importance to this because volatility impacts their investment decisions to a great degree.
Market volatility is a frequently mentioned stock market term mostly used by investors and financial analysts.
Moving Average
A moving average is a technical indicator used by traders and investors for identifying the trend of a particular stock. Moving average is also used to find out potential support and resistance levels in a stock. It is calculated by adding up all the price points in a specific period and dividing it with the number of time periods.
Moving average was introduced by R.H. Hooker in 1901 who called it “instantaneous averages” at first. The term “Moving average” was later coined by Yule by describing Hooker’s process. Since then, the moving average has been described as the mathematical formula to arrive at the mean of a stock’s price.
Beginners should know about this term as it reduces the clutter on a price chart and makes the support and resistance very evident. It is also given much importance by experienced traders as it is one of the oldest yet effective technical indicators in the stock market.
Moving average has been around for a long time, this is why it is used commonly by investors and traders.
Mutual Funds
A mutual fund is a financial vehicle controlled by a fund manager which collects funds from thousands of investors and invests in assets like stocks, bonds and other short-term debt instruments. Mutual funds are managed to meet the long-term goals of its investors.
The term “Mutual funds” originated in the United Kingdom in the 19th century. The word “Mutual” reflects the fact that these funds are collectively owned by thousands of investors. Since then, this term has been used to describe a pooled investment designed to meet the goals of its investors.
Beginners should know about this term as mutual funds provide a passive way to generate wealth from the stock market. It is also important for investors because they can diversify their portfolios by investing a portion of their capital into these funds.
Mutual fund is a commonly used term by investors, media and fund managers.
Nasdaq
Nasdaq is an American stock exchange primarily known for being the hub of the most technology-based companies listed on its exchange. Nasdaq stands for National Association of Securities Dealers Automated Quotations. It is also known for being the first ever electronic exchange in the world.
Nasdaq is an acronym for the National Association of Securities Dealers Automated Quotations. It was first introduced by the National Association of Securities Dealers (NASD) in 1971.
Beginners should know about Nasdaq as it is the leading index of the technological companies in the world. It is also important for investors because Nasdaq is the second largest exchange in the world and any factor affecting Nasdaq can also affect the markets worldwide.
This term is one of the most famous in the stock market. Hence, it is used almost daily by financial media and investors.
Non-Fungible Token (NFT)
Non-fungible tokens or NFTs are unique digital assets that can only have a single owner. NFTs are stored on the blockchain and can only be bought or sold via cryptocurrency. The reason why NFTs are valued so much is because every single NFT is unique and irreplaceable.
The exact origin of NFT is not known but on may 3, 2014, Kevin mcCoy, a digital artist minted the first-ever NFT and named it “Quantum”.
Knowing about this term exposes a beginner to a rapid growing industry with countless opportunities. NFTs are important because they have revolutionized the concept of ownership. NFT’s are also playing a major role in the developing digital economy.
NFT’s or non-fungible token has gained much popularity and it is being used frequently by digital art collectors, blockchain enthusiasts, etc.
Order Imbalance
Order Imbalance refers to the situation when the buy and sell orders in a stock are not in balance. Order imbalance can affect the price of a stock and it also makes it difficult for investors to buy and sell the stock at a preferred market price. Generally, Order imbalance happens in illiquid stocks.
The issue of order imbalance has been existing since the market began. Beginners should know about order imbalance because it is a fundamental concept in the financial markets. Order imbalance is a serious issue and can cause investors and traders to experience severe losses.
As a term, order imbalance has been around for quite a while. This term is often used by analysts, traders and investors.
OTC Stocks
OTC stocks also known as Over-the-counter are the stocks that are traded via a network of brokers/dealers. OTC stocks are not listed on centralized exchanges as most of them are unable to fulfill the prerequisites for listing their shares on a major exchange. Generally, these stocks are the shares of smaller companies.
The term OTC represents the way in which these stocks are traded. These stocks have been traded since decades. Beginners must know about this term because it shows them different ways of investing in the stock market. OTC stocks are also important for investors because they can diversify a portion of their portfolio into these stocks. As these companies have massive growth potential, the reward is on the higher side in these stocks.
This term is regularly used by financial analysts, investors and traders.
Outstanding shares are called “outstanding” because they have been issued by the company and are available for trading in the stock market. Outstanding shares are typically owned by retail and institutional investors. It is an important metric because it shows the total percentage of stock held by the investors.
This term has been existing in the market for decades. Beginners should know about this term as it is a fundamental part of how the stock market functions. Outstanding shares help analysts measure the market capitalization of a stock. They can also help in defining the total investor interest in the stock of a company.
Outstanding shares is a very popular stock market term and is often used in financial reports.
P/E Ratio
P/E ratio or price-to-earnings ratio is a method used by analysts and investors to measure a company’s current share price relative to its earnings per share (EPS). The P/E ratio is calculated by dividing a company’s share price by its EPS. Generally, a high P/E ratio means that the company is overvalued and vice versa.
P/E ratio has been used by financial analysts for decades. It was initially popularized by the legendary investor Benjamin Graham. Since then, this term has been used as a valuation method.
Understanding this term can help a beginner to take a deep view in the fundamentals of a company. P/E ratio is also important because it serves as a valuation tool for analysts and investors. It also shows the profitability of a company.
This term is one of the famous valuation methods when it comes to analyzing a company. It is used almost regularly by financial analysts and investors.
Preferred stock
Preferred stocks, also known as preferential shares are the shares of a company which has the features of an ordinary stock as well as a bond. Preferred stockholders have a higher claim on the assets of a company. Meaning, in the case of bankruptcy, preferred stockholders will be paid before the ordinary stock holders. These stockholders are given a fixed rate of dividend which is lower than the rate of ordinary shares and they do not enjoy any voting right too.
This term is called “Preferred stock” due to the special preference given to the owner of these stocks.
A beginner must know about these types of stocks as it shows the wide variety of investment options available in the stock market. Preferred stock is the best choice of investment for moderate risk-takers. Investors can also invest in these stocks to diversify their portfolios in a much safer asset.
Preferred stock is a common term in the stock market and it’s often used by investors.
Price Quote
Price quote is often referred to as the latest trading price of a stock or in other words, the last trading price a stock was available for buying or selling. Price quotes can be seen on multiple trading platforms. They also show information about a stock’s day high, day low, average volume traded in a day, etc.
Price quotes have been existing since the very start of the stock market. They have been used to keep traders/investors updated about the price changes in the markets ever since.
Beginners should understand this term as it lets them see the real time price changes in the stock market. Traders/investors use the valuable information provided by price quotes in the strategies they use.
Price quotes as a term is one of the oldest stock market terms and is used often by traders and investors.
Profit Margin
Profit margin is the amount a company earns after its annual expenses expressed as a percentage of a company’s total revenue. In simple words, profit margin tells the investors the degree to which a company is profitable after carrying out business operations. It is calculated by dividing a company’s net income by its total revenue.
Profit margin has been used as a profitability ratio of a company for decades. A beginner should understand this concept because it gives him/her a deep dive into the company’s fundamentals. Profit margin is an important part of a company’s overall analysis. It also helps investors in making wise investment decisions.
This term is a fundamental concept in a company’s analysis and is often used by financial analysts and investors.
Recession
Recession means a prolonged downturn in a nation’s economic activity that can last from months to even years. A recession happens when a country’s economy faces 2 consecutive quarters of negative growth rate in its GDP. An economy is also said to be in a recession when there is a negative imbalance between the goods and services demanded by consumers and the goods and services a producer can offer.
The term “Recession” originates from the Latin word “recessus” which means “a going back”. This term was first used in the 19th century. Since then, this term has been used to define a decline in a nation’s economy.
Every beginner should understand this term as it impacts the overall economy of a nation. This term is extremely important for investors too because a recession can have a severe impact on their portfolios.
Recession as a term is commonly used in financial reports and media.
Risk Tolerance
Risk tolerance refers to the maximum risk capacity of an investor/ an institution. Risk tolerance is one of the most important factors of investing and every wise investment decision is taken after considering this factor. Investors investing in risky stocks often have high risk tolerance compared to those investors who like to play it safe.
The term “Risk tolerance” comes from risk management which is the most fundamental part of any investment. Beginners must understand this concept because people who make money are often excellent risk managers. Risk tolerance as a term is also important because it helps an investor in deciding the maximum amount he is willing to lose in a stock.
This term is a fundamental concept in the field of finance and is regularly used by financial advisors and investors.
Roth IRA
A Roth IRA (Individual Retirement Account) is a type of retirement account considered to be one of the best long-term investments for retirement. A Roth IRA investor is granted tax-free withdrawals after the age of 59. The contributions to this account are made with an after-tax amount.
Roth IRA’s are named after the late U.S. Senator William Roth. This retirement account was introduced under the Taxpayer Relief Act of 1997. Since then, this account has been used to create a corpus for retirement.
Beginners must know about this term as it serves as a great method to build a retirement corpus. Roth IRA’s also provide its investor with great flexibility regarding withdrawals.
This term is one of the most famous terms for retirement accounts in the U.S. It’s often used by investment advisors and finance professionals.
Sector
A sector is a grouping of companies in the stock market that are working in a similar business. Different stock market sectors are affected by different kinds of policies and news. The major sectors in the Indian stock market are Pharmaceutical sector, Technological sector and the FMCG sector.
The concept of a sector comes from the Industrial Classification Systems developed in the late 19th century. Since then, this term has been used to classify businesses working in the similar field.
Stock market sectors can help a beginner in an easy tracking of particular stocks within a sector. It is also important for investors because different stock market sectors provide diversified investment opportunities in the overall market.
The term “Sector” is commonly used in the stock market and is frequently used in financial news and reports.
A share of a company’s stock represents a fraction of ownership in the company. Shares are of two types – 1) Equity shares also known as ordinary shares and 2) Preference shares. Shareholders of a company are entitled the right to vote and right to receive dividends. The price of a share fluctuates because of the forces of demand and supply in the market.
The term “Shares” comes from an old English word “scearu” which means “a portion or a part”. This term was first used when the Dutch East India Company issued their shares to the public in 1602. Since then, the term is used to describe an ownership in companies.
Beginners must know about this term as it is the most fundamental concept of the stock market. Shares also play a crucial role in fueling the economy with investments and generate long-term wealth for market participants.
This is one of the most commonly used terms in the stock market and is almost used by everyone.
Stock Option
Stock options are derivative contracts which give its investors the right, but not the obligation to buy or sell a stock at a specified price and time. A stock option’s value is dependent on the price of its underlying stock. Investors use these options as tools for hedging against their portfolios.
Options as tradable instruments were introduced in “Bucket shops”. Since then, these contracts have been used for speculation or hedging purposes.
Beginners should know about this term as it helps them in knowing the alternate ways of making money from the stock market. Stock options are considered important because they help an investor in hedging against their portfolios at the time of market uncertainty.
Stock options as a term is used regularly by traders and investors.
Stock portfolio
A stock portfolio consists of a collection of stocks owned by an investor. A stock portfolio is made with the aim of generating a regular source of income as well as building long-term wealth. A stock portfolio is built based on an investor’s risk tolerance and future goals.
The modern portfolio theory which changed the image of a stock portfolio for investors was introduced in John Burr Williams’ book, “The Theory of Investment Value” in 1938.
Beginners must understand this concept as it is a crucial part of building long-term wealth. Diversified stock portfolios offer investors higher returns that beat the inflation and it also helps them in building a passive income through stock dividends.
Stock portfolio is one of the most common stock market terms and is often used by all market participants.
Stock split
A stock split refers to the corporate action taken by the board of directors in which a company issues additional shares to its existing investors. Stock splits cause an infusion of additional shares in the market which eventually results in a reduction in the prices of a stock. One of the reasons why a company does this is to increase the liquidity of its stock.
This term originates from the concept of dividing a stock into multiple stocks. A beginner should know this concept because companies often take actions like these to boost the performance of their stock. Stock splits also makes the outstanding shares of a company more affordable for new investors.
This term is used only when a company decides to increase the quantity of its outstanding shares.
Time Horizon
Time horizon, also known as investment horizon refers to the maximum length of time that an investor plans to own a stock. Time horizons are mostly dependent on an investor’s personal investment goals. There are two types of investment that come into the picture as long as the time horizon is concerned – 1) Short-term investments and 2) Long-term investments.
As a term, time horizon is a natural concept of investing. This term helps beginners in understanding the importance of planning while doing an investment. Time horizon plays a major role in investment as it helps an investor in defining his personal goals and helps him in gaining clarity about his investments.
Time horizon is one of the most common terms used in the stock market and it is often used by financial advisors and investors for building a better financial plan.
Volume
Volume is the addition of the total number of daily buy and sell orders executed within a stock. Volume is also used by traders as a technical indicator for defining the area of significance in the price chart of a stock. Typically, higher volume in a stock is a sign that the majority of investors are interested in the underlying stock.
Volume has been used for defining the area of importance since decades. Volume is important for beginners because it is considered to be one of the most effective indicators in the stock market. Volume also plays a crucial role in determining the liquidity of a stock.
This term is commonly used in intraday trading by day traders.
Volume-Weighted Average Price (VWAP)
Volume-Weighted Average Price (VWAP) is a technical indicator used for intraday trading. VWAP is a measure of the average price of a stock over a defined period, weighted by the total volume of stocks traded during the same period. VWAP is used by traders to determine the overall trend of the stock within a day.
Though this indicator has been used in the markets for decades, the origin of this term is not known.
Beginners should know about this indicator as it is simple to use yet one of the most effective technical indicators out there. VWAP helps traders in identifying important price levels of a stock and the overall trend in the market.
VWAP has gained much popularity in recent days. It has become one of the most famous technical indicators and is widely used by intraday traders.
Yield
Yield refers to the rate of dividend an investor receives through his ownership in a stock. A dividend yield is calculated by dividing the total amount an investor has received through dividends by the current price of the stock.
Yield originates from the concept of receiving a passive income from your dividends. Beginners must know about this concept because it is the most fundamental concept when investing in stocks. Investors who invest for dividend income put special emphasis on yield as they only invest in stocks which offer the highest rate of dividend.
Yield has been used as a measure to calculate return on investments for decades and is one of the most common terms used in the stock market.
52-week Range
A 52-week range is a concept which refers to the 52-week high and low of the stock. The 52-week range of any stock can be found on multiple trading platforms. Investors/traders generally filter out stocks that are trading near their 52-week high or low range to catch explosive moves once the stock breaks any of these ranges.
The 52-week range has been a decades-long indicator for investors. Beginners must know about this concept as it is a part of one of the oldest investment/trading strategies. a stock’s 52-week high or low of a stock is given much importance because historically it has been observed that once the stock breaks its 52-week high or low, it continues to trade in the direction of the break.
The 52-week range is one of the oldest yet effective trading indicators. The 52-week range is mostly used by investors and traders.
Float
The term Float refers to the ordinary shares that are available for the market participants to trade in the open market. A company’s float is calculated by subtracting the outstanding shares of a company with its restricted shares. Restricted shares are shares that can’t be traded because they are in a lock-up period.
Beginners should understand this term as it helps them take a deep view in the fundamentals of a company. Float also helps investors in identifying the liquidity of a stock. It also helps investors in making wise investment-related decisions.
Float is a decade-old term and is used commonly in financial articles and reports of a company.
Broker
A broker is a licensed professional who acts as the intermediary between the stock exchange and the traders/investors. Brokers earn from the commission they charge on the execution of an order. This commission is called Brokerage. Brokers can also earn from interest payments from investors who have borrowed money from them.
The term “Broker” has been used for decades to describe a trader/merchant who acts as an intermediary for buying and selling of goods.
A beginner should know what a broker is and its functions as it is a very fundamental term in the stock market. A broker is also crucial because he gives access to the financial markets to all the market participants. “Broker” as a term is commonly used by all the market participants.
Volatility
Volatility refers to the wide range of fluctuations in the price of a stock. Volatility can be caused by factors like news, market events, changes in policies, etc. Investors and traders generally avoid using their capital in a stock that is too volatile.
The term “Volatility” originates from the Latin word “volatilis” which means “flying”. This term was first used in a financial context in the 19th century. Since then, this term has been used to describe the wild behavior of the market.
Beginners must know about this term as volatility can cause an investor/trader to experience severe losses. Volatility is one of the most important factors considered by investors before investing in any security.
This term is one of the most common terms in the stock market and is regularly used by almost all the market participants.
Hedge fund
Hedge funds are privately owned investment funds that are actively managed by highly skilled fund managers. Hedge funds do not have to comply with most rules compared to a traditional mutual fund. Therefore, they can make the use of derivatives and leverage and take a lot more risk than mutual funds.
Alfred Winslow Jones, the father of the hedge fund industry, introduced the concept of Hedge funds. Jones started the first hedge fund called “Hedged fund” in 1949. Since then, the hedge fund industry has adopted many changes.
Beginners should know about this term as it helps them develop a basic understanding around the stock market. Hedge funds are important for markets as they provide much liquidity into the stock markets. They are also crucial for high net individuals as hedge funds offer them higher returns.
The term “Hedge fund” is often used in financial media, reports and articles.
Stock Symbol
A stock symbol refers to the unique set of letters given to a stock. Stock symbols help traders/investors in successfully distinguishing stocks listed on the stock exchange. Stock symbols are also used on different trading platforms for identifying a specific stock.
Stock symbols were introduced in the 19th century with the rise of modern exchanges. Since then, they have been used to identify stocks.
Beginners must know about this term as it provides them with an efficient way to identify a specific stock. Thus, stock symbols help a trader/investor save time and efforts.
This term is commonly used by all the market participants to identify and trade the stocks listed on an exchange.
Investment
An investment is the activity of buying shares with the aim of earning a regular income or capital appreciation or both at the same time. An investment helps an investor to grow his capital and build long-term wealth. Investments also help companies in funding their operations efficiently.
“Investment” as a term comes from the Italian word “investire” which means “to commit money in order to earn a financial return”.
Knowing about this term is a must for any beginner. Understanding this term will help a beginner in taking well-informed investment decisions. Investments are also crucial for the economy because it makes the cash available for businesses and increases the country’s ability to produce.
Investment is one of the most common stock market terms and is used to describe the act of buying an asset often.
Why should a Beginner know Stock Market Terminology?
A beginner should know about the stock market terminology as it will help him/her understand what other traders & investors are talking about. Knowing about stock market terminologies like stocks, futures, calls and puts will help him/her in understanding financial news, articles, reports etc.
Knowing how the stock market works fundamentally will also help a beginner in generating wealth from the stock market. Enhancing one’s knowledge about the stock market also results in a better financial plan for the future.
This is why a beginner should know about the stock market terminologies and how the stock market works.
What are the Most used Stock Market Terms?
The most used stock market terms are the terms you hear or see almost everyday in the media or financial articles. Here are 5 of the most used stock market terms –
- Hedge Funds
Hedge funds are privately owned financial partnerships that use the capital of its investors to deploy various investment strategies. Unlike mutual funds, these funds do not have to comply with strict government rules and they therefore use high-risk high-reward strategies with the use of leverage and derivatives.
Hedge funds are operated by highly skilled fund managers. Some of the common hedge fund strategies are Arbitrage, Long-short equity, etc.
- Broker
A broker is a licensed individual or a firm which acts as the intermediary between the stock exchanges and the investors. In simple words, a broker executes orders on behalf of the investors. Nowadays, investors and traders can execute their orders directly from their broker’s website or app.
Brokers earn from commissions which is also known as brokerage. In some cases, they also receive interest payments from investors that are buying on margin.
- Volume
Volume refers to the number of daily buy and sell orders executed in a stock. Generally, a stock having high volume means that a large number of market participants are interested in the stock. Low volume is associated with illiquidity and most traders and investors avoid parking their capital in such stocks.
Volume is also used as a technical indicator by intraday traders to mark the area of high importance.
- Algo Trading
Algo trading or Algorithmic trading means to automate an existing or a new trading strategy by the use of a computer algorithm. In algor trading, traders give pre-programmed orders to a computer for executing a trade.
Algorithmic trading is widely used by institutional traders as well as retail traders. Institutions use algorithms to punch in major orders at a fraction of a second. Common algo trading strategies are Index rebalancing, Arbitrage, etc.
- Intraday trading
The act of buying and selling of stocks within a day is called intraday trading. Intraday trading is also called Day trading. Traders who trade intraday are often called speculators of the market. These traders aim to profit from the tiniest fluctuation in the price of a stock.
Intraday trading can be a high-risk high-reward strategy because an intraday trader can trade with more margin. Intraday traders use various technical indicators to find an edge in the markets. These indicators include Relative Strength Index (RSI), Moving average, Bollinger bands etc.
These are 5 of the most used stock market terms. A beginner should know about these terms because they can confuse a beginner. Understanding them further helps a beginner in making wise financial decisions.
What are the Basic Stock Market Terminologies?
Basic stock market terminologies are a must know term for a beginner. Here are 5 of the most basic stock market terminologies –
- Buy
Buy refers to the buying of shares. This represents an investor’s bullish view on the particular stock. An investor earns profit by buying a stock at a cheap price level and selling it on a higher price in the future.
- Sell
Sell refers to the selling of shares. Sell order represents an investor’s bearish view on the particular stock. An investor earns profit by short selling a stock at a higher price level and buying back the stock at a cheap price later.
- Rally
A fast increase in the prices of the overall market or an individual stock is called a rally. Rallies often happen due to reasons like good corporate results, favorable policies etc.
- Equity
The term “Equity” refers to the ownership of shares in a company. Equity shareholders are also called as the real owners of the company.
- Sector
Companies that are in the same business represent a market sector. Some examples of this will be the Pharmaceutical sector, Technology sector, etc.
What is the Stock Market?
The stock market is a place where the buyers and sellers continuously fight to arrive at a fair valuation of a stock’s price. The stock market is also called the “Economy Barometer” because it reflects the health of the economy.
The stock market is a crucial part of a country’s economy as it fuels the economy with investments. The stock market also bridges the gap between an investor who’s looking to invest his capital and a company which is looking to raise funds for running operations.
When you buy a share in a company’s stock, you become a partial owner of that company. It means you are entitled the right to receive dividends and the right to vote in the company’s decision-making process. Whereas, the company you invested in uses your capital to fund its own operations in order to grow even further.
If the company is scaling at a good speed, other investors get attracted towards buying its shares. This causes an increase in the price of a company’s stock which eventually results in capital appreciation for an investor.
The stock market is crucial for investors as it provides them with a regular source of income called a dividend. The stock market also helps investors in generating long-term wealth.
How to Learn the Stock Market Terminologies?
Learning and understanding the stock market terminologies can be a great way to start your investment journey. Learning these terms will help you in staying updated and taking well informed financial decisions. Here are 3 ways in which you can learn stock market terminologies –
- Watch financial news
- Read financial newspaper
- Interact with other stock market enthusiasts
- Use Google to find out the meaning of every unfamiliar finance related word
Is Stock Market Terminology Required for a Beginner to Trade Stocks?
Yes, learning stock market terminology is a must for a beginner to trade stocks. Learning about stock market terms helps a beginner gain clarity about how the stock market works. For instance, a beginner must know about the technical indicators he is using to trade stocks or he/she will face terrible losses in the market.
Similarly, a beginner must know about terms like stop loss and limit order to trade efficiently. The stock market always punishes the innocent and only professionals earn money from the market. Hence, a beginner must know about basic stock market terminologies before trading stocks.
Share
Previous Article
No Comments Yet