“Stock market”, “Share bazaar” etc are the terms that many people are familiar with. However, most individuals remain unfamiliar with terms such as “stock”, “buying and selling a stock”, “stock trading chart,” and “bull or bear grip”.
Even the term “stock market” confuses them. Let alone the subject of those who are not having financial expertise. People scratch their heads whenever they hear their neighbors complain about the low prices of shares listed on the market or if a coworker suddenly gets a huge profit from their stock market investment. Many people fail to understand that if these listed companies play the “stock game” correctly, the stock price can lead to a business boom or bankruptcy. Simply put, the stocks represent the assets and profits of the company. If the company makes a profit, the value is often distributed annually among the shareholders in the form of dividends or reflects in terms of the share price.
Stock market defined
The stock market – also known as the “stock exchange” – is a financial institution comprising of stocks and other securities of a licensed broker trade company – including privately traded securities – that are approved by SEBI (Security and Exchange Board of India) & traded by the exchange. Brokers buy and sell stocks based on the needs and requirements of the people and/or companies they represent.
There are two types of market:
Primary stock market
Trading of Initial public offering (IPO) and other brand new issues by sellers and buyers.
Secondary stock market
For trading of stocks in the market by buyers and sellers
General stock market Vocabulary
The stock market “lingo” is not something to confuse with. To understand stock market trends, you need to be able to learn some of the commonly used terms. You should assess stock market technical charts or understand the fundamentals behind the listed stock. By taking the initiative to learn the basics of the stock market, you will turn into a knowledgeable investor and be able to make good stock trading decisions or build a long term corpus in form of Stocks which may be liquidated at individual discretion.
Let’s take a look at some terms, which will help you understand the most in the stock market:
This is the price for which an individual decides to buy or to sell a stock. Factors that directly affect stock prices are the position and performance of the stock issuing company. Another term related to the stock /share price is a market capitalization – or simply market cap – which multiplies the share price by the number of shares. Other factors affecting stock/share prices include current performance, expansion, and future growth of the associated firm/company. In simple terms. If a company is performing poorly in the stock market, its share price declines.
Conversely, if these companies are performing well, you will see stock prices rise in value. Eg – Satyam Computers a listed company on the stock exchange, due to its poor performance and scam is no more available to trade on the stock exchange and burned big holes in investor’s pockets back in 2009 (Read More about rise and fall of Satyam Computers here).
On the other hand stocks/shares of companies like Infosys, TCS have created immense wealth for investors since their listing.
Reading the stock market charts
Also known as technical charts, these charts and quotes provide the current state of performance of the stock in the market. These stock changes are reflected as “day-to-day” or “intra-day” depending on the business or market sentiments of that particular day. There is no compulsion that one need not be strong in the technical analysis if he/she can understand market Fundamentals or sentiments.
52-week high and low
This includes stock data over 52 weeks (symbolic for 1 year). On the reporting date, you will be able to see the shares with the lowest and highest prices during these 52 weeks.
Each company trading on the stock market is assigned an abbreviation or a specific letter. These ticker symbols are used so that all companies are easily listed on the ticker tape. All major stock exchanges in India – such as the Bombay Stock Exchange, National Stock Exchange, and SENSEX – restrict ticker symbols to only 1 to 4 characters (similar to heraldic symbols on British exchanges). All new firms register their symbols, which are distinct from the existing symbols of other firms. Examples of ticker symbols include VEDL for Vedanta Ltd. and M&M for Mahindra & Mahindra Ltd.
Dividend Per Share and Dividend Yield
In the stock market, a company issues dividends (Read about this and other corporate actions and their impact here) if description columns are filled with both of these titles. You can calculate the dividend yield by dividing the annual dividend by the current price per share. This dividend yield means that the shareholder has a liquid (cash) return on the price invested per share/stock.
Price to Earnings Ratio or P / E Ratio
Dividing the latest stock price by the average earnings per share for the last 4 quarters gives a PE ratio. In simple terms, if the PE ratio of a company is 15 then considering the performance/earnings of the company remains the same, at the current price the company will be able to break even the investment in 15 years.
selling and buying transactions that occur during the day.
the difference in stock prices since the last trading session. The net change enables you to see the direction where the stock price is heading – with a plus (green) symbol in a positive direction while a minus(red) symbol in a negative direction.
Bull and Bear
“bull” and “bear” are economic indicators for the stock market. When the value of shares increases, you have a bull market. It is an indicator of the good health of the economy. In a bull market, investors can stand to gain substantial profits from selling the stocks with them. Conversely, bear markets signal an economic decline so that investors need to sell their stock before prices fall. During a bear market, a lot of investors and businesses lose little if they have not depreciated rapidly before buying good shares and selling those shares. Example- The Great recession 2007-09 (read here) was a bear market and change in central government back in 2014 lead to a change in investor sentiments followed by a sudden spur of buying i.e Bull Market.
As a thumb rule, as Warren Buffet says “Be Fearful When Others Are Greedy”. Here Fear means bear and greed represents a bull.
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