Any trader or investor needs to understand every aspect of the stock market.
We will explore some Commonly used lingo in stock market offering in-depth explanations to improve your financial literacy.
Let’s jump directly into the terms without any further delay:
Commonly used lingo in Stock Market for Beginners
Bull Market
A bull market signifies an extended period of rising stock prices and heightened investor confidence. You can consider yourself a bullish investor if you expect an increase in stock prices. Viewed more broadly, a period of time during which the stock market index is rising is known as a bull market. During this phase, optimism prevails, leading to increased buying activity. Investors anticipate continued growth and positive economic indicators.
Bear Market
On the other hand, a bear market denotes a significant decrease in stock values related to a lack of confidence among investors and negativity. Bear markets are characterized by economic downturns and negative feelings, which lead investors to liquidate assets to reduce losses. In a more general sense, a decline in the stock market index during a specific time frame is called a bear market.
Also Read Investing vs. Gambling in the Stock Market
Market Indices: Sensex and Nifty
Two well-known market indicators that track the performance of the Indian stock market are the Sensex and Nifty. While the Nifty monitors the performance of 50 firms on the National Stock Exchange (NSE), the Sensex consists of 30 major businesses listed on the Bombay Stock Exchange (BSE).
Portfolio
A collection of investments owned by an individual or an institution is referred to as a portfolio. Diversifying a portfolio by investing in different asset classes can help spread risk and optimize returns.
Volatility
Volatility refers to the degree of variation in a stock’s price over time. Highly volatile stocks can experience significant price fluctuations, presenting both opportunities and risks for investors.
Futures
In Futures trading, investors enter into contracts to buy or sell assets at a predetermined price on a future date. This allows participants to speculate on the future price movements of stocks or indices. For instance, buying a Nifty futures contract involves a commitment to purchase Nifty stocks at a specified price in the future.
Options
Options trading provides the right (but not the obligation) to buy or sell assets at a predetermined price before or at the expiration date. This flexibility makes options an essential tool for hedging or speculating. Investors can, for example, buy a call option to benefit from potential stock price increases.
Market Capitalization
Knowing market capitalization is essential in determining the size and worth of a company. It is calculated by multiplying the stock’s current market price by the total number of outstanding shares. Market capitalization is used to categorize large-cap, mid-cap, and small-cap stocks.
Blue Chip Stocks
Blue chip stocks represent shares of well-established, financially stable companies with a history of consistent performance. Investors often turn to blue chips for stability and reliable returns. In the Indian market, blue chip stocks such as Infosys and TCS are iconic companies.
Dividend Yield
An important figure for investors looking for income is dividend yield. A Portion of profits given to shareholders by the Company. It is calculated by dividing the annual dividend per share by the stock’s current market price. A higher dividend yield may indicate an attractive income opportunity. For example, if a stock pays an annual dividend of ₹5 per share and its market price is ₹100, the dividend yield is 5%.
Earnings per Share (EPS)
Earnings per Share (EPS) reflects the portion of a company’s profit allocated to each outstanding share of common stock. Investors use this metric to evaluate a company’s profitability and efficiency. Higher EPS is generally seen as a positive indicator.
P/E Ratio (Price-to-Earnings Ratio)
The P/E ratio is a measure of a company’s valuation. It is calculated by dividing the stock’s current market price by its earnings per share (EPS). A higher P/E ratio often indicates that investors are willing to pay more for each dollar of earnings.
Intraday Trading
Intraday trading involves buying and selling stocks within the same trading day, capitalizing on short-term price fluctuations. Traders aim to profit from market volatility, making quick decisions to exploit intraday price movements.
Also Read Intraday vs. Delivery Trading: Which Strategy Will Make You Richer?
Liquidity
Liquidity is the ease with which an asset can be bought or sold without significantly impacting its price. High liquidity stocks, like those of large-cap companies such as Reliance Industries, are preferred for their ease of trading.
IPO (Initial Public Offering)
An IPO is the first time a company’s stock is offered to the public for purchase. It allows the company to raise capital by selling shares to investors.
Market Order
A market order is an instruction to buy or sell a stock at the current market price. It ensures the order is executed quickly.
52-Week Low
The 52-week low represents the lowest trading price of a stock over a one-year period (52 weeks). It provides insight into the lowest point the stock has reached during that timeframe. Suppose Company A’s stock has a 52-week low of Rs 50. This means that at some point in the past 52 weeks, the stock traded as low as Rs 50 per share.
52-Week High
Conversely, the 52-week high is the highest trading price of a stock over the past 52 weeks. It reflects the peak value the stock has achieved during that period. If Company XYZ’s stock has a 52-week high of Rs 100, it indicates that, at some point in the last year, the stock reached as high as Rs 100 per share.
Also Read A Beginner’s Guide to Master both Technical and Fundamental Analysis
Upper Circuit
The upper circuit is the maximum percentage increase allowed in the price of a stock within a single trading session. Once a stock hits the upper circuit, trading in that stock is temporarily halted to prevent excessive speculation and provide a cooling-off period.
Let’s say Company ABC has an upper circuit limit of 10%. If the stock is trading at Rs. 100, the upper circuit will trigger when the stock reaches Rs. 110. Trading in Company ABC will be stopped, and investors can only resume buying or selling once the circuit is reset.
Lower Circuit
The lower circuit is the maximum percentage decrease allowed in the price of a stock within a single trading session. Similar to the upper circuit, the lower circuit helps prevent panic selling and provides a pause for market participants.
Suppose Company ABC has a lower circuit limit of 5%. If the stock is trading at Rs. 200, the lower circuit will be triggered when the stock reaches Rs. 190. Trading will be Stopped temporarily, allowing investors to reassess their positions before the market reopens.
OHLC
OHLC stands for Open, High, Low, and Close, which are the four key price data points recorded for a security during a given time period, typically in a day.
Example: Let’s consider a stock traded during a single day. The OHLC data for that day might look like this:
- Open: Rs. 200
- High: Rs. 220
- Low: Rs. 195
- Close: Rs. 210
In this example, the stock opened at Rs. 200, reached a high of Rs. 220, dipped to a low of Rs. 195 during the day, and closed at Rs. 210. Traders and analysts use OHLC data to analyze price trends, volatility, and potential trading opportunities.
Well, this is not the end of the list of lingo or Jargons in Stock market, there are many more terms which you need to understand, so that you can increase the chances of getting closer towards your financial goals and achieve success in the Stock Market.
However, you can understand trading and investing in the stock exchange more fully if you are familiar with the lingo used in the stock market.
Cheers to your investing!
Disclaimer: The primary goal of this blog is education. The securities and investments mentioned here are not suggested.
