40 Essential Stock Market Terminology

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If you are new to the world of stock market and you want to invest in the stock market but you do not know the stock market terminology then it is the same thing as you want to learn the English language but you do not know the alphabet. Just like any other field, the stock market has its own language. Whether you’re buying your first stock, analyzing a company’s performance, or trying to understand market trends, knowing these terms will help you make informed decisions. But there is no need to worry, in this article, we will tell you all the terminology related to stock market in a very simple language, so you can invest wisely and navigate the market with confidence. Let’s get started!

If the total capital of a company is divided into equal parts, then the smallest part of that capital is called a share.

Suppose there is a company named XYZ limited whose total value is 1 lakh rupees. Now if the company issued 10 thousand shares, meaning it divided its capital into 10 thousand equal parts, then each share will be of 100000/10000 = 10 rupees. This part of 10 rupees will be the smallest part of XYZ company, this is called share.

Stock exchange-

The place where shares are bought and sold is called stock exchange. There are 2 stock exchanges in India .1.BSE, 2.NSE

. Bull market-

When the stock market is bullish and the investor’s confidence is very strong, which motivates them to invest more.

When does a bull market occur–

When GDP growth is positive.
the country’s economy is strong.
interest rates are low.

Bear Market –

When the price of most stocks falls by 20% or more and investor confidence also decreases, an atmosphere of fear and panic is created in the market.

When does Bear Market occur –

When GDP growth is negative.
the country’s economy moves towards recession.
when a major event like war, epidemic or financial crisis occurs.

Market Cap –

If the market cap of a company is to be calculated, then the share price of that company is obtained by multiplying the total number of shares of that company.

Market Cap = Share Price * Total Number of Shares

Suppose there is a company named xyz Limited which has a total of 10 thousand shares in the market and the price of each share is Rs 10, then the market cap of xyz Limited will be Rs 10000*10=100000.
Note- The market cap of a stock keeps fluctuating. Today it is something else and tomorrow it will be something else.

Large cap stock-

Companies whose market cap is more than 20000 crores are called large cap stocks.

Mid cap stock-

Companies whose market cap is above 5000 crores and less than 20000 crores are called mid cap stocks.

Small cap stock-

Companies whose market cap is less than 5000 crores are called small cap stocks.

IPO (Initial public offering)-

When a company sells its shares to the public for the first time, it is called an IPO.

Dividend-

When a company makes profit, it distributes some part among its shareholders, this is called dividend.

Note- Company can give dividend even if there is loss.

PE ratio-

The P/E ratio is one of the most widely used by investors and analysts reviewing a stock’s relative valuation. It helps to determine whether a stock is overvalued or undervalued.

P/E Ratio = Stock Price ÷ Earnings Per Share (EPS)

A high P/E ratio means investors expect high future growth. A low P/E ratio may indicate a stock is undervalued or not growing fast.

Stock Index –

A stock index is a group of stocks used to measure the performance of a stock market.

Sensex –

This is the index of BSE which includes the top 30 companies of India

Nifty 50 –

This is the index of NSE which includes the top 50 companies of India

Dow Jones –

This is USA’s top 30 companies

S&P 500 –

USA’s top 500 companies

If an index goes up, the market is doing well. If it goes down, the market is struggling.

Mutual fund-

Mutual fund is an investment in which money of many people is pooled together and invested in stocks, bonds, and other investments. It is managed by a professional fund manager. You cannot trade mutual funds on the exchange, it is also called passive investing

ETF-(Exchange Traded fund)-

It is similar to mutual funds but you can trade it on the exchange like a stock, it is also called active investing.

Intraday Trading-

In intraday trading, the trader has to buy and sell on the same day, buy at 9:15 and sell by 3:15, intraday trading is done to earn quick profit.

Swing trading-

This is a mix between intraday and positional trading, in which the trader holds the stock for a few days or weeks and tries to profit from market fluctuations.

Positional Trading:

In this type of trading, the trader holds the stock for a few days, weeks or months.

Scalping:

This is a type of intraday trading in which the trader holds the stock for a very short period (a few minutes) and trades repeatedly for very small profits.

Fundamental Analysis –
The process of finding the real value of a stock or company by analyzing a company’s financial statements (such as balance sheet, income statement, cash flow statement), quality of management, industry conditions, and overall economic factors is called fundamental analysis.

Technical Analysis –

Through technical analysis, traders can predict future price trends. This is done with the help of charts and technical indicators.

Bonus Shares –

Additional shares given to existing shareholders without any additional cost, based on the amount of shares currently held, are called bonus shares.

If a company gives 1:1 bonus shares, you get 1 extra share for every 1 share you own.

Stock split-
Stock split is a corporate action in which the company splits its existing shares into several new shares.

Suppose a company splits its stock in the ratio of 2:1. This means that each share will be divided into two shares.

Note- The share price adjusts accordingly when there is a bonus and split.

Suppose you have 1 share of a company worth Rs. 100 and if you get a bonus of 1:1, then the share price will become Rs. 50 and the number of shares will increase from 1 to 2.

Penny Stocks –

Penny stocks are identified by their low price, which is usually less than ₹10 to ₹20 per share. Their market cap is also low.

Multibagger Stocks-

Stocks that give massive returns over time. A stock that grows 10x, 20x, or 50x is called a multibagger.
Eg. Infosys, wipro etc

FII-(Foreign Institutional Investors) –

FII is an institutional entity that invests in financial markets outside its country, such as shares, bonds and other securities.

For example, if a US investment company invests in Indian equities, it would be considered an FII.

DII – “Domestic Institutional Investor”-

which are financial institutions that invest in financial assets and securities within the country itself, such as mutual funds, insurance companies, banks and pension funds

Circuit Breakers (Upper & Lower Circuits)-:

To control extreme price movements, stock exchanges set limits on how much a stock’s price can rise or fall in a day.

Upper Circuit –

The maximum price increase allowed in a day.

Lower Circuit –

The maximum price decrease allowed in a day.

Example:
If a stock has a 10% circuit limit and opens at ₹100, it cannot rise above ₹110 or fall below ₹90 in that day.

Bid price and ask price-

In the stock market, the “bid price” is the maximum price a buyer is willing to pay to buy a stock or security, while the “ask price” is the minimum price a seller is willing to sell it for.

CONCLUSION-

Understanding stock market terminology is like learning the language of investing. The more fluent you become, the better your decisions will be. Whether you’re a beginner or an experienced investor, knowing these terms helps you analyze stocks, manage risks, and invest with confidence.

The stock market is not just about buying and selling shares—it’s about making informed choices, understanding market trends, and building wealth over time. By continuously learning and staying updated with key concepts, you can navigate the market with clarity and avoid costly mistakes.

Remember, every successful investor started as a beginner. Keep learning, stay patient, and let knowledge be your strongest investment tool. Happy investing