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Stock market A guide to essential terminologies

19 Aug 2023

Introduction 

If you want to trade in the stock markets, you need to understand the rules of the game. These trading terms will act as a pathway toward your wealth-creation journey. Knowing these basic terms will help you make the right trading decisions.  

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Let’s explore the technical terms employed in stock trading and investing -

  •  Stock

Also known as a share or equity, stock represents the basic ownership unit of a company. Owning stock allows you to own a portion of the company's profits and assets with voting rights in corporate decisions.

  •  Stock Market

It is a marketplace where publicly held (listed) companies issue and trade their shares.

  •  Volatility

As a degree of variation in a stock's trading price, it is measured by the standard deviation of returns and indicates how much a stock's price fluctuates. Increased volatility results in both chances for gain and risks.

  •  Liquidity

It conveys the ease with which you can buy or sell a stock and convert it into cash. Highly liquid stocks allow for smoother transactions and better price discovery.

  •  Corporate Actions

These are events initiated by a company, such as dividends, stock splits, mergers, and acquisitions, that can impact the securities issued by the company.

  •  Dividend

It is a portion of a company's profits distributed periodically to its shareholders.

  • Bonus Issue

When a company issues free shares to existing shareholders, increasing the total outstanding shares, this is called a bonus issue.

  •  Stock Splits

It increases the number of shares outstanding by reducing the face value per share, making the stock more affordable.

  •  Rights Issues

It allows existing shareholders to purchase additional shares directly from the company, often at a discounted price.

  •  Bull Market

This is a period when stock prices are expected to rise. It indicates positive investor sentiment.

  •  Bear Market

This is a period when stock prices are expected to fall as indicated by the negative sentiments

  • Margin Amount

This is the initial deposit made by you while opening a trading account. It further acts as collateral for buying stocks on margin.

  •  Margin Funding

It enables you to borrow money from your broker to buy securities. Moreover, it boosts potential gains and losses but also comes with increased risk.

  •  Contract Note

A broker issues this document to clients for all transactions and contains details like trade information, brokerage, taxes, and signatures.

  •  Settlement Types

Trades can be settled on a rolling basis or an account-period basis. Today, most trades are settled on a T+2 day basis. For example, transactions executed on a Monday will be settled on the following Wednesday.
 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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