Today we are discussing the most important stock market terms which are essential for each & every beginner of the share market to know about it. When I entered the world of stock market then I search lots of words on google which consume plenty of my time. So, here we thought of explaining some of the important terms of the stock market.
Here are some stock market terms :
- Buy – Buy is a term used to describe the purchase or acquisition of an item or service that’s typically paid for via an exchange of money or another asset. When buyers look to acquire something of value, they assign a monetary value to that product or service.
- Sell – The term sell refers to the process of liquidating an asset in exchange for cash. In investment research, sell refers to an analyst’s recommendation to close out a long position in a stock because of the risk of a price decline.
- The Bid Price – The bid price is the price that an investor is willing to pay for the security.
For example if an investor wanted to sell a stock, he or she would need to determine how much someone is willing to pay for it. This can be done by looking at the bid price. It represents the highest price that someone is willing to pay for the stock.
- The Ask Price – The ask price is the price that an investor is willing to sell the security for.
For example if an investor wants to buy a stock, they need to determine how much someone is willing to sell it for. They look at the ask price, the lowest price someone is willing to sell the stock for.
- Bid-Ask Spread – Bid-Ask spread is typically the difference between ask (offer/sell) price and bid (purchase/buy) price of security. Ask price is the value point at which the seller is ready to sell & bid price is the point at which a buyer is ready to buy.
When the two value points match in a marketplace, i.e. when a buyer and a seller agree to the prices being offered by each other, a trade takes place. These prices are determined by two market forces – demand & supply, and the gap between these two forces defines the spread between buy-sell prices.
- Bull Market – A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term bull market is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.
- Bear Market – A bear market is a situation when the stock market experiences price declines over a period of time. Generally, a bear market is declared when the price of an investment falls at least 20% from its high.
In other words, a trend of falling stock prices for an extended period is considered a bear market.
- Stop Loss – Stop Loss can be defined as an advance order to sell an asset when it reaches a particular price point. It is used to limit loss or gain in trade. The concept can be used for short-term as well as long-term trading. This is an automatic order that an investor places with the broker/agent by paying a certain amount of brokerage. Stop Loss is also known as ‘stop order’ or ‘stop market order’.
- Lot Size – Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. In other words, lot size basically refers to the total quantity of a product ordered for manufacturing .
For Example When we buy a pack of six chocolates, it refers to buying a single lot of chocolate.
- Market Order – A market order is an order to buy or sell a stock at the market’s current best available price. A market order typically ensures an execution, but it doesn’t guarantee a specified price. Market orders are optimal when the primary goal is to execute the trade immediately. A market order is generally appropriate when you think a stock is priced right, when you are sure you want a fill on your order, or when you want an immediate execution.
- Limit Order – A limit order is an order to buy or sell a stock with a restriction on the maximum price to be paid or the minimum price to be received (the limit price). If the order is filled, it will only be at the specified limit price or better. However, there is no assurance of execution. A limit order may be appropriate when you think you can buy at a price lower than—- or sell at aprice higher than—– the current quote.
- Day Order – A day order is defined as an instruction from a trader to their broker, to buy or sell a certain asset. Setting a day order means that the deal has to be executed if an asset hits a specified price at any point during the trading day on which the order is made. The day order will expire if the price specified in the order is not met by time the market closes.
- Volatility – Volatility measures the risk of a security. It is used in option pricing formulas to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.
- Averaging Down – When a trader purchases an asset, the asset’s price drops, and if the trader purchases more,it is referred to as averaging down. It is called averaging down because the average cost of the asset or financial instrument has been lowered. Because of this, the point at which a trade can become profitable has also been lowered.
15. Capitalization – Market capitalization is one of the most important characteristics that helps the investor determine the returns and the risk in the share. It also helps the investors choose the diversification criterion.
16. IPO – Initial Public Offering is the process by which a private company can go public by sale of its stocks to the general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.
17. Portfolio – A collection of investments owned by the investor is called a portfolio. An investor may have just one stock or multiple securities in a portfolio. It contains a diverse range of financial instruments like shares, bonds, futures, options, etc.
18. Dividends – Dividend is a part of profit distributed by a corporation among its shareholders. When a company earns profit during a financial year, a part of that profit is usually distributed as dividend among its shareholders.
19. Agent – An agent is a stock brokerage firm which does the buying/selling of shares on behalf of the investor in the stock market.
20. SEBI – SECURITIES And EXCHANGE BOARD OF INDIA is the regulator that oversees the stock market in India. It provides a platform for investors and traders to trade efficiently, and for companies to raise capital fairly. It protects the interests of the investor and ensures accurate information is provided to the investors.
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