As soon as one will set his foot in the stock market, the first thing which would start bothering him is the new terms and vocabs which are thrown around for making usual conversation. It is quite common because almost every investor hails from different backgrounds like medical, engineering, business, literature, etc. It is not possible for people to know about the technical terms of trade until they dip their toes into the stock market investments.
This is why it is important to learn the “trading terminology” to get a clear knowledge of the words which are commonly used in the industry. Some of the words are in existence since the traditional trading while some have recently been added to the list. Also, one should know about the trading account and Demat account information which you can check here so as to actively participate in the market operations.
There are a lot of trading terms that might seem alien to the beginners in the industry.
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Table of Contents
Why Is Knowing Trading Terminology Important?
The amateurs and experts of the stock market always use the technical terms to explain something or the other. Today, trading in the stock market is usually done using online platforms which have also given birth to many new terms. For an outsider who is very new to the concept of share investment, all these terms might be confusing. Misinterpretation of a single word can lead someone in the wrong direction. Thus, it is important for every investor and individual associated with this market to know and understand the trading terminology.
To gain basic knowledge, we can divide the most common and useful terms into three categories:
- Common Trading Terms
- Terms Related to Demat account
- Other Useful Terms
Common Trading Terms
There are few trading terms that may crop up anytime during the investment process. It is important to know all of them in order to give an accurate response.
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- Equity – It is the most essential and frequently used term in stock trading. It is used to refer to the number of shares owned by a company. In the stock market, investors buy or sell the shares, in this aspect the equity, of the company. This is why the word equity is commonly interchanged with “stock” as both refer to the same thing.
- Bid – It is used to explain the highest amount of money an investor is willing to pay for buying a share of the stock. Usually, there is more than one buyer for every share in the market. When the trading occurs, all the potential buyers announce their bids and fight a bidding war. The one who wins buys the shares.
- Exchange – The exchange is more like an online market where investors participate in trading their shareholdings. There are many famous stock exchanges in the world. In India, the two most popular ones are the BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).
- Bull Market & Bear Market – When a stock market performs really well with its assets’ prices rising up, it is referred to as a bull market. Similarly, when a market does not perform well and the prices of assets keep declining, it is called a bear market.
- Volatility – It refers to the rate of fluctuation in the price of a share. The higher the volatility, the more fluctuations the particular share’s price is likely to face.
- EPS (Earning Per Share) – It is the ratio that is calculated by dividing the total profit of a company by the number of shares it holds. It is used to judge the financial health of a company.
Terms Related To Demat account
Demat account is used in the share trading market for holding the shareholding certificates electronically. Refer to the following information for understanding a few of the common terms related to it.
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- Dematerialisation – It is the process of converting physical certificates of shareholdings into electronic form. Storing such shares is the most fundamental function that a Demat account performs.
- Rematerialisation – The process of converting electronic share certificates into physical forms.
- Depository Participant – The financial entities who work as intermediaries between the NSDL (National Securities Depository Limited) /CDSL (Central Depository Services Limited) and the investors.
- Day Trading – The process of buying and selling the shares in one day using the Demat account.
- Redemption – The process by which investors sell their mutual funds unit back to the mutual house.
- Destatementization – It refers to the process of converting physical mutual funds units in electronic form.
Other Useful Terms
There are a lot of words in the trading terminology. The most useful ones are explained below:
- Blue-chip Stocks – It is used to refer to the healthy track record of a company that holds a record of commendable fiscal management. This term is believed to be derived from the blue gambling chips which hold the highest denomination value in casinos.
- Portfolio – It is kind of a file or statement that shows the record of all the investments and shareholdings of an investor. Building a good portfolio is the sim of most of the competitive traders in the share market.
- Short-selling – It is used to refer to the process using which an investor can borrow shares from some other investor and sell it in the market for gaining profit without having to make an investment from his own pocket. This is mostly done when an investor is sure about the fall in the price of a share.
- Arbitrage – It refers to the process of buying or selling the same security at different price points in different markets. It is a very common practice of investors who are looking for higher profits.
- Yield – It is very commonly used to define the percentage of the profit made by an investor on his shares.
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Nowadays, trading terminology is given a fair amount of consideration by the investors in order to stay ahead of others in the competitive world of the stock market. Since online trading has lifted off the dependency everyone had on brokers, investors have become more serious about understanding the technicalities of trading in the stock market. The popularity and efficiency of the Demat account have also contributed largely in creating this awareness among the Indian investors. Thus, one should never turn down the process of learning when it comes to investment in the stock market.