Top stock market terminology
Trying to gauge the stock market can be an unnerving task for any new investor. In addition to the numerous concepts, technical terms and jargon to decipher, almost everybody offers clashing pieces of advice when it comes to trading in the stock market.
For instance, if shares in your portfolio have fallen in price, should you look to accumulate more shares at a less cost of should you attempt to cut down your losses strategically?
While some experts may persuade you to buy, some others will tell you exactly the opposite.
Getting on the right foot: Terminology
Before you get swamped into conflicting discussions that investment pundits continuously weigh in on, perhaps one of the best proactive steps for any new investor is to simply learn the same language as the pros.
So, here are some essential stock market terminology that every new investor must know
Sensex: This is an indication that represents how companies are trading on the Bombay stock exchange. It is derived from ‘sensitive index’. The Sensex is considered the benchmark that represents Indian equity markets across the world.
Nifty: This is the counterpart of Sensex on the National Stock Exchange. The primary difference between the two indexes, i.e., the Sensex, and the Nifty is that the Nifty is more broad-based than the Sensex and comprises of 50 companies.
Buy: Means to take a position or to buy shares in a company
Sell: This indicates to get rid of the stocks that you have purchased, either because you have accomplished your goal or you want to cut further losses.
Bid: This is the amount you are willing to pay for shares.
Ask: This is the amount that other investors are looking to get in return for the sale of their stocks.
Bid-ask spread: This is the difference between investors who have to spend and what other investors want to get. The bid-ask spread must be settled before any transaction can happen.
Bull market: This is a market condition that shows stock prices are on the rise.
Bear market: This is a market condition where investors notice stock prices falling.
Stop order: This is an instruction to execute at or under a purchase price or at above a sale price. Experts strongly recommend using stop orders and not market orders.
Squaring off: A procedure where investors or traders buy or sell stocks and later on reverse their trade to fulfil a transaction. Equity markets in India operate between 9:55 AM and 3:30 PM. So, say you buy 50 shares of company A and sell them before the market closes, meaning you have squared off your buy position. Similarly, if you sell 50 shares of company B and buy them later means you have squared off your sell position.
Rally: This term refers to the profits or gains made by the Sensex or the Nifty during trading hours. If consistent gains are made consecutively, investors see it to as a market rally. For instance, if the Sensex moves from 10,000 points to 13,000 points with a span of 12 to 15 trading sessions, this phenomenon is regarded as a rally.
Crash: Like the term suggests a crash indicates a decline in the value of Sensex and Nifty. For instance, if the Sensex plummets from around 14,000 levels to 12,300 points, this sudden and violent fall is regarded as crash or market crash.
Correction: This term is referred to when the Sensex or the Nifty rises for a few days and retraces or shaves off some gains. A correction is known as a measured fall, and market experts consider them healthy as it indicates that share ownership is moving from short-term investors to long-term investors. For instance, if the market rallies from 10,000 to 12,000 points in seven days and forced to 10,800 points in the next five days, this action is regarded as a market correction.
It is crucial to get a handle on the most important stock market terms if you are looking to begin trading in the stock market. Knowing stock market basics can enhance your knowledge. Although it can take time to comprehend the nuances of the trading game, once you do, you will become familiar with the terms. New investors or individuals eager to understand how markets work can know more by opening a Demat and trading account with a reputed stockbroker such as Kotak Securities to begin trading.