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.
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.
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.
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).
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.
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.
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.
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.
The major stock exchanges in India are:
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).
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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:
Speak to a wealth coach to know if you should invest in Indian stocks.
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.
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.
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:
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
3. Amazon stock
5. Microsoft stock
Liquidity simply means how easily an asset can be converted into cash.
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:
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.
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.
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.
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.
A steady rise in the stock market is termed as “bull market”. Bull markets represent a positive market cycle where stock prices soar continuously.
Earnings Per Share shows how much a company makes per share held by all its shareholders. The formula for EPS is simple:
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.
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.
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.
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.
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%.
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
Bid price indicates the amount you are willing to pay for a stock.
Ask price is the amount you are willing to pay to buy a stock.
A market order indicates the desire of an investor to buy or sell a share for a given price.
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.
Trade volume represents the total number of shares bought and sold during a specific time period.
Stocks that are not listed on a stock exchange are traded Over-The-Counter (OTC) via dealers.
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.
Intraday trading involves buying and selling shares in one day. Investors who engage in intraday trading are known as “day traders”.
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.
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.
A close price indicates the final price of a share during the end of a trading day.
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.
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.
New issues are shares issued for the first time when a private company goes public during an IPO.
The stock picking process requires analysts to use complex analysis to eventually pick a stock that they think will be a good investment.
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.
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Ans. Before investing in stocks, you need:
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.
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.
Ans. You can buy your own US stocks using Cube Wealth for as low as $1. Download the Cube Wealth app to learn more.
If you invest nothing, the reward is worth little. - Richelle E. Goodrich
on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!