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Stock Market In India: Basics and FAQs

This blog simplifies stock market jargon. Phrases that are generally intimidating and often used by dishonest bank RMs to confuse you. Get a clear understanding of financial jargon and also learn how Cube Wealth can simplify your investment journey.
January 20, 2021

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The stock market can be an exciting avenue for investors. However, beginners and even seasoned investors can feel overwhelmed by all the stock market jargon that goes around ever so often. 

In this blog, we will simplify important stock market terms and jargon so that you can feel comfortable the next time you come across various stock market terms. 

Basics Of Stock Market Investing In India

1. What Is The Stock Market?

The stock market is a place where you can buy and sell stocks of publicly traded companies. There are several stock exchanges like the NYSE (New York Stock Exchange) or BSE (Bombay Stock Exchange) etc.

2. What Is A Stock Exchange?

A stock exchange is a part of the stock market where buyers and sellers interact. There are two major stock exchanges in India -- National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).   

3. What Is A Demat Account?

Demat is short for “Dematerialized”. A Demat account holds stocks that you buy in the dematerialized or electronic form. Any stock that you sell is taken out of the Demat account. 


Investment facts


4. What Is A Trading Account?

A trading account enables you to buy or sell shares electronically. It is linked to your bank account and Demat account. A trading account is mandatory for stock trading and can be opened through any brokerage or firm. 

5. Who Is A Stockbroker?

A stockbroker buys and sells shares on your behalf. They generally work for a brokerage firm but can be independent individuals as well. A stockbroker works on a commission that is usually a percentage of your investment.   

Basics Of The Indian Stock Market

1. How Many Stock Exchanges Are There In India?

There are 23 stock exchanges in India. The two major stock exchanges out of these are NSE and BSE while there are 21 other regional stock exchanges like Madras Stock Exchange and Calcutta Stock Exchange.

2. What Are The Major Stock Exchanges In India?

The major stock exchanges in India are:

1. National Stock Exchange (NSE)

  • Established in: 1992
  • Located in: Mumbai
  • Listed stocks: 1,952
  • Indices: NIFTY 50; NIFTY Next 50; NIFTY 500
  • Market Cap: $2.27 trillion**

2. Bombay Stock Exchange (BSE)

  • Established in: 1875
  • Located in: Mumbai
  • Listed stocks: 5,439
  • Indices: BSE SENSEX; S&P BSE Small-cap; S&P BSE Mid-cap; S&P BSE Large-cap; BSE 500
  • Market Cap: $2.1 trillion***

3. How Many Stocks Are There In India?

There are 5000+ stocks/shares in India listed on various exchanges like NSE, BSE, etc. These multiple stock options can make it difficult for an investor to buy or sell the right stock at the right time. 

An app like Cube Wealth gives you access to reliable world-class stock advice from Purnartha who have a track record of delivering 21.96% CAGR (5+ years).

Watch this video to know how Indian stock advice from Purnartha works on Cube Wealth


4. How Much Money Do You Need To Invest In Stocks In India?

You can invest in Indian stocks for less than ₹10. Apart from that, you can choose to buy as little as 1 share of stock. The low minimum investment amount is a highlight of the Indian stock market.

In general, the cost of investing in Indian stocks will depend on:

  • Type of stock 
  • Market conditions
  • Share price or stock price
  • Investor preferences

Speak to a wealth coach to know if you should invest in Indian stocks. 


Investment tips


Stock Market Jargon: 30 Stock Market Terms For Beginners

1. Stocks (What Is A Stock?)

A stock is a piece of a publicly-traded company that you can own in exchange for your investment. Stocks can be bought and sold on stock exchanges like the NSE or BSE. Stocks may represent fractional ownership in more than one company. 

2. Shares (What Is A Share?)

Usually, “shares” are used interchangeably with “stocks”. But shares have a particular meaning that many stock market investors are unaware of. A share is a unit of stocks that represents ownership in a specific company. 

Read this blog to know how you can start investing in the Indian share market. 

3. P/E Ratio (What Is P/E Ratio?)

P/E ratio stands for “Price to earnings ratio”. P/E ratio measures the current share price compared to the earnings per share to determine the actual value of a share. 

Generally, a stock with a high p/e ratio implies that the stock is overpriced or overvalued. Analysts and investors usually rely on two types of P/E ratios:

  1. Forward P/E 
  2. Trailing P/E

Here’s a fun exercise. Read these blogs to identify whether US stocks like TSLA, FB, AMZN, BABA, MSFT, etc. have low or high P/E Ratios:

1. Tesla stock

2. Facebook stock

3. Amazon stock

4. Alibaba stock

5. Microsoft stock

4. Liquidity (What Is liquidity?)

Liquidity simply means how easily an asset can be converted into cash.

5. Market Capitalisation (What Is Market Capitalisation?)

Market capitalisation or market cap represents the total market value of a publicly-traded company’s shares held by all its shareholders (outstanding shares). 

The formula for market capitalization is simple:

Price per share x total number of outstanding shares

The US stock markets have the largest market cap in the world. Cube Wealth allows you to invest in the best US stocks for as little as $1. Download the Cube Wealth app to know more. 

6. Index (What Is An Index?)

A stock market index consists of similar stocks that are grouped together. The value of the index changes based on the value of the underlying stocks.  

7. Dividends (What Are Dividends?)

Dividends are profits that a company redistributes to its shareholders. The dividend amount you may receive will depend on the value/number of shares you own.

Dividends generate passive income. There are alternative investments like P2P lending that also generate a recurring monthly income. Read this blog to know more about P2P options in India. 

8. Bear Market (What Is A Bear Market?)

A slump in the stock market is termed as “bear market”. Markets are cyclical in nature and bear markets represent a cycle where stock prices continuously fall. 

9. Bull Market (What Is A Bull Market?)

A steady rise in the stock market is termed as “bull market”. Bull markets represent a positive market cycle where stock prices soar continuously. 

10. Earnings Per Share (EPS) [What Is EPS?]

Earnings Per Share shows how much a company makes per share held by all its shareholders. The formula for EPS is simple:

Net profit ÷ No. of outstanding shares

A company with a high EPS metric has a better chance of generating dividends for its shareholders. Thus, a high EPS makes a company more valuable.

11. Futures (What Are Futures?)

Futures or a futures contract is an agreement between a buyer and a seller to sell an asset for a specified price at a predetermined date. 

12. Options (What Are Options?)

An option is a derivatives contract that gives a buyer or seller the right (not an obligation) to buy or sell an asset at a fixed price on or before a specified date.

13. Face Value (What Is Face Value?)

The face value of a stock is a number determined by the issuer of the stock. It is also known as the original cost or price of the share.

14. Securities Transaction Tax (STT) [What Is A Securities Transaction Tax?]

Any investor who buys or sells a stock listed on an Indian stock exchange is liable to pay Securities Transaction Tax (STT). STT rate varies between 0.017% to 0.25%.

15. IPO (What Is An IPO?)

An Initial Public Offering or IPO occurs when a private company decides to go public and issue shares for the first time.

Read this blog to know more about Frequently Asked Questions on IPOs

16. Bid (What Is A Bid?)

Bid price indicates the amount you are willing to pay for a stock. 

17. Ask (What Is An Ask Price?)

Ask price is the amount you are willing to pay to buy a stock. 

18. Market Order (What Is A Market Order?)

A market order indicates the desire of an investor to buy or sell a share for a given price. 

19. Limit Order (What Is A Limit Order?)

A limit order limits the buying and selling price of a stock. A buy limit order means that the share can be bought only up to that price or lower. A sell limit order means that the share can be sold only for that price or higher. 

20. Trade Volume (What Is Trade Volume?)

Trade volume represents the total number of shares bought and sold during a specific time period.  

21. Over-The-Counter (What Is Over-The-Counter?)

Stocks that are not listed on a stock exchange are traded Over-The-Counter (OTC) via dealers. 

22. Bonus Shares (What Are Bonus Shares?) 

Instead of dividends, a company may redistribute its profits in the form of free shares to its existing shareholders. These free shares are known as bonus shares.

23. Intraday Trading (What Is Intraday Trading?)  

Intraday trading involves buying and selling shares in one day. Investors who engage in intraday trading are known as “day traders”.

24. Blue Chip Stocks (What Are Blue Chip Stocks?) 

Blue Chip stocks represent shares of companies that have a stellar track record of generating solid profits over several years along with a strong business model and healthy leadership. 

25. Bid-Ask Spread/Bid-Offer Spread/Buy-Sell Spread (What Is A Bid-Ask Spread?) 

A Bid-ask spread shows the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept for a share.

26. Close (What Is Close Price?) 

A close price indicates the final price of a share during the end of a trading day. 

27. Margin (What Is A Margin/Margin Trading?) 

Margin or margin trading involves taking a loan from a broker to purchase shares that you can’t afford. In marginal trading, you pay a fractional amount for the share and your broker pays the rest. 

28. Growth Stocks (What Are Growth Stocks?) 

Stocks that have the potential to grow at a faster rate than the market average are termed as growth stocks. Growth stocks do not pay dividends.  

29. New Issues (What Are New Issues?) 

New issues are shares issued for the first time when a private company goes public during an IPO.

30. Stock Picking (What Is Stock Picking?) 

The stock picking process requires analysts to use complex analysis to eventually pick a stock that they think will be a good investment. 

How To Buy Stocks In India?

On one hand, busy professionals may not have the time to spend time on stock market research and keep up with various movements and trends. 

On the other hand, investors who have some amount of free time may find the jargon and various intricacies of the stock market to be a challenging proposition. 

Both scenarios are challenging but a reliable app like Cube Wealth can make the investment journey convenient and simple. Cube gives you access to Indian stock market recommendations from Purnartha.

Purnartha takes the time-consuming research and effort out of your plate with a solid investment ideology that rests on investing in high growth companies for the long term.  

Download the Cube Wealth app today to get started. 


Investment tips


FAQs

1. How can I start investing in stocks in India?

Ans. Before investing in stocks, you need:

  1. Bank account
  2. Demat account
  3. Trading account

Once you have these 3 accounts in place, you can start trading. An app like Cube Wealth can help you invest in the best Indian stocks with advice from industry experts, Purnartha. Download the Cube Wealth app to know more. 

2. Can I invest Rs. 100 in the share market?

Ans. Yes, you can invest as low as ₹100 in Indian stocks. Cube Wealth allows you to invest for a lower price in US stocks! Try it for as little as $1 today.  

3. How do I buy my own stocks?

Ans. You can buy your own US stocks using Cube Wealth for as low as $1. Download the Cube Wealth app to learn more. 

Cube Wealth Investment Quotes

If you invest nothing, the reward is worth little. - Richelle E. Goodrich
Shriram Shekhar
Shriram is a Consultant at CubeWealth. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. His love for philosophy, developing products, and empowering people through quality content is what got him to CubeWealth.

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