What is Stock Market ? And Important Terms Used in Stock Market

What is Stock Market?

The stock market lets buyers and sellers negotiate prices and make trades. The stock market works through a network of exchanges - you may have heard of the New York Stock Exchange or Nasdaq, Bombay Stock Exchange (BSC) or Sensex. Companies list shares of their stock on an exchange through a process called an initial public offering, or IPO.

If you have an existing business and you want to expand it and you are in need of money? Sell a part of your ownership as shares to investors & use the money raised to fund your business.

Define Stocks and Shares

It is in the form of paper that denotes the ownership of a company.

Shares are ownership of a particular company.

While Stocks are general terms used to describe the ownership certificates of the company.

Where do Stock Trade?

Just like any market where we buy and sell products, similarly Exchanges like NSE / BSE provide an online platform where companies list there shares where buyers and sellers can transact.

Retail Investors cannot directly invest through exchanges.

They can invest through brokers like, UPSTOX, GROW, ZERODHA

How is Money made in Stocks?

There are generally two ways to make money in stock market.

First-Company pays regular profits in the form of dividend.

Second one is buying at low price and as the company grows its stock value also grows so selling at high price.

Types Of Stock

There are two types of stock that investor can own,

Common Stock
Preferred Stock

Common Stock - As the name sounds common, when people talk about stocks they refer to common stock and vast majority of the stock are in this form.

Merits Of a Common Stock

The common stock represents ownership in the company and claim a portion of the company profit (Dividend).

Investors can also vote to elect the board member.

Common stock give higher return than almost all the common investment.

Demerits Of Common Stock

In addition to highest return it comes with high risk.

In case if the company goes bankrupt the common shareholder will not receive money until creditors, bondholders and preferred shareholders are paid.

Risk can be reduced by diversifying the investment.

Preferred Share

Preferred share represents some degree of ownership in a company but usually does not come up with the same voting rights.

With preferred share investors are guaranteed a fixed dividend.

Like common stock it doesn't have same appreciation or depreciation in market so it comes with low risk.

During Bankruptcy preferred share are paid before common share.

DALAL STREET

Dalal street, in Mumbai, India is the address of the Bombay Stock Exchange, the biggest stock exchange in India and several related financial firms and institutions.

The term "Dalal Street" is used in the same way as "Wall Street" in U.S.

Two Major Stock Exchange in India

Bombay Stock Exchange (BSE)

It was established in 1875 and is Asia's Oldest Stock Exchange.

More than 5500 companies are publicly listed on BSE.

National Stock Exchange

The National Stock Exchange (NSE) is the leading stock exchange in India, locates in Mumbai, Maharashtra, India

NSE was established in 1992 as the first demutualized electronic exchange in the country.

It was the first exchange in the country to provide a modern fully automated screen based electronic trading system.

NSE's Index, The Nifty 50, is used extensively by investors in India and around the world as a barometer of Indian Capital Markets.

What is an Index?

Since there are thousands of company listed on a stock exchange, hence it's really hard to track every single stock to evaluate the market performance at a time. Therefore a smaller sample is taken which is the representative of the whole market.

This small sample sample is called the Index and it helps in the measurement of the value of a section of the stock market.

SENSEX

Sensex also called as BSE 30, is the market index consisting of 30 well-established and financially sound companies listed on Bombay Stock Exchange (BSE).

30 companies are selected on the basis of the free float market capitalization.

These are different companies from the different sectors representing a sample of large, liquid and representative companies.

It is an Indicator of market movement.

NIFTY 50

It is National Stock Exchange of India's benchmark stock market index for Indian equity market.

Nifty is owned by India Index Services and Products (IISL).

The base year is taken as 1995 and base value is set to 1000.

50 stocks are selected from 24 sectors.

Now let's understand below all Important Terms Used in Stock Market that traders need to know before entering into stock market.

Important Terms Used in Stock Market

Bull Market :- This is when the stock market as a whole is in prolonged period of increasing stock prices. Opposite of a Bear Market.

Bear Market :- This is when the stock market as a whole is in a down trend, or a period of falling stock prices. This is opposite to Bull Market.

Averaging Down :- This is when an investor buys more of a stock as the price goes down. As a result your average purchase price decreases.

Broker / Brokerage Firm :- A person who buys or sells an investment for you in exchange for a fee ( a commission). For example my favorite is Upstox, Zerodha, Grow.

Day Trading :- The practice of buying and selling within the same trading day, before the close of the market on that day. Although people have long term portfolio as well. Traders that participates in day trading are often called "active trader" or "day traders".

Beta :- A measurement of the relationship between the price of a stock and the movement of whole market. If stock XYZ has a beta of 1.5, that means that for every one point move in the market, stock XYZ moves 1.5 point and vice versa.

Blue Chip Stocks :- These are the large, industry leading companies. They offer a stable record of significant dividend payments and have a reputation of sound fiscal management.

Dividend :- This is a portion of company's earnings that is paid to shareholders or people that own that company's stock, on a quarterly or annual basis. Not all company's do this.

Exchange :- An exchange is a place in which different investment are traded. Like in India BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).

Hedge :- This is used to limit your losses. You can do this by talking an offsetting position. Like for example - if you hold 100 shares of XYZ company you could by a put option or sell a call option also in future (it is like a insurance policy).

Index - An index is a benchmark which is used as a reference marker for trader and portfolio managers. A 10% may sound good, but if the market index returned 12% than you didn't do very well since you could have just invested in an index fund and saved time by not trading frequently. Example are - the Sensex and Nifty 50.

Initial Public Offering (IPO) :- The first sale or offering of a stock by a company to the public, rather than just being owned by private or inside investors.

We always update this post, so keep in touch with us to get the latest information's, and we hope you enjoyed reading this post.

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What is Stock Market ? And Important Terms Used in Stock Market