Before we continue our discussion into the share market, there are a few terms that any share market enthusiast must know. These are terms that investors, traders, brokers, and even news channels use normally when discussing the market.
These are words that don’t make sense generally, but in the ambit of the stock market (generally referred to as the “Market”), these words are extremely important.
Here are some of the most basic terminologies that you will hear:
- Authorized shares= These are the total number of shares that a company can issue. Now, the difference between float shares and authorized shares is that while float shares are available for being traded by the public, authorized shares are shares that are on the books of the company. It includes the Float, the holdings of the promoters, and the limit up to which a company can issue new shares.
- Face Value= Face Value of stock refers to its fixed value. It’s the value of the stock that is listed on the books of the company. This is different from the market price and entirely unrelated to it. Moreover, this is the value at which shareholders receive dividends.
- Bear= A Bear refers to a seller in the stock market. The Bear wants the price to go as low as possible and supports selling pressures in the market. This is based on the analogy that Bears attack by striking their paws DOWN. When the market is dominated by Bears, it is called a ‘Bear Market’.
- Bull= A Bull refers to a buyer in the stock market. The Bull wants the price to go as high as possible and supports buying pressures in the market. This is based on the analogy that Bulls attack by throwing their victims UP with their horns. When the market is dominated by Bulls, it is called a ‘Bull Market’.
- Ask Price= The Ask Price is the lowest price for which a seller is willing to sell his asset. The seller wants to sell at a higher price, but will not go below this price.
- Bid Price= The Bid Price is the highest price at which a buyer is willing to buy an asset. The buyer wants to buy at a lower price, but won’t go higher than this price.
- Buy= As the word suggests, it means buying a share or asset from the market.
- Sell= In line with its general meaning, it means selling a share or asset in the market.
- Going Long= ‘Going Long’ or taking a ‘Long Position’ generally refers to buying a share and holding it to sell at a higher price.
- Going Short= ‘Going Short’ refers to selling a stock initially with the view that it will go down and the stock will be bought at a lower price.
- Broker= A broker is a platform (traditionally a person) that facilitates stock trading for you. These brokers are intermediaries between you and the market which get you started with trading. They may or may not help you with investing, but you need a broker to invest.
- Delivery= Delivery trading is the method of investing where the security is bought and sold on separate dates. The aim here is to buy the shares at a lower price and sell them when the price reaches a certain level.
- Intraday= Intraday or Day Trading is a trading method where securities are bought and sold on the same day. The purpose of this is to take advantage of the price fluctuations throughout the trading day.
- Limit order= A Limit Order is a specialized order where you can specify the price you wish to buy/sell at. These orders are rarely carried out immediately and might not be carried out at all if the price does not reach the price level you specified.
- Market order= A Market Order is a form of order where you buy/sell the stock at the current market price. These orders are carried out immediately at whatever the price was at that moment. Unlike Limit Orders, this order will be carried out immediately, without fail.
- Primary Market= The Primary market is the market where the securities are created and issued. For example- when a company issues shares and allots it, that is the primary market.
- Secondary Market= The Secondary market is the market where the securities are traded after they are issued. For example- when a company’s shares are listed on an exchange and are traded, that is the secondary market.
- CMP= Current Market Price is the price of any security that is prevailing in the market currently due to the forces of demand and supply.
- Market Cap= Market cap is the total value of the company in the market today. The formula for this is: Total Number of Shares Outstanding X Current Market Price. This concept explains how big the company is in the stock market.
- Float= Float refers to shares of a company that are available to be traded by the public. Every Indian company is required to have at least 25% of its share capital with the public, and this publicly traded portion is called the Float.
- Dividend= When a company earns a net profit, it has two options. First to reinvest the profits for the company’s growth OR to release a portion of its profits to all its shareholders. These are called Dividends.
- Entry= Entry or Entry Point refers to the price at which an investor starts a position in any security. This is generally the point at which an investor buys a stock and holds it till his target price.
- Exit= Exit or Exit Point refers to the price at which an investor closes a position in any security. This is generally the point at which an investor sells a stock that he has been holding since the Entry point.
- Circuits= Circuits refer to price bands set up for a stock, both above and below the last traded price. If the stock breaches this level, its trading is temporarily halted. These are levels set up to protect investors from major price swings in a single day.
- Gap-Up= A Gap-up opening is an event where the price of a security opens higher than the previous day’s close. If the price of such security opens higher than the previous day’s close but not the previous day’s High, it is called a ‘Partial Gap-up Opening’. However, if the security opens well above the previous day’s close and high, it is considered a ‘Full Gap-up Opening’.
- Gap-Down= A Gap-down opening is an event where the price of a security opens lower than the previous day’s close. If the price of such security opens lower than the previous day’s close but not the previous day’s low, it is called a ‘Partial Gap-down Opening’. However, if the security opens well below the previous day’s close and low, it is considered a ‘Full Gap-down Opening’.
- Call= In Options contracts, a call is a contract that gives the owner the option to buy the underlying security at the pre-determined Strike Price upon expiry.
- Put= In Options contracts, a put is a contract that gives the owner the option to sell the underlying security at the pre-determined Strike Price upon expiry.
- Expiry= An Expiry date is the date at which an open position of a trader closes automatically. This is not something one sees in stocks. Expiry is seen mostly in CFDs or derivative contracts.
- Lot Size= In the stock market, one lot size refers to the number of securities purchased in a single transaction. In derivatives, lot size refers to the quantity of assets contained in a single derivative contract.
- Strike Price= In the case of a derivatives contract, a strike price is a predetermined price based on which a contract buyer and a contract seller enter into the contract.
- ISIN= The International Securities Identification Number is a 12-digit number allocated to every security. It is unique for every security and assists in the reporting, clearing, and settlement of their trade.
- Volatility= This refers to how fast a stock is changing prices or moving up and down. Another explanation could be how high/low the price of an asset swings within a given period. A highly volatile stock is generally considered risky by long-term investors while it is favoured by short-term traders.
- Margin= In some trades, such as Intraday, a trader need not pay the entire amount of the securities he is buying/selling. Every broker has an estimate about the movement of the stock, say 25-30%. In such cases, the trader only needs to put down such ‘margin’ money to enter the trade and exit the trade either when he is done or his margin has exhausted.
- Stock split= Stock split is when a company breaks its existing stock into multiple shares. One share could be broken into multiple pieces, depending on the Face Value of each share. Stocks can be split only till their Face Value remains a whole number.
- Stock Consolidation= This is the opposite of a stock split. A company combines multiple shares into a single share.
- Bonus Shares= Bonus shares are a benefit received by a shareholder where the company gives extra shares as a bonus to shareholders, free of cost. The number of shares receivable by each shareholder is dependent on the number of shares currently held by them. Internationally, this is also called stock dividend.