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Investment

Stock market terms for novice investors

A stock market is a regulated place where investors can buy and sell shares or stocks, where demand and supply forces dictate their prices. The shares traded are from public companies. By purchasing shares of such publicly traded companies, an investor receives a percentage interest in those companies.

If a June 2021 report by Livemint, a financial daily, is any indication, investing in stock market has become a popular option among many individual investors. If you are looking to start investing in the stock market today, here are some common stock market jargon –

  • Bull market

The bull market signifies a period of sustained increases or the expectation of continuous increases over an extended period. Essentially, it indicates a good or strong economy.

  • Bear market

It is the opposite of a bull market. This market sees the prices of stocks constantly fall or expected to continue falling over longer periods. Conversely, investors tend to sell their shares as they expect the price to fall.

  • Initial Public Offering (IPO)

When any private corporation first offers its shares for sale on a stock exchange, it is referred to as an IPO. The purpose is usually to raise money from the public.

  • Order

An order enables buyers and sellers to trade stocks at a price they want – be it a market order, which is traded immediately at the current market price, or a limit order, which is done to trade at a specific price.

  • Ask price

It is the minimum price an investor will sell the share for.

  • Bid price

This is the maximum price a buyer will pay for a share.

  • Bid ask spread

A spread is the difference between the buy and sell prices. The lower the spread, the better the share’s liquidity.

  • Dividends

This is a portion of profits paid by a company to its investors. Any amount not distributed is re-invested in the business.

  • Trading volume

Trading volume means the number of shares that are traded on a stock exchange on a particular day.

  • Broker/Agent

An agent/broker is a person who, in exchange for a fee, buys and sells stocks on behalf of investors.

  • Intraday trading

Intraday trading entails the purchase and sale of stocks within a single trading day.

Getting started on your investment journey

Now that you understand the basic stock market terms, you can begin investing in the stock market. However, you need to have a demat account to deal in shares and a sound investment strategy to take advantage of prevailing market conditions. While you are it, it is also prudent to explore your stock market investment options with the help of a financial advisor. This will help you grow your wealth based on your appetite for risk.