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Few Stock Market Terms Every Rookie Should Know !

ICICI Securities 14 Mins 13 Jan 2023

As a beginner, everyone must have faced challenges to understand some terms associated to the Stock Market. This is a complete guide for you, to know the most frequently used terms in the share market.

Bid Price: The term “bid price” refers to the highest price of the stock, the buyer is willing to pay for. For example – if the price of the stock is Rs. 100, and the buyer is willing to pay only Rs. 90 for the same, then generally, he will initially bid for a price lesser than Rs. 90.

Ask Price: The term “ask price” refers to the lowest price of the stock, the seller is willing to sell for. For example – if the seller is willing to sell a stock at Rs. 50, then the buyer who is willing to purchase that stock should at least pay Rs. 50 in order to buy it, provided that is the lowest ask price for the stock.

Spread: The actual difference between the bid price and the ask price is known as “Spread”.

Bull: The market is said to be in bullish phase when the investors/traders are expecting a price hike in any of the index. For an instance: Nifty is trending at Rs. 17,000 and an investor is expecting the price to go up to Rs. 17,500, and it actually rises above! Then it is said to be in the Bullish Phase.

Bear: The market is defined to be in the Bearish phase when the investors/traders are expecting the prices of the index to fall. For example: The Nifty Index is currently at Rs. 17500 and is expected to fall down to Rs. 17000. And we could see, that the price has actually started falling down. Then, it is said to be in the bearish trend.

Limit Order: A limit order is a type of order that gets executed at the buy or sell price entered. For example – If a trader is looking to buy a particular stock at a price of Rs. 50, then he will manually enter the price of Rs. 50 while placing an order. So, if the price of the stock is at Rs. 60 now, the order will not get executed and it will wait until the price comes to Rs. 50. Exactly, at Rs. 50, the order will get executed!

To know how to place an order, and understand some key terms, Refer: https://www.icicidirect.com/faqs/tradinghelp.asp

Market Order: A market order is a type of order that gets executed at the market price. For example – If the price of a stock is Rs. 100, and the order is placed, it will get executed at the same price which is Current Market Price.

Day Order: A day order instructs a broker to place a trade at a certain price that expires at the end of the trading day. For example – If a Limit Order is placed, and the stock doesn’t hit the stipulated price within a day, the order will eventually be cancelled by the end of the day as it is a Day Order.

Volatility: Volatility in simple terms means – the fluctuation of the prices of the stock.

Going Long: Going Long, in terms of stock market simply means speculating that stock prices would rise in order to purchase low and sell high. A long position in terms of options contracts is one that gains from an increase in the price of the underlying securities. These can be long calls or short puts, for example.

Due to their ability to purchase the asset, traders who purchase or hold a call option contract from an options writer are considered long. A trader who purchases a call option in the hope that the value of the underlying securities will rise is said to be long. The owner of the long call position may decide to exercise their option to purchase the asset before it expires because they believe its value is increasing.

Averaging Down: An investor will perform averaging down, while the stock is declining in order to decrease the price at which it was purchased.  For example - An investor who purchased 100 shares of a company at Rs. 50 each would buy an additional 100 shares if the stock price dropped to Rs. 40 per share, lowering their average price (or cost basis) to Rs. 45 per share. Averaging down is a practice that some financial advisors advise investors to use when buying stocks or mutual funds that they plan to hold for a while.

Capitalization: Capitalization is basically the market value of a particular company. A company with 20 million shares trading at 100 rupees each, for instance, would have a market worth of 2 billion. On the other hand, a second organization with a share price of Rs. 1,000 and just 10,000 shares in circulation would have a market capitalization of only 10 million.

Float: After excluding the shares held by insiders, Float is the total number of shares that can actually be exchanged. This figure is obtained by taking the outstanding shares of a company and deducting any restricted stock.  

Authorized Shares: Authorized Shares are the total number of shares, a company is able to trade.

IPO: IPO (Initial Public Offering) happens when the privately listed companies register themselves as public and get their names enrolled in SEBI.

Secondary Offering: Secondary Offering is just another offering designed to increase stock sales and public funding.

Dividend: Dividend refers to an organization paying its stockholders a portion of its earnings as a reward. A dividend is a payment made to shareholders as compensation for their equity investment in a firm, and it typically comes from the company’s net profits. While some profits may be retained by the business to be used for current and future operations, the remaining may be distributed to shareholders as a dividend.

Broker: A broker is a person or a firm who acts as your agent when buying or selling stocks.

Exchange: The trading of various investment types takes place on an exchange. Therefore, without exchange one would not be able to place an order or trade.

Margin: One can purchase shares using a margin account by borrowing money from the broker. The amount of equity a trader has in their brokerage account is referred to as margin. Purchasing assets with money you've borrowed from a broker is referred to as "margining" or "buying on margin." To do so, you need a margin account rather than a regular brokerage account. In a margin account, the broker lends the investor money to purchase more securities than they could have otherwise with their account balance.

For instance, if your margin account's initial margin requirement is 60% and you wish to buy shares worth Rs. 10,000, your margin would be Rs. 6,000, and you may borrow the remaining Rs. 4,000 from your broker.

These are certain terms that everyone should know while trading or investing in stock market.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. Please note, Mutual Fund related services are not Exchange traded products and I-Sec is just acting as distributor to solicit these products. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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