Are you looking to trade and invest in the share market? However, you must know the stock market terminology if you’re an amateur trader.
This post helps you to learn some of the most common terms and concepts associated with the share markets.
Let’s dive right into the stock market terminology.
Read also:
Newbie Online Share Trading Guide In Indian Stock Markets
Fundamental Stock Analysis : Treasure For Investors
Guide to Stock Market Technical Analysis Tools For Traders
Bullish – Stock Market Terminology
Market or stock is said to be bullish if you believe that the price may go up during a particular time period.
Bearish
You can say that market or stock is bearish if it goes down during a certain time frame.
If the sentiment is negative, then it is normally a bearish market or the stock is bearish.
Trend
A trend is generally referred to as the direction of the market or stocks. Suppose the market is going up, then you can refer as a bullish trend.
If the market is going down then the trend will be bearish. Moreover, if the market is neither going up nor going down, then the trend will be called as rangebound or sideways.
Face Value of a Stock
Face value of a stock is nothing but the actual value of the security. When a stock is listed in the share market then the price of that particular stock may decrease or increase on a daily basis.
However, you may find that there is another price of a stock which does not change and is almost fixed.
The fixed price of the stock is the Face Value (FV) of the stock. So, dividends and stock split that are announced by companies are based on the face value of the stocks.
52 Week High and Low Price
A 52-week high price is the highest price during the last 52 weeks. Similarly, a 52-week low price is the lowest price during the last 52 weeks.
You can also get a range of the stock as high and low for last one year. So, 52 week high will act as resistance and 52-week low may act as support.
Upper Circuit and Lower Circuit
Exchanges like NSE or BSE set up an upper and lower price band to stocks on trading day. The limit is varied and it may be anything from 2% to 20% or more.
Once the stock price reaches the upper or lower limit, the trading gets halted for the day in that particular stock. The exchange normally does that to avoid excess volatility in the stocks.
Long Position
If you are intending to buy shares of a particular stock, then you can also say it as building a long position.
You do so when you believe that the stock price will move in an upward direction. So, you will buy the stock and sell it when your goal is reached.
Short Position
Like long position, if you believe that the price of the stock will move southward then you will take a short call. You may short a stock if you think it may tank and cover your position when it moves in your expected direction.
Beta
A Beta value helps you to measure the volatility of the stock as compared to the market.
Suppose a stock has a beta value of 2.0. It means that for every 1 point move in the market, the particular stock will move 2.0 points.
Blue Chip Stocks
Blue chip stocks are the topmost large-cap stocks having a significant good track record. These stocks are stable and pay dividends on time and have a great reputation.
Day Trading
When you trade and close your position just before the close of the markets, then it is referred to day trading or intraday trading.
Day trading is highly risky and so amateur traders may avoid it. It is because you have to square off all your position whether you make profit or loss.
Dividend
A dividend is nothing but a pie of a company’s earnings which is paid to you if you hold any shares of it. You may receive dividend either quarterly or annually.
However, not all companies pay dividends. Normally financially sound company having less debt are likely to pay out dividends.
Haircut
You can pledge your holding shares and get a margin as a trader.
Suppose you hold stocks worth of Rs. 50,000 and pledge with your stock broker to get the margin. Your broker may pledge you 80% that you can use for trading.
Here the haircut is the difference between the margin amount and the cost of stocks pledged which is 20%. However, the haircut may vary from broker to broker.
Index
Traders and market analyst use the index as a benchmark. An index is nothing but a collection of stocks. It may be sectoral or may be based on the market.
In India, NSE has Nifty as a benchmark index which is mostly a collection of top large-cap stocks. Similarly, BankNifty is a collection of top banks which is a sectoral index.
Leverage
Leverage lets you borrow from your stockbroker to trade. At the end of the day, you keep the difference by selling the stocks and returned the shares to your broker.
However, leveraging is very risky and so I suggest you avoid this.
So, before you just jump into trading, it is better for you to know all the stock market terminology. It may take some time to mould with the stock market world.
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Published on: July 02, 2019