Stock market terminologies every investor must know

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A lot of beginner investors aspire to make gains in stock market but lack the basic domain knowledge. Trading in stock market does not necessary need you to have a lot of time and money to invest into it. Although, as an investor you must equip yourself with basic tools and vital training to make the right investing decisions. Stock marketing is a different world in itself and before you get into the technicalities like defensive stock, debentures, Nifty 50, Sensex, etc and confuse yourself, here are some important terminologies that are crucial to understand before venturing into stock market.

  • Dividends – As you already know shares are the component of a company you invest in. As and when the company makes profit, the part of its profit is distributed in its shareholders. This is called dividend. Every year companies distribute a part of their total earnings in their shareholder as dividends. For a large number of shareholders who do not book profits this is one of the major income source.
  • Read more: Spot Factoring VS Selective Factoring
  • Bull and Bear Market – You must have definitely heard of bull and bear market even if you are new to the share market. Markets are termed as bull or bear depending on how well or poor they perform. When the stock market is headed upwards for a period it is called a bull market. Similarly, when it sees a fall it is called as a bear market. This price movement of stocks in market depends mainly on the forces of demand and supply. There are also a few other factors affecting the price movement like the country’s microeconomic condition, government policies, monitory policies, political development, etc.
  • Margin Trading – Not all the investors planning to invest in stock market have enough money to put in shares. Hence, they buy shares with borrowed money and this is called margin trading. This buying of shares with credit money allows the investors to buy more shares and thus make bigger gains. Although, there is risk factor involved in margin trading such as interest payment on borrowed money. Many brokerage houses provide the option of margin trading to their users.
  • Market Capitalisation – Every company offers shares at a different price than the other. The total value of the company is called market capitalisation. This can be calculated by the formula: the price of share x number of shares issued to the public = company’s market capitalization value.
  • example, of the company is offering 10 lakh shares for ₹ 40 then the market capitalization value of the company is ₹ 4 crore. This value to put in simple terms is value of the company in market.
  • Stock Volatility – The stock prices constantly fluctuate due to various factors like change in demand of stocks while the degree of these fluctuations depends on the number of times the stock varies hands. This fluctuation is called stock volatility. The stock volatility can be tracked daily. To track this volatility, the National Stock Exchange has launched the VIX India index that rises based on rising risks, speculations and apprehension.
  • Insider Trading – Usually you get to hear about the term insider trading when there is a scam in stock market. Generally, investors make investing decisions based on news or information issued in public. But at times trading takes place based on the unofficial or illegal information circulated among public and this causes unnecessary market volatility. Such type of trading is called insider trading.
  • Other than these terms as an investor in Indian stock market you must be aware of the two major stock exchange bodies that are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) that provide platforms for various companies to raise capitals. BSE consists of a list of 30 companies that are listed under Sensex whereas Nifty consists of 50 companies which is why it is also known as Nifty 50.

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