Terms for a stock market
1. Market cap or Market capitalization
It refers to the total market value of the company's share. It is calculated by multiplying the total number of outstanding shares of a company by the price of one share. For example, there are hundreds of crore shares of a company, and each share trading at rupees two then the market capitalization of that share will be 100*2 that is 200 crores now market capitalization is used to define small-cap, mid-cap, and large-cap companies. For example, if the market capitalization of a company is greater than 29,000 crore then it can be considered as a large-cap company, that is a big company on the other hand if the market capitalization is between 8500 crores and 29,000 nine thousand crores then it can be said roughly to be a mid-cap company. Finally if the market capitalization of a company is less than 8500 crore then it can be said to be a small-cap company. so for the big reputable companies who have been in the market for a long time like Tata Motors, Maruti Suzuki all these are large-cap companies on the other hand startups or new companies new businesses they are generally in the small-cap rate and all this division is based on market capitalization.
2. Index
Now since there are thousands of companies listed in a stock exchange, hence it's difficult to track every stock to evaluate the market performance at a time, and hence a smaller sample is taken which is the representative of the whole market and it is called Index. So if you want to know any specific market or any specific sector how they are performing then you can look at their index it helps in the value of a section of the stock market and Sensex and Nifty are the indexes of BSE and NSE.
3. Limit order
Limit order means to buy or sell's here with a limit price so as you already know that the price of a stock fluctuates every second in the stock market and if you want to buy a share at a given price your price then you can place a limit order. For example, let's say the stock of Tata Motors is trading at rupees 180 but you do not want to buy at 180, you want to buy it at rupees 178, so here you can buy limit order and when the price of Tata Motors falls from rupees 180 to 178 this order will get executed. However the problem with a limit order is that sometimes your order might never get executed. For example, if the price of Tata motor starts moving from rupees 182, 184, 185, and even higher, then your order will never get executed and in such scenarios you have to cancel this limit order and again place another order. On the other hand the market order is when you want to buy and sell stocks at the current market price that is the current share price. so we can go back to the example of Tata Motors sets its current share price is rupees 180 and you want to buy shares of my Tata Motors at the same price then you can place in a market order and the best point about market order is that it is executed instantaneously.
4. Margin trading
Margin means borrowing money from your stockbroker to purchase stock. Understand this concept better let's say you buy the stock at rupees 100 and you sold the stock at rupees 102 so here your profit will go to piece 2. However this is a very small profit so here what they can do is they can get money or borrow money from their brokers so that they can buy a huge quantity of these stocks, so margin helps the traders to trade in more stocks then you would normally be able to. So here the profits aren't can be increased significantly, however, as you are borrowing money from the broker again the risk also increases because anyhow if you make money or if you lose the money you have to return that money to your broker.
5. Liquidity
Liquidity means how easily you can buy ourselves without affecting the share price a highly liquid share means that it can easily be bought or sold on the other hand a low liquid stock means that the buyers and sellers are hard to find.
For example, big companies that have a lot of outstanding shares, for them it's easy to buy and sell stocks on the other hand in a scenario where you buy a small-cap company that has a very less number of volume and liquidity you might get stuck with the stock. so you hold a thousand quantity of that stock and there is no one is ready to buy that stock from you then you might be stuck with those stocks. So, whenever you are purchasing any company or if whenever you are purchasing especially small-cap companies then check their liquidity that is how liquid the companies are. How easily you can buy and sell stocks of that.
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| GOLD is best Liquidity |
6. Trading volume
It is the total number of shares being traded at a particular time of period so when security is more actively traded their trading volume is high. Higher trade volumes for stocks means higher liquidity, better order execution, and a more active market for connecting buyer and seller. So whenever you are purchasing a stock always look at the trading volume whether the volume of the trades is high or low.
7. Volatility
Volatility means how fast the stock prices move up and down now on a particular day the stock price of a company can go up and down and if this change in the selling price then it means that the stocks are very highly volatile. Most volatile stocks are considered risky. There are less volatile stocks because the price is expected to be less predictable and may fluctuate dramatically.
8. Short selling
In the stock market you do not always need to first buy and then sell stocks, sometimes you can first sell the stock and then buy, this concept is called short selling. It is a practice when the trader sells first which he doesn't even own at that time and hope that the price of that share starts falling the trader will make a profit by buying those shares back at a lower price so there is a company whose share price starts falling so you can first sell the stock at rupees 100 and later when the price falls to rupees 95 you can buy back that stock and hear the difference in the buying and selling that is 5 is your profit. So a lot of people use the technique of short selling to make profits in the falling market. That is in the scenario when the share prices of companies are continuously falling.
9. Average down
This is an approach that is used by investors to buy more stocks, when the share prices start fluctuating and this results in an overall lower average price for that share. For example, there are the prices of a stock are continuously falling and you are not certain at what price you should buy that stock so you can buy that stocks at different prices so let's say you bought 10 stocks at rupees 100 and after a few days the price of the that stock fell and you bought the stocks at 80 and the price again kept on falling and after few days you again what in stocks of that company at rupees 60. so here your average buying price will be the average of all the prices at which you bought that stock that is rupees 80 and here as you can see that it is lower than what your original price will be, so averages down helps investors when they are uncertain about the purchase price or the when the prices of the stocks are fluctuating dramatically.
10. Portfolio
A stock portfolio is a group of all the stocks that you are holding, so you are holding 5 stocks of HCL, 10 stocks of Maruti Suzuki, 20 stocks of an MRF, 50 stocks of Titan companies, so all these companies are in your portfolio and the portfolio shows the different stocks and the quantities that you are holding and it is very important to build a good portfolio to maintain the risk/reward in the stock market in other words you do not want to have all the risky stocks in your portfolio. If you have some risky stocks you should also keep some safe large-cap companies so that you can balance the risk and reward. Therefore it is really important to make a good portfolio.
11. Dividend
Thank you.
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