Smita Parekh 20th Nov, 2018
Here are some terms frequently used in the stock market which are important to know if you want to trade the market.
1) Bear Market- Trading talk for the stock market being in a downward trend, or a period of falling stock prices. This is the opposite of a bull market. If a stock price crashes, it’s very bearish.
2) Bull Market- When the stock market as a whole is in a prolonged period of increasing stock prices. It’s the opposite of a bear market. A single stock can be bullish or bearish too, as can a sector.
3) Arbitrage- Arbitrage refers to buying and selling the same security on different markets and at different price points. For instance, if stock XYZ is trading at Rs.10 on one market and Rs.10.50 on another, the trader could buy X shares for Rs.10 and sell them for Rs.10.50 on the other market, pocketing the difference.
4) Averaging Down- When an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases. This strategy is used when one believes that the general consensus about a company is wrong, so you expect the stock price to rebound later.
5) Blue chip Stocks- The stocks behind 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.
6) Broker- A person who buys or sells an investment for you in exchange for a fee (a commission).
7) Day Trading- The practice of buying and selling within the same trading day, before the close of the markets on that day, is called day trading. Traders who participate in day trading are often called “active traders” or “intraday traders.”
8) Leverage- When you use leverage, you borrow shares in a stock from your broker with the goal of increasing your profit. If you borrow shares and sell them all at a higher price point, you return the shares and keep the difference.
9) Portfolio- A collection of investments owned by an investor makes up his or her portfolio. You can have as few as one stock in a portfolio, but you can also own an infinite amount of stocks or other securities.
10) Sector- A group of stocks that are in the same industry belong to the same sector. An example would be the technology sector, which includes companies like Infosys and Mindtree. Some traders prefer to trade in a specific sector, such as energy, because they know the industry well and can better predict stock price fluctuations.
11) Stock Symbol- A stock symbol is a one- to four-character alphabetic root symbol that represents a publicly traded company on a stock exchange. Bharat Electron’s stock symbol is BEL, while Dewan Hsg. Fin. Is DHFL.
12) Volume- The number of shares of stock traded during a particular time period, normally measured in average daily trading volume. Volume can also mean the number of shares you purchase of a given stock. For instance, buying 2,000 shares of a company is a higher-volume purchase than buying 20 shares.
13) Volatility- The price movements of a stock or the stock market as a whole. Highly volatile stocks are those 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. High volatility often makes trading more exciting, but it’s also risky if you’re inexperienced.
Knowing your stock market terms will make you a better trader. It takes time to grasp the intricacies of securities trading, but once you do, the stock market terms above will become part of your daily vocabulary.