Introduction

Entering the world of stock investing can be like jumping into a swirling sea of numbers, graphs and terms for new investors in India. With dynamic stock exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) providing potential wealth creation, understanding the basics is necessary for anyone wanting to invest or trade. With terms like "shares" and "IPOs", it can be a little overwhelming, but learning all of this is probably the first step toward making you feel empowered to make decisions about your finances.

This guide will help you understand 15 stock market terms covering the most important terms new Indian investors should know so you can enter the market with more confidence and definite clarity.

Share

A share is a single unit of ownership in a company, typically bought and sold on stock exchanges like the BSE, NSE, etc. When you buy a share, you are a part owner of the company and have a right to some of its profits, usually through dividends. You also have a claim (again, a tiny fraction) against the company's assets. So, if you owned 50 shares in a company, you would own a small part of that business.

Stock

Stock is a general term used to refer to the ownership shares issued by one or more companies. When you own "stocks," it means you own shares in one or more companies, such as HDFC Bank or Infosys. Stocks are typically traded on stock exchanges like the BSE or NSE in India. So, when you refer to your "stocks in India," you're talking about shares listed and traded on Indian stock exchanges.

Bid

The bid price represents the maximum price a buyer can pay at any time. It illustrates market demand. For example, if you check Tata Motors and see a bid price of ₹500, that means there are buyers at that price.

Ask

The ask price (or asking price) is the lowest price a seller is willing to accept for a stock.

It’s part of the bid-ask spread, where the bid is the buyer's offer, and the ask is the seller's offer. A smaller spread usually indicates better liquidity in the market.

Trading Volume

Trading volume is a measure of the total number of shares traded in a stock over a period, usually one day. A stock with a high volume, such as ITC, represents active interest and should be easier to trade. A stock with low trading volume may signal limited interest, causing a delay in pricing.

Volatility

Volatility is a measure of how much a stock's price varies. Stocks with high volatility; for example, stocks of tech start-ups, can have large returns or drops in price very quickly and, hence, a significant amount of risk and reward.

Bull Market

A bull (bullish) market can be described as a market where stock prices rise significantly. In general, the term bullish is applied when stocks rise 20% or more in stock market indices like the Sensex or the Nifty 50. Bullish markets allow us to know whenever stock prices continually rise, whether due to positive sentiment or economic growth, like India's economic recovery after the COVID-19 pandemic, one of the greatest in history.

Bear Market

A bear (bearish) market is signified by prices falling significantly, normally 20% or greater, of stock prices in market indices. These price declines are typically caused by global economic phenomena such as recessions. While bearish markets can be painful to experience, they can also present opportunities to buy good stocks at discounts.

Market Order

A market order is a request you place with your broker to buy or sell their stock (long or short) immediately at a similar market price to sell or buy the stock. Similarly, note whether your market order permits what specific price you can make the market order.

Limit Order

A limit order lets you set a specific price for buying or selling a stock. For example, you might order a limit to buy stock at ₹600 or lower. It gives price control but may not execute if the market doesn’t reach your target.

Stop Loss Order

A stop loss order automatically sells a stock when its price drops to a set level, limiting losses. For example, if you buy any stock at ₹2,000 and set a stop-loss at ₹1,800, the stock will sell if it hits ₹1,800, capping your loss at 10%.

Dividend

A dividend is a portion of a company’s profits paid to shareholders, often quarterly or annually. Some Indian companies regularly pay dividends, offering investors passive income alongside potential stock price gains.

Portfolio

Your investment portfolio collects all your financial assets, including stocks, mutual funds, and bonds. A balanced portfolio, with stocks from sectors like banking and pharma, aligns with your risk appetite and goals, such as retirement or wealth growth.

Diversification

Diversification involves spreading investments across sectors like IT, energy, and consumer goods to reduce risk. For instance, holding stocks in Adani Enterprises, HUL, and Axis Bank ensures that a downturn in one sector doesn’t derail your entire portfolio.

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Initial Public Offering (IPO)

An IPO is when a private company offers shares to the public for the first time to raise funds. IPOs are exciting for Indian investors but require caution due to market hype and limited historical performance data.

Conclusion

Understanding the stock market doesn't need to be difficult. With these 15 terms, you can know India's variable markets, make informed investment decisions, and gain confidence as you accumulate wealth. This is true whether you're buying your first shares or investigating your first IPO. You can always benefit from understanding the importance of the basics.

Continue learning, stay curious, and build progressively towards your economic goals.

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