Trading and investing terms are essential components of the financial world, serving as the vocabulary that empowers individuals to navigate the complex realm of stocks, bonds, commodities, and other financial instruments.
These terms encompass a wide range of concepts, from fundamental metrics like price-to-earnings ratio and dividend yield to technical indicators such as moving averages and relative strength index.
Market participants utilize terms like bull market and bear market to describe prevailing trends, while terms like long and short positions denote different strategies investors employ.
10 Common Trading and Investing Terms
Understanding trading and investing terms equips individuals with the knowledge and tools to make informed decisions, manage risks, and seize opportunities in the dynamic world of finance.
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There are a lot of terminologies that are associated with the stock market, and you need to understand each one of them to be able to perform well in the stock market.
Let’s start with understanding what a stock market is, and then we’ll decipher each of the stock market terminologies one by one.
#1. Description Of Stock Market
The stock market is the place where all types of exchanges take place. The stock market allows traders and investors to buy and sell different financial instruments, like bonds, securities, shares, etc. A stock is evaluated as the equity or a piece of the company.
Moreover, there are two objectives of the stock market. First, to help the companies in extending their businesses by providing capital to them. Second, it enables the opportunity for the investors to share profits or to get dividends from the companies.
#2. Stock Trading Terminologies
If you are a beginner at trading, then you should refer to a good intraday trading guide for beginners. However, there are numerous terms in the stock market that we often use while trading and investing in the stock market. Therefore, you need to understand before referring to any guide. Let us see what these terminologies mean or indicate.
Equity is the most important term in stock trading. It implies the number of shares that are owned by the company. If you buy any equity share of the company, you get ownership in that company for that particular share. Equity share is very risky but gives a higher return.
This term refers to the maximum quantity of money that an investor or buyer is ready to spend on a share of a particular stock. If there is more than one investor or buyer, they all place their bids, and the one with the highest placed bid, which no other buyers could match, will get the stock.
#5. Stock Exchange
As the name suggests, it includes the exchange of stocks. Defined as a place where different parties meet physically or online to trade their stock or securities domestically or internationally. There are two major stock exchanges in India, namely, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
When you get into the share market world, you need to connect with an intermediate house that must be registered with the government. They facilitate the investor to buy or sell the stocks as per their wish. Some of the brokers charge extra fees, like transaction fees, taxes, etc.
The final objective of every stock trading is to get a high amount of return as a profit. This is also known as yield. This is generally the return on investment, shortly known as ROI. And is always expressed in percentage terms. To predict the true return from a stock, you need to know the difference between gross and net profit that a company declares every quarter.
Benchmark is a type of reference through which people tend to scale the performance of their securities. If the stock of a mutual fund beats the benchmark index, it is regarded as a good stock.
Beta is a parameter used to screen a stock. If the beta of a stock is equal to 1, then that particular stock is as volatile as the market. A stock with a beta lower than 1 is considered to be a stable stock, while the one higher than 1 is a volatile and probably a risky stock to pick.
#10. Mutual Fund
A mutual fund is a group of stocks picked by a professional investor. The funds are open for people to invest their money; the only catch is that the asset management company that manages this large corpus of funds charges a nominal fee of .17 to 2%, known as the expense ratio.
Mutual funds are various types, and currently, there are 15 to 20 different types of mutual funds. The only difference in these mutual funds is the method of stock selection employed by them and the type of securities they hold. Mutual funds are also divided into active and passive funds.
Active funds are those whose underlying stocks are constantly changed depending on the market condition. In contrast, a mutual fund is one whose goal is to screen the benchmark set for that particular type of stock.