Common Stock Trading Terms Every Trader Should Know

Terms

Explanation

Sensex

The Sensex (Stock Exchange Sensitive Index) is the benchmark index in the Bombay Stock Exchange (BSE). It is a collection of the top 30 largest and most actively traded stocks listed on the BSE. 

Nifty50

The Nifty 50 is a stock market index that tracks the performance of the top 50 Indian companies listed on the National Stock Exchange (NSE).

Demat

A dematerialised or Demat account provides a secure & convenient way to hold shares and other financial instruments electronically. It serves as a digital locker, making it easier to manage and maintain your investments.

Trading

It is a process of buying or selling financial assets, including stocks, bonds, currencies, commodities and derivatives in markets. 

SEBI

SEBI, or the Securities and Exchange Board of India, is a statutory regulatory body. It is responsible for protecting the interests of investors & regulating the Indian securities market. 

Stock Index

It is an excellent tool that tracks financial market fluctuations. They serve as benchmarks that reflect how a specific market segment or the overall market is performing.

Portfolio

A portfolio is a collection of a wide range of financial assets of investors, including gold, stocks, funds, and other investments.

Bull Market

A bull market typically refers to the stock market, but it applies to any tradable asset such as bonds, currencies, commodities and real estate. It becomes noticeable when companies perform well, GDP rises, and unemployment falls.

Bear Market

A bear market refers to a market condition when investors experience a prolonged decline in stock values, generally of 20% or more. It often causes widespread pessimism among investors and represents a downward trend.

Stock Market Broker

This person or organisation is an investment advisor who facilitates the buying and selling of stocks and other financial assets on behalf of investors.

Bid Price

The bid price is the maximum amount at which an investor is willing to pay for a financial asset. Generally, it is below the 'ask' price.

Ask Price

It is the minimum amount at which a seller is willing to sell their assets, representing the seller's willingness to part with their asset.

IPO

An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time.

Equity

Equity represents the value of the company that belongs to its shareholders after all the company’s debts and liabilities are paid off. 

Dividend

Dividends represent a percentage of a company's profits paid to its shareholders. Well-established companies generally pay dividends quarterly.

NSE

Launched in 1994, the National Stock Exchange was set up to bring transparency to India’s capital markets. Backed by top institutions and global investors, it became the first Indian exchange to offer electronic trading, connecting investors nationwide.

BSE

BSE, or Bombay Stock Exchange, is the largest and oldest stock exchange market in India. Established in 1875, the BSE provides a transparent market for trading various financial assets.

Call and Put Option

A call option provides the buyer the right to purchase the underlying asset at a specified price on or before a set timeframe. Conversely, a put option provides the buyer the right to sell the underlying asset at a specified price on or before a set timeframe.

Primary Market

It acts as a platform where firms issue new shares and bonds to the public for the first time, often through an Initial Public Offering (IPO).

Secondary Market

It is where investors buy and sell shares that were previously issued in the primary market. It represents a marketplace for trading existing shares between investors. 

Ask and Close

The term 'ask' in the share market refers to the lowest price at which a seller is willing to sell the stock. Conversely, 'close' refers to the final price at which a stock was traded during a trading session. It marks the end of the day's trading activity.

Moving Average

A popular technical analysis tool, the moving average smooths out price data over time by calculating a constantly updated average. It helps identify trends by creating a line that moves with the market.

Arbitrage

Arbitrage represents a trading strategy that involves simultaneously buying an asset in one market and selling it in another market to make a profit from the price difference.

Order

It refers to a request made by an investor to a broker or trading platform to buy or sell a security at a particular price.

Trading Volume

It is the total number of shares that have been traded within a set timeframe.

Market Capitalisation

It represents the total market value of a company’s outstanding shares.

Intra-day Trading

This is a method of trading that involves trading stocks within the same day to capitalise on short-term price movements.

Limit Order

A limit order is an instruction to buy or sell a security at a specified price. 

Day Order

It refers to a stock market order that is valid only for the current trading day.

Stock Split

It denotes a corporate action where a company splits its existing shares into multiple new shares.

Blue Chip Stocks

It refers to the stocks of large and the most financially sound companies with a proven record of stable performance.

PE Ratio

This PE ratio is a valuation metric that compares a company's share price to its earnings per share (EPS).

Earnings Per Share 

EPS refers to the portion of a company's profit allotted to each outstanding share of common stock.

Index

A group of selected stocks used to track and represent the performance of a specific sector or the overall market.