20 Terminologies Frequently used in the Stock Market

 20 Terminologies Frequently Used in the Stock Market

Introduction

In this article/blog, you will be able to learn and know about the stock market and understand some common terminologies frequently used in the stock market.

Marketplace

·       Marketplace refers to an open square or place in a town where markets or public sales are held.

·       Three main categories of marketplaces are Business-to-business (B2B), Business-to-customer (B2C), and Peer-to-peer (P2P).

Stock exchange

• A stock exchange is a marketplace, where financial securities issued by companies are bought and sold.
• A stock exchange is a place where stock brokers and traders come together to buy and sell securities.

Stock marketplace

• A stock marketplace is where publicly listed companies' shares are traded.
• The stock market refers to venues where buyers and sellers meet to exchange equity shares of public corporations.
• A stock market is a collection of stock exchanges where the transactions for issuing, purchasing, and selling securities take place.
• Stock markets are components of a free-market economy because they enable democratized access to investor trading and the exchange of capital.  

NSE

·       NSE stands for National Stock Exchange of India Ltd.

·       NSE is one of the world’s largest stock exchanges by market capitalization based in Mumbai, India.

·       NSE is under the ownership of various financial institutions such as banks and insurance companies.

The S&P, BSE, SENSEX

The S&P, BSE, and SENSEX are indexes that show the performance of India’s 30 biggest listed companies.

Market capitalisation or m-cap

·       Market capitalization refers to the valuation or size of the company.

·       Market capitalization is the price of all the shares of the company combined.

·       Market capitalisation = share price x total number of shares

Small-cap companies

·       Indian companies whose market capitalization is less than Rs 5000 Crores.

·       Small-cap stocks shouldn’t be overlooked when putting together a diverse portfolio.

Mid-cap companies

Mid-cap companies are those with market capitalization between $2 billion and $ 10 billion in the USA.

Large-cap

·       Large-cap stands for large market capitalization.

·       Large-cap refers to a company with a market capitalization value of more than $10 billion in the USA (over Rs 20000 Crores in India).

SEBI

·       SEBI stands for Securities and Exchange Board of India.

·       The SEBI is the regulatory body for the securities and commodity markets in India under the ownership of the Ministry of Finance within the government of India.

·       The SEBI protects the interests of the investors in securities promotes the development of, and regulates the securities market and for matters connected therewith and incidental to it.

Financial securities

·       Financial security is the state of mind that emanates from the state of your finances.

·       Financial securities companies issue shares, bonds, stocks, options, mutual funds, and ETFs.

Security

Security is a financial asset or instrument that has value and can be bought, sold, or traded.

Time value of money

The time value of money is the concept that money available now is worth more than the same amount in the future because of its potential earning capacity.

Mutual fund

A mutual fund is an investment fund that pools money from many investors to purchase securities (equities, bonds, money market instruments).

SIP

·       SIP stands for Systematic Investment Plan.

·       SIP is a method of investing a fixed amount regularly in mutual funds, typically on a monthly basis.

Stock

• A stock is a general term used to describe the ownership certificates of any company.
• Stock consists of all the shares by which ownership of a corporation or company is divided.

Penny stocks

Penny stocks refer to shares with very low prices.

Capital stock

·       Capital stock refers to the ownership of a company.

·       The capital stock is the amount of equity and preference shares a company is authorized to issue according to the articles of association.

·       Capital stock includes common shares and preferred shares.

Common stock

·       Common stock refers to a type of tradable asset or security, that equates to ownership in a company.

·       Common stock is just one type of stock traded on public exchanges.

·       Common stockholders have the right to vote on things like corporate policies and board of director decisions.

·       Common stockholders have the least claim on a company’s assets.

·       Common shares are issued to business owners and other investors as proof of the money they have paid into a company.

Floating stock

·       Floating stock refers to the total number of outstanding stock/shares that are open to the public for investment.

·       Floating stock is the number of shares available for trading of a particular stock.

·       Floating stock is calculated by subtracting closely held shares and restricted stock from a firm’s total outstanding shares.

·       The number of floating stocks can be used to calculate a company's market value/goodwill because it reflects the public interest or investor interest in investing in that company.

Restricted stock

Restricted stock refers to insider shares that cannot be traded because of a temporary restriction, such as the lock-up period after an IPO.

Low float stocks

Low-float stocks are those with a low number of shares.

Closely-held shares

Closely held shares are those owned by insiders, major shareholders, and employees.

Outstanding shares

·       Outstanding shares refer to a company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.

·       Outstanding shares are shown on a company’s balance sheet under the heading “capital stock”.

Issued shares

·       Issued shares refer to the number of shares that have ever been traded in the stock market.

·       The shares that have been sold are the issued shares.

Preferred stock

·       Preferred stock refers to a type of stock that pays a set schedule of dividends and doesn’t come with voting rights.

·       Preferred stock combines aspects of both common stock and bonds in one security, including regular income and ownership in the company.

·       The four types of preference shares are callable shares, convertible shares, cumulative shares, and participatory shares.

Equity

·       Equity refers to the amount of money that a company’s owner has put into it or owns.

·       Equity provides ownership rights to holders.

·       The share price or a value set by valuation experts or investors is issued to determine the equity value.

Blue chip fund

A blue-chip fund is an equity scheme that offers its investors a portfolio of stocks that offer solid and stable financial performance.

Margin in the equity market

·       Margin in the equity market refers to buying stocks using borrowed money.

·       Margin in the equity market means you are borrowing money and investing it in stocks.

·       Margin in equity market allows investors to invest more money than they have which can be used to increase returns.

Dividend

·       A dividend is the distribution of a company’s earnings to its shareholders and is determined by the company’s board of directors.

·       Dividends are payments a company makes to share profits with its stockholders.

·       Dividends are often distributed quarterly and may be paid out as cash or in the form of reinvestment in additional stock.

Debt

Debt refers to loans repaid with periodic payments.

Hybrids

Hybrids combine aspects of debt and equity.

Share

A share refers to the stock certificate of a particular company.

Shareholder

A shareholder is a person holding a specific company’s share.

Bond

·       A bond refers to debt security.

·       A bond is a loan from an investor to a borrower such as a company or government. The borrower uses the money to fund its operations, and the investor receives interest on the investment.

·       Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.

·       Some common examples of a bond are treasury bills, treasury notes, savings bonds, agency bonds, municipal bonds, and corporate bonds (which can be among the riskiest, depending on the company). 

Corporate bonds

·       A Corporate bond is a debt security that a corporation issues to raise money and that investors buy as a loan to the corporation.

·       Corporate bonds are offered by companies.

·       A common example of corporate bond is mutual funds that invest in corporate bonds.

Delisting

·       Delisting is the process after which a stock is no longer on the stock markets.

·       After delisting investors can no longer buy or sell the company’s shares through the stock markets.

·       Delisting can be done due to bankruptcy, acquisition by another company, and management decision to make the company private.

Due diligence

Due diligence refers checking all details, facts, and figures about an investment opportunity.

Capex in the context of a company

·       Capex stands for capital expenditure.

·       Capex refers to the money that a company, spends on physical assets.

·       Capex includes building factories, buying machines, furniture, and laptops, and maintaining and servicing machines. For example, a car manufacturing company will have a higher Capex. They have to buy land for a factory, buy heavy machinery, make buildings, set up warehouses, set up offices, and buy laptops.

 Treasuries

·       Treasuries are the safest bonds but with low interest.

·       Treasuries are usually sold at auction.

Spread

·       The spread is the gap between the bid or two prices, rates, or yields and the ask prices of a security or asset like a stock, bond, or commodity.

·       In finance, the spread is the difference in price between the buy (bid) and sell (offer) prices quoted for an asset.

 Lower circuit

·       Lower circuit refers to a minimum price that a stock can hit on a particular trading day.

·       If a stock hits its lower circuit, there will be only sellers and no buyers in the stock.

Upper circuit

·       Upper circuit refers to the maximum price a stock can reach on a given trading day.

·       The upper circuit is the highest possible price that the stock can trade at on that designated day.

·       If a stock hits its upper circuit, there will be only buyers and no sellers.

Active investing

·       Active investing refers to an investment strategy that involves ongoing buying and selling activity by the investor.

·       Active investors purchase investments and continuously monitor their activity to exploit profitable conditions.

 Circuit breaker

·       Circuit breaker is also called trading curb.

·       Circuit breakers are temporary measures that halt trading to curb panic-selling on stock exchanges.

·       A circuit breaker halts the trading of a security or an index for a certain period.

·       Circuit breakers are triggered when an index or stock price breaches prescribed limits.

Trading curb

A trading curb is a financial regulatory instrument in place to prevent stock market crashes and is implemented by the relevant stock exchange organization.

Black money

·       Black money refers to all funds earned through illegal activities and otherwise legal income not recorded for tax purposes.

·       Some common examples of black money are tax evasion, money laundering, and human trafficking.

Trade deficit

Trade deficit refers to the amount a country imports more than its exports.

Discounted stock

Discounted stock refers to stock that is sold for less than its nominal or par value.

The nominal or par value for a security

The nominal or par value for a security is the minimum price that a stock of a particular class can be sold for in an initial public offering (IPO).

Block trade

·       Block trade refers to a high-volume transaction in a security that is privately negotiated and executed outside of the open market for that security.

·       Institutional investors like mutual funds, pension funds, hedge funds, and investment banks are the primary users of block trades.

Pump and Dump

• Pump and dump is a scan where the stock price is pushed up to 

benefit some people.

• Scammers 'pump' up the price by spreading misleading news and 

hype to attract new investors.

    Pi-ratio

     Pi-ratio compares the price of the share to the earnings per share.

    PB-ratio

    PB-ratio compares a company’s stock price to the company’s book value.

   Discounted Cash Flow (DCF)

  DCF method is used to determine if a stock’s price is fairly valued in the present by estimating its future cash flows.