Part 8 - Stock Market 101 Key Terms Explained
Below are 101 stock market terms explained , split into Basic Terms (1–50) and Advanced Terms (51–101), with clear, beginner-friendly definitions.
Basic Terms (1–50)
Stock:
A share of ownership in a company, traded on exchanges like BSE or NSE.
Example: Owning 100 Shares of Reliance
Share – A unit of ownership in a company.
Long:
Buying a stock expecting its price to rise for a profit.
Example: Buy Reliance at ₹1,000, sell at ₹2,500.
Short:
Borrowing and selling a stock, expecting its price to fall, then buying it back cheaper.
Example: Short Adani at ₹2000, buy back at ₹1500.
Bull Market:
When stock prices rise by 20%+, driven by optimism. Good News etc
Bear Market:
When stock prices fall by 20%+, driven by pessimism.
Dividend:
Company profits paid to shareholders.
Example: SBI pays ₹10/per share ; 100 shares = ₹1000
Portfolio:
Collection of investments (stocks, bonds).
Example: 50% BSE, 30% Reliance, 20% ETF.
Broker:
Person or platform (e.g., Dhan or Grow ) executing trades for a fee.
Example: Buy SBI shares via Upstox or Dhan
Market Order:
Buy/sell a stock instantly at the current price.
Example: Buy 50 SBI Bank shares at ₹800
Limit Order:
Buy/sell at a specific price or better.
Example: Buy SBI at ₹800 if it drops from ₹820.
Margin:
Borrowed money to buy stocks, amplifying gains/losses.
Example: ₹10,000 + 2x margin buys ₹20,000 in stocks.
IPO (Initial Public Offering):
Company’s first public share sale.
P/E Ratio
(Price-to-Earnings Ratio) is a valuation metric that shows how much investors are willing to pay for ₹1 of a company’s earnings.
Formula:
P/E Ratio = Share Price ÷ Earnings Per Share (EPS)
Example:
If a company’s share price is ₹100 and its EPS is ₹10, then
P/E = 100 ÷ 10 = 10
This means investors are paying ₹10 for every ₹1 the company earns.
Quick Meaning:
High P/E = Stock may be overvalued or expected to grow fast.
Low P/E = Stock may be undervalued or growing slowly.
Volatility:
Degree of price fluctuations. Example: Adani stocks swung after 2023 Hindenburg report.
Blue Chip:
Shares of large, stable companies.
Blue chip stocks are like the “top players” of the stock market—reliable and safe for long-term investing.
Example: TCS, HDFC Bank.
Share:
Single unit of stock ownership. Example: One Reliance share.
Exchange:
Platform where stocks are traded.
Example: BSE, NSE, NYSE.
Bid Price:
Bid Price is the highest price a buyer is willing to pay for a stock at a given time.
Buyer A wants to buy a share for ₹100 (bid price).
Ask Price:
Price sellers demand for a stock.
Example: Ask for SBI is ₹.800
Seller B wants to sell it for ₹800 (ask price).
Spread:
Difference between bid and ask prices.
Example: SBI bid ₹800, ask ₹803 = ₹3 spread.
Volume:
Number of shares traded in a period. Example: 1 million SBI shares traded daily.
Market Cap:
Market Cap (short for Market Capitalization) is the total value of a company’s shares in the stock market.
Formula:
Market Cap = Share Price × Total Number of Shares
If a company’s share price is ₹200 and it has 1 crore (10 million) shares:
Market Cap = ₹200 × 1 crore = ₹200 crores
Categories (India):
Large Cap – ₹20,000 crore and above
Mid Cap – ₹5,000 to ₹20,000 crore
Small Cap – Below ₹5,000 crore
EPS (Earnings Per Share):
EPS (Earnings Per Share) is the profit a company makes per share of its stock.
Formula:
EPS = Net Profit / Total Number of Shares
Example:
If a company made a net profit of ₹10 crore and has 1 crore shares:
EPS = ₹10 crore ÷ 1 crore = ₹10 per share
Use:
Helps investors know how profitable a company is.
Higher EPS = better earnings per share, usually good for investors.
In simple terms:
EPS shows how much money each share earns for the company.
Brokerage:
Brokerage is the fee or commission charged by a broker when you buy or sell shares or other securities.
Who takes it?
Your stock broker (like Zerodha, Groww, Angel One, etc.)
Types of Brokerage:
Flat Fee – Fixed charge per trade (e.g., ₹20 per order)
Percentage-Based – A % of your trade value (e.g., 0.3%)
Example:
If you buy shares worth ₹10,000 and the brokerage is 0.2%,
you'll pay ₹20 as brokerage.
In simple terms:
Brokerage is the price you pay to the middleman (broker) to do your trade.
Index:
Index in the stock market is a group of selected stocks that represent the overall performance of a market or sector.
What it shows:
It shows whether the market is going up or down.
Popular Indexes:
Nifty 50 – Top 50 companies on NSE
Sensex – Top 30 companies on BSE
Bank Nifty – Top banking stocks
How it works:
If most companies in the index perform well → Index goes up
If they perform poorly → Index goes down
Simple meaning:
An index is like a scoreboard showing how a part of the market is doing.
Day Trading:
Day Trading is when you buy and sell stocks (or options, futures, etc.) on the same day, before the market closes.
9.15 am to 3.30 pm
Key Features:
All trades are closed within the same trading day
No stocks are held overnight
Used to profit from small price movements
Stop-loss and target prices
Fast decision-making and timing
Risk & Reward:
Can give quick profits
But also has high risk—prices move fast
Simple Meaning:
Day trading is like buying in the morning and selling before the market shuts, aiming to make quick profits.
Equity:
Ownership value in a company via stocks.
Example: Your 100 SBI shares are equity.
Mutual Fund:
Mutual Fund is a type of investment where many people pool their money together, and a professional fund manager invests it in stocks, bonds, or other assets.
๐งฐ Key Features:
-
Managed by experts
-
Ideal for beginners or passive investors
-
Offers diversification (your money is spread across many investments)
-
Comes with risk based on fund type (equity, debt, hybrid, etc.)
๐ผ Types of Mutual Funds:
-
Equity Fund – invests in shares
-
Debt Fund – invests in fixed-income assets
-
Hybrid Fund – mix of equity and debt
Simple Meaning:
A mutual fund is like a common basket of investments, managed by professionals, where you invest and relax while they manage your money.
ETF (Exchange-Traded Fund) is a basket of securities (like stocks, bonds, or commodities) that trades on a stock exchange just like a normal stock.
๐ Key Features:
-
Combines the benefits of mutual funds and stocks
-
You can buy/sell anytime during market hours
-
Usually follows an index like Nifty 50 or Sensex
-
Low cost and good diversification
-
Traded using a Demat and trading account
๐งพ Example:
Simple Meaning:
An ETF is like a mutual fund you can trade like a stock, giving you instant diversification and flexibility.
Capital Gain = Selling Price – Purchase Price
๐ Example:
๐ Types:
Simple Meaning:
Capital gain is the extra money you make when you sell something for more than you bought it.
Capital Loss is the loss you incur when you sell an investment for less than you paid for it.
๐งฎ Formula:
Capital Loss = Purchase Price – Selling Price
๐ Example:
๐ Types:
✅ Use:
You can use capital loss to reduce capital gains tax (called “loss set-off”).
Simple Meaning:
Capital loss is the money you lose when you sell something for less than what you paid.
Dividend Yield shows how much return (in %) you earn from dividends compared to the stock’s current price.
๐งฎ Formula:
Dividend Yield = (Dividend per Share ÷ Current Share Price) × 100
๐ Example:
-
A company gives ₹10 as dividend per share
-
Current share price is ₹200
-
Dividend Yield = (10 ÷ 200) × 100 = 5%
๐ Use:
Simple Meaning:
Dividend yield tells you how much money (in %) you’re getting back as income from the stock every year.
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Book Value is the net worth of a company based on its accounting records — what the company is worth on paper.
๐งฎ Formula:
Book Value = Total Assets – Total Liabilities
๐งพ Per Share Basis:
Book Value Per Share (BVPS) = Book Value ÷ Total Number of Shares
๐ Example:
๐ Use:
Simple Meaning:
Book value is what the company would be worth if it sold everything and paid all debts — its real financial worth on paper.
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Face Value is the original value of a share as listed by the company — also called the par value or nominal value.
๐ Key Points:
-
Usually set at ₹1, ₹2, ₹5, or ₹10 in India
-
It does not change with market price
-
Used to calculate dividends, bonus shares, and split ratios
๐งพ Example:
❓ Why It Matters:
-
Helps in understanding financial statements
-
Important for IPOs, stock splits, and dividend announcements
Simple Meaning:
Face value is the fixed base value of a share, decided by the company — not related to its market price.
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Bonus Shares are free additional shares given by a company to its existing shareholders, usually from its profits or reserves.
๐ Key Features:
-
No cost to shareholders
-
Issued in a specific ratio (e.g., 1:2 means 1 bonus share for every 2 held)
-
Total investment value remains the same, but number of shares increases
-
Face value remains unchanged
๐งพ Example:
Simple Meaning:
Bonus shares are like a gift of extra shares from the company, given for free to reward shareholders.
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Stock Split is when a company divides its existing shares into smaller units to make them more affordable, without changing the total value of your investment.
๐งฎ How It Works:
๐ Example:
-
You have 1 share at ₹1,000
-
After a 1:2 split → you get 2 shares at ₹500 each
-
Total value = ₹1,000 (same)
๐ Why Companies Do It:
Simple Meaning:
Stock split means you get more shares at a lower price, but your total investment stays the same.
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Rights Issue is when a company offers extra shares to its existing shareholders—usually at a discounted price and in a specific ratio.
๐ Key Features:
-
Only existing shareholders can buy
-
Offered at a price lower than market rate
-
You get the “right” to buy more, not the obligation
-
Helps the company raise fresh capital
๐งพ Example:
Simple Meaning:
Rights issue is a company’s way of saying:
"As a loyal shareholder, would you like to buy more shares—cheaply—before others?"
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Circuit Breaker is a temporary halt in trading triggered when a stock or index moves sharply up or down beyond a certain limit in a single day.
๐ Why It Exists:
To control panic or excessive volatility and give time for investors to think.
⚙️ How It Works (India - NSE/BSE):
-
Limits are set at 2%, 5%, 10%, 15%, or 20%
-
If price crosses the limit → trading pauses for a few minutes to hours
-
Applies to individual stocks and major indexes
๐งพ Example:
Simple Meaning:
Circuit breaker is like a market safety switch — it pauses trading when prices crash or rise too quickly.
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Dematerialization (Demat):
Converting physical shares to electronic form.
Example: Store Reliance shares in a Demat account.
Demat Account:
Electronic account for holding shares.
Example: Open with Zerodha to hold SBI shares.
Trading Account:
Account linked to Demat for buying/selling.
Example: Use Dhan to trade TCS shares.
Settlement:
Process of transferring shares and funds after a trade.
Example: T+1 settlement (funds/shares transfer next day).
Intraday Trading:
Same as day trading, focusing on price movements within a day.
Stop Loss:
Order to sell a stock if it falls to a set price to limit losses.
Example: Set stop loss for SBI at ₹780 if bought at ₹800.
Ticker Symbol:
Code for a stock on an exchange.
Example: RELIANCE for Reliance on NSE.
Liquidity:
Ease of buying/selling a stock without price impact.
Example: HDFC Bank is highly liquid.
Sector:
Industry group of companies. Example: IT sector includes TCS, Infosys.
Benchmark:
Index used to compare performance. Example: Sensex is a benchmark for Indian markets.
All-Time High:
Highest price a stock or index ever reached. Example: Sensex hit 85,000 in 2024.
Correction:
Market or stock price drop of 10–20%. Example: Nifty falls from 25,000 to 22,500.
Advanced Terms (51–101)
Derivatives:
Contracts based on an asset’s price (e.g., stocks).
Example: Options or futures on Reliance.
Options:
Contracts giving the right (not obligation) to buy/sell a stock at a set price by a date.
Example: Buy a Reliance call option at ₹3,000 strike.
Call Option:
Right to buy a stock at a set price.
Example: Reliance call at ₹3,000 profits if price hits ₹3,200.
Put Option:
Right to sell a stock at a set price.
Example: SBI put at ₹600 profits if price falls to ₹500.
Futures:
Agreement to buy/sell a stock at a set price on a future date.
Example: Reliance futures for December delivery.
Hedging:
Reducing risk by offsetting investments.
Example: Buy SBI shares, short SBI futures to protect against losses.
Arbitrage:
Profiting from price differences in markets.
Example: Buy Reliance on BSE at ₹3,000, sell on NSE at ₹3,010.
Margin Call:
Broker’s demand to deposit funds if margin losses exceed limits.
Example: Stock falls 20%, broker demands ₹10,000.
Insider Trading:
Trading based on non-public information, illegal.
Example: Buy TCS before unannounced earnings boost.
Circuit Limit (also called Price Band) is the maximum range within which a stock’s price is allowed to move in a single trading day.
๐ Why It Exists:
To prevent extreme volatility or manipulation in stock prices.
⚙️ Typical Limits in India (set by SEBI):
-
For most stocks: 2%, 5%, 10%, or 20%
-
For indices like Nifty/Sensex: 10%, 15%, 20% (with trading halts)
๐งพ Example:
-
A stock’s previous close is ₹100
-
If it has a 10% circuit limit, it can trade between ₹90 and ₹110 only
Simple Meaning:
Circuit limit is the daily price boundary of a stock — it can’t go beyond this range in a day, no matter what.
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Alpha:
Excess return over a benchmark.
Example: Portfolio beats Nifty by 5% = 5% alpha.
Beta:
Stock’s volatility relative to the market.
Example: SBI beta of 1.2 moves 20% more than Sensex.
Leverage:
Using borrowed funds to amplify returns.
Example: 2x leverage doubles gains/losses on ₹10,000.
Short Squeeze:
Rapid price rise forcing short sellers to buy back, pushing prices higher.
Example: Adani shares surged in 2023, squeezing shorts.
Dark Pool:
Private trading venues for large orders.
Example: Institutions trade Reliance off NSE to avoid price impact.
Quantitative Easing (QE):
Central bank buying assets to boost markets.
Example: RBI’s bond purchases in 2020 lifted Sensex.
Monetary Policy:
Central bank actions affecting markets.
Example: RBI rate hikes in 2023 slowed bull market.
Fundamental Analysis:
Evaluating a company’s financials (e.g., P/E, EPS).
Example: Buy TCS for strong profits.
Technical Analysis:
Using price/volume patterns to predict trends.
Example: Buy SBI if it breaks ₹620 resistance.
Resistance Level:
Price where a stock struggles to rise further.
Example: Reliance stalls at ₹3,200.
Support Level:
Price where a stock tends to stop falling.
Example: SBI bounces at ₹580.
Moving Average:
Average stock price over time to spot trends.
Example: SBI’s 50-day moving average at ₹600 signals bullishness.
Candlestick Chart:
Visual price movement over time.
Example: SBI’s green candlestick shows price rise.
Overbought:
Stock price too high, may fall.
Example: RSI above 70 for Adani signals overbought.
Oversold:
Stock price too low, may rise.
Example: RSI below 30 for SBI signals oversold.
RSI (Relative Strength Index):
Measures price momentum (0–100).
Example: RSI 80 for Reliance suggests overbought.
MACD (Moving Average Convergence Divergence):
Tracks price trend changes.
Example: MACD crossover signals SBI buy.
Market Maker:
Firm ensuring stock liquidity by quoting bid/ask prices.
Example: Brokers for low-volume stocks.
HFT (High-Frequency Trading):
Algorithmic trading at ultra-fast speeds.
Example: Firms trade Reliance in milliseconds.
PIPE (Private Investment in Public Equity):
Private investors buy public shares at a discount.
Example: Reliance raises funds via PIPE.
REIT (Real Estate Investment Trust):
Pooled investment in real estate, traded like stocks.
Example: Embassy REIT.
Yield Curve:
Graph of bond yields by maturity, impacts markets.
Example: Inverted curve signals recession fears.
Debt-to-Equity Ratio:
Company’s debt relative to equity.
Example: High ratio for Adani signals risk.
Free Float:
Shares available for public trading.
Example: Reliance’s 50% free float affects liquidity.
Market Sentiment:
Overall investor mood (bullish/bearish).
Example: Optimism drove Sensex to 85,000 in 2024.
Circuit Filter:
Stock-specific price limit.
Example: 5% filter for small-cap stocks.
Promoter:
Major shareholder controlling a company.
Example: Mukesh Ambani is Reliance’s promoter.
FII (Foreign Institutional Investor):
Overseas entities investing in markets.
Example: BlackRock buys Indian stocks.
DII (Domestic Institutional Investor):
Local entities like mutual funds.
Example: LIC invests in SBI.
Circuit Breaker Halt:
Market-wide trading pause.
Example: 15% Sensex drop halts trading.
Buyback:
Company repurchasing its shares.
Example: TCS buyback at ₹4,000/share.
Delisting:
Removing a stock from an exchange.
Example: Company goes private, stops trading.
Penny Stock:
Low-priced, high-risk stock.
Example: ₹5 share of a small firm.
PEG Ratio (Price/Earnings to Growth):
P/E adjusted for growth rate.
Example: PEG < 1 suggests TCS is undervalued.
Dividend Payout Ratio:
Portion of earnings paid as dividends.
Example: 50% payout means half of profits distributed.
ROE (Return on Equity):
Profit generated from shareholders’ equity.
Example: 20% ROE for HDFC Bank.
Volatility Index (VIX):
Measures market fear.
Example: India VIX at 30 signals high uncertainty.
Block Trade:
Large share transaction off-exchange.
Example: 1 million Reliance shares traded privately.
Spoofing:
Illegal fake orders to manipulate prices.
Example: Place fake SBI buy orders, cancel them.
Wash Trading:
Illegal trading to fake volume.
Example: Buy/sell same stock to inflate activity.
Black Swan Event:
Rare, high-impact market event. Example: 2020 COVID crash.
