You must have heard one or two stock market terminology even in your daily life. Maybe in TV news, internet articles, advertisements or common folks having conversation. Most probably terms you would have heard or seen would be like market is trending, Bullish, Bearish or stock hit its all-time high or low etc…
So, in this article we will help you familiarize yourself with the most commonly used stock market terminologies and their concepts. So that next time you hear or see something related to the stock market you will know what it means.
Let us get started: –
Bull Market (Bullish) –
If the price of major market indices is going up for a good amount of time, then it is called a bull market. In the stock market buyers are referred to as bulls. Hence if you except prices to go up then you are bullish.
Bear Market (Bearish) –
If the price of major market indices is going down for a good amount of time, then it is called a bear market. In the stock market sellers are referred to as bears. Hence if you except prices to go down then you are bearish.
The term trend usually means the overall direction of the market with momentum attached to it. As an instance, if the market is declining fast, then it a downtrend. Trends have 3 directions up, down and sideways.
All time high/low –
The highest price point to which the stock had ever traded from when it was listed is the all-time high of the stock. Similarly, the all-time low price is the lowest price the stock ever traded from the day of the listing.
52 Week high/low –
A full calendar year has 52 weeks. So, the highest price point at which a stock has traded during the last 52 weeks is the 52-week high of the stock. Similarly, if a stock hits the lowest price point at which a stock has traded during the last 52 weeks is the 52-week low of the stock.
Upper and lower circuit –
The stock exchange sets up a price band for each stock. The stock is to be traded within the band on a given trading day. The upper circuit limit is the highest price the stock can reach on the day and the lower circuit limit is the lowest price it can reach. The exchange places these restrictions to control extra volatility. A stock can be extremely volatile due to certain news related to the company. The limit for a stock can be 2%, 5%, 10% or 20% based on the selection criteria of the exchange.
Face Value –
The face value or par value of a share is the value assigned to it when it was issued. The face value is decided by its issuer and is important from a corporate action perspective.
Long Position –
Long position or going long basically implies that you expect the prices to go up. It can also be said that you are bullish on that particular stock or index. For example, if you have bought or intend to buy Reliance shares then you have a long position or intend to go long respectively.
Short Position –
Short position or shorting means that you expect the prices to go down. It implies that you are bearish on that particular stock or index. Shorting can be a bit confusing and complex if you are hearing it for the first time. For now, remember this, you buy stock at a low price and sell it at a higher price. This is a simple buy first and sell later transaction and is quite intuitive. But in case of shorting, you sell stock first at a higher price and buy it at a lower price later. Shorting helps you to profit from falling prices. More on this in another article.
Square off –
Squaring off simply means closing an existing position. So, if you are long on a stock to square off the position, you have to sell it. Similarly, opposite for the open short position. To square it off you have to buy it.
OHLC stands for open, high, low and close. The price at which the stock starts trading is the open price. The highest point the stock reaches is the high of the stock and the lowest price point it touches is the low of the stock. The closing price is the price the stock stops trading at.
Volume represents the total transactions for a particular stock in a day. It is an important data point for investors and traders.
Intraday Position –
Intraday position is a trading position which you initiate with an expectation of squaring it off within the same trading day. For example, you shorted Infosys at 9:30 am and bought it back at 1:00 pm. This trade will be referred to as an intraday trade.
Free Float –
The total number of shares available after deducting the shares held by promoters and insiders is the free-floating size of the stock.
Market Capitalization –
Market capitalization is value derived by multiplying the total number of shares to its current share price. It is a figure that represents the overall valuation of the company.
A portfolio is a collection of assets owned by an investor. It is a collection of different financial assets like stocks, bonds, commodities, cash, real estate, etc. Any investor can hold a portfolio like an individual, corporation or financial institution.
Dividend is a term often used in stock market terminology. A company can sometimes or even regularly decide to share a part of their earnings with its shareholders. This is called dividend.
In this article we covered almost all the most important stock market terminology that one should know about. This is useful for all types of market participants. It will help beginners in particular to get a good understanding of these concepts. But this is definitely not a complete list of stock market terminology, there are at least dozens of other terms not covered here. This is because many of them fit in with other modules like technical analysis or fundamental analysis. So, we will introduce them to you when we cover those modules in detail.
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