Unable to decode the share market jargon? Not to worry! Here’s a list of common share market terminology to help you become more familiar with it all.

  1. Bear and bull markets: Bull markets are filled with positivity. You will find stock prices rising and there will be more buyers than sellers. Bear markets are the opposite, with stock prices in decline, shareholders eager to sell, and a general sense of pessimism. You know a bull cycle is in play when the value of an instrument, a sector, or the overall market increases by 20%. On the other hand, a 20% decrease signals a bearish cycle.
  2. Blue-chip stock: The stocks of well-established companies that have a good performance record are called blue-chip stocks. These tend to be large businesses that pay regular dividends, and their stocks are usually safe investments.
  3. Dividend: Some companies distribute a part of their profits to shareholders in the form of dividends. Such profit-sharing is not mandatory, but many companies pay dividends to reward their shareholders.
  4. Earnings per share (EPS): To calculate EPS, divide the company’s net income by the total number of shares. A high or growing EPS attracts investors.
  5. Exchange-traded fund (ETF): This diversified financial instrument mirrors the performance of a stock market index or a select group of stocks. ETFs can be traded on the stock exchange and their market value changes accordingly.
  6. Fundamental and technical analysis: Fundamental analysis involves the assessment of a stock using different quantitative and qualitative factors. These include the company’s share price, revenues, cash flow, management, brand value, and competition, among other things. Meanwhile, technical analysis focuses on the historical price patterns on a stock chart. The aim is to identify patterns and predict future price action. Need help with your analysis? Open an account with a broker like Kotak Securities that has its own research and analysis division.
  7. Initial public offering (IPO): When a firm floats shares for sale to the public for the first time, the process is termed an IPO. Investors can purchase these shares directly from the issuing party in the primary market.
  8. Limit and market orders: A limit order is a buy or sell order for a set of shares at a specified price or better. Since the order is not placed at the market price, there is a chance of the trade not being executed within the specified time. A market order, on the other hand, requests immediate purchase or sale of the stocks at their market value or the best available price. Such orders are usually executed, but are recommended for stocks with high trade volumes.
  9. Liquidity: This is closely linked with trading volume and refers to the ease with which stocks can be bought or sold without there being an effect on the current price. Stocks which are highly liquid are easier to trade.
  10. Margin account: With this account, you can borrow funds from the broker to purchase shares. The purchased shares serve as collateral and you pay interest on the borrowed amount.
  11. Market capitalisation: Multiplying the total shares of a company by its current stock price results in the market capitalisation (market cap), which represents the size of the company. As stock prices keep fluctuating, the company’s market cap also changes.
  12. Volatility: This indicates how far a stock has diverged from the expected level. Low-volatility stocks are relatively stable whereas high-volatility instruments carry high risk.

 

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