Basic Stock Market Trading Terms You Should Know

Young individuals who have the interest and the enthusiasm for stock trading usually lack the basic domain knowledge of the market. Although trading doesn’t require a lot of time and money, it is still essential to equip oneself with some basic tools and necessary training to take the right decisions. Before you go out into too many technicalities, here is a list of Basic Stock Market Trading Terms that you should know before you start investing in the trade market.

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Basic Stock Market Trading Terms are as

1. Agent: A brokerage firm is said to be an agent when it acts on behalf of the client in buying or purchasing of shares. At no point in time in the entire transaction, the agent will own the shares.
2. Ask/Offer: The lowest price an owner is willing to sell the stocks.
3. Assets: Everything the company owns on its name, including the cash, equipment, land, technology etc. which shows the total wealth of the company.
4. At the money: A situation at which an option’s strike price is identical to the price of the underlying securities. Options trading activity tends to be high when options are at the money.
5. Averaging Down: This is when an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases.
6. Bear Market: A market in which stock market prices are falling consistently. This is trading talk for the stock market being in a downtrend or a period of falling stock prices. This is the opposite of a bull market.
7. Beta: A measurement of the relationship between the price of a stock and the movement of the whole stock market. If stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points and vice versa.
8. Bid: It is the highest price a buyer is willing to pay for a stock. It is opposite of ask/offer.
9. Blue Chip Stock: These are the large, industry leading companies. They offer a stable record of significant dividend payments and have a reputation of sound fiscal management. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
10. Board Lot: A standard trading unit as defined by the particular exchange board. Board lot size usually depends on the per share price. Common board lot size are 50, 100, 500, 1000 units.
11. Bonds: It is promissory note issued by companies or government to its buyers. It speaks about the specified amount held for a specified time period by the buyer.
12. Book: An electronic record of managing all the pending buy and sell orders of particular stocks.
13. Broker/Brokerage Firm: A registered securities firm are called broker/brokerage firm. Broker’s acts as an advisor for purchase and sell of listed stocks, they do not own the securities at any point of the time. But they charge a commission for their service.
14. Bull Market: This is when the stock market as a whole is in a prolonged period of increasing stock prices. Opposite of a bear market.
15. Business Day: Monday to Friday, excluding public holidays.
16. Call Option: An option that is given to investor the right but not obligation to buy a particular stock at a specified price within a specified time period.
17. Close Price: The final price at which the stock is traded on a given particular trading day.
18. Commodities: Product used for commerce that is traded on a separate, authorized commodities platform. Commodities include agricultural products and natural resources.
19. Convertible Securities: A security (bonds, debentures, preferred stocks) by an issuer that can be converted into other securities of that issuer are known as convertible securities. The conversion usually occurs at the option of the holder, but it may occur at the option of the issuer.
20. Day Trading: The practice of buying and selling within the same trading day, before the close of the markets on that day. This is what Tim typically does, although he does have a long-term portfolio as well. Traders that participate in day trading are often called “active traders” or “day traders.”
21. Debentures: A type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer.A debenture is an unsecured form of investment.
22. Defensive Stock: A stock that provides constant dividends and stable earnings even in the periods of the economic downturn i.e. even in the extreme critical situations of the stock market these companies continue to pay the dividends at a constant rate.
23. Delta: The ratio that compares the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the hedge ratio. It has a range from 0 to 1.
24. Derivatives: A security whose price is derived from one or more underlying assets. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.
25. Diversification: Reducing the investment risk by purchasing shares of different companies operating in different sectors.
26. Dividend: A portion of the company’s earnings decided to pay to its shareholders in return for their investments. It is usually declared as a percentage of current share price or some specified INR value, usually decided by the board of directors of the company.
27. Equity: Common and preferred stocks, which represent shares in the ownership of a company.
28. Exchange: An exchange is a place in which different investments are traded. The most well-known in the United States are the New York Stock Exchange and the Nasdaq.
29. Execution: When an order to buy or sell has been completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold.
30. Face value: It is the cash denomination or the amount of money the holder of the individual security going to earn from the issuer of the security at the time of maturity. It is also known as par value.
31. Hedge: This is used to limit your losses. You can do this by taking an offsetting position. For example, if you hold 100 shares of XYZ, you could short the stock or futures positions on the stock.
32. Income Stock: A security which has a solid record of dividend payments and offers the dividend higher than the common stocks.
33. Index: An index is a benchmark which is used as a reference marker for traders and portfolio managers. A 10% may sound good, but if the market index returned 12%, then you didn’t do very well since you could have just invested in an index fund and saved time by not trading frequently. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500.
34. Initial Public Offering (IPO): A company’s first issue of shares to general public. IPOs are issued by smaller, younger companies seeking funds for expansion and growth, but large companies also practice this to become publicly traded companies.
35. Internet Trading: Internet Trading is a platform with the Internet as a medium. Internet trading execution takes place through order routing system, which will rout traders order to exchange trading system. Thus traders sitting in any part of the world can be able to trade using their broker’s Internet Trading System. The Securities and Exchange Board of India (SEBI) approved Internet Trading in January 2000.
36. Limit Order: An order to buy or sell a share at a specified price. The order will be executed only at the specified limit price or even better. A limit order sets a minimum price the seller is willing to accept and maximum price the buyer is willing to pay for it.
37. Listed Stocks: The shares of an issuer that are traded on the stock exchange. The issuer has to pay fees to be listed on the stock exchange and abide by the regulations of the stock exchange to maintain listing privilege.
38. 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.
39. Market Capitalization: The total value in INR of all of a 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.
40. Moving Average: A stock’s average price-per-share during a specific period of time. Some time frames are 50 and 200-day moving averages.
41. Mutual Fund: A pool of money managed by experts by investing in stocks, bonds and other securities with the objective of improving their savings. These experts will create a diversified portfolio from these funds.
42. Odd Lot: A number of shares which are less than or greater than but not equal to the board lot size. For example, if the board lot size is 100 shares, an odd lot would be 95 or 102 shares. Usually odd lots are difficult for trading and it is not accepted easily in the market.
43. One-sided Market: A market that has only potential sellers or only potential buyers but not both.
44. Order: An investor’s bid to buy or sell a certain amount of stock or options contracts. You have to put an order in to buy or sell 100 shares of stock.
45. Out-of-The-Money (OTM): For call options, this means the stock price is below the strike price. For put options, this means the stock price is above the strike price. The price of out-of-the-money options consists entirely of “time value.”
46. Portfolio: A collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks.
47. Positions Limit: Maximum number of futures and options contract that any individual investor can hold at any given point of time.
48. Pre-opening Session: The pre-open session is for a duration of 15 minutes i.e. from 9:00 AM to 9:15 AM. In pre-open session order entry, modification and cancellation take place.
49. Price-Earnings (P/E) Ratio: A valuation of companies last traded share price to its latest reported 12 months earnings per share. For example, if the last traded share price of any X company is INR 40 and earnings over a last 12 months per share is INR 2, then the P/E ratio of that X company is INR 20 (40/2)
50. Put Option: An option that is given to investor the right to sell a particular stock at a stated price within a specified time period. A put option is purchased by those who believe that particular stock price is going to fall down than the stated price.
51. Quote: Information on a stock’s latest trading price. This is sometimes delayed by 20 minutes unless you are using an actual broker trading platform.
52. Rally: A rapid increase in the general price level of the market or of the price of a stock.
53. Risk: A probable chances of investments actual returns will be reduced then as calculated. The risk is usually measured by calculating the standard deviation of the historical price returns. Standard deviation is directly proportional to the degree of risk associated.
54. Sector: A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Apple and Microsoft.
55. Securities: A transferable certificate of ownership of investment in products such as stocks, bonds, future contracts and options which an individual holds.
56. Spread: This is the difference between the bid and the ask prices of a stock, or the amount someone is willing to buy it and someone is willing to sell it.
57. Strike Price: The price at which the holder of an option can buy (in a case of call option) or sell (in a case of the put option) the securities they hold when the option is executed.
58. Stock Split: An attempt to increase the number of outstanding shares of a company by splitting the existing shares. It is usually done to increase the availability of shares in the market. The usual split ratio is 2:1 or 3:1, i.e. one share is split into two or three.
59. Stock Symbol: A one-character to three-character, alphabetic root symbol, which represents a publically traded company on a stock exchange. Apple’s stock symbol is AAPL.
60. Thin Market: A market in which there are the comparatively low number of bids to buy and offers to sell. Since the number of transactions is low the prices are very volatile.
61. Trading Session: The period of time from 9:15 AM to 3:30 PM is open for trading for both sellers and buyers, within this time frame all the orders of the day must be placed. Here all the orders placed in pre-opening sessions are matched and executed.
62. Volatility: This refers to the price movements of a stock or the stock market as a whole. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. This is often common with stocks that are thinly traded, or have low trading volumes. This is also common with the stocks that Tim trades.
63. Volume: The number of shares of the stock traded during a particular time period, normally measured in average daily trading volume.
64. Yield: Yield: This usually refers to the measure of the return on an investment that is received from the payment of a dividend. This is determined by dividing the annual dividend amount by the price paid for the stock. If you bought stock XYZ for $40-a-share and it pays a $1.00-per-year dividend, you have a “yield” of 2.5%

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These are some Basic Stock Market Trading terms, which you should know before investing in the market. Tell us if we miss any term of Stock market. Share these stock market terms with you known.