STOCK MARKET TERMINOLOGY

1. Basics: What the Market Is and Who’s in It

Stock exchange / Bourse
A stock exchange (or bourse) is a marketplace where shares and other securities are bought and sold. Think Bombay Stock Exchange (BSE) or National Stock Exchange (NSE) — places where trades are matched and prices discovered.

Securities / Shares / Equities
Securities are financial instruments that represent value — equities (shares), bonds, debentures, etc. A share (or equity) is a unit of ownership in a company; shareholders share in profits (via dividends) and capital gains if the share price rises.

Primary market vs Secondary market
The primary market is where companies issue new shares (e.g., an IPO). The secondary market is where investors buy and sell existing, listed shares through exchanges.

IPO (Initial Public Offering)
When a private company offers shares to the public for the first time. Investors apply via the prospectus, and shares may be oversubscribed if demand exceeds supply.

Issuer, underwriter, lead manager
The issuer is the company offering shares. Underwriters or a syndicate (led by a lead manager) agree to buy any unsold portion of the issue — they “guarantee” the issue.

2. Trading Basics: Orders, Prices, Lots

Bid Price & Ask Price

Bid = price buyers are willing to pay.
Ask (or offer) = price sellers want. The difference is the spread.

Buy Order / Sell Order / Limit Order / Day Order / GTC

Buy Order: instruction to purchase shares.
Limit Order: buy/sell at a specified price (or better).
Day Order: valid only for the trading day.
Good-Till-Cancelled (GTC): remains until executed or cancelled.

Market lot / Lot
Minimum quantity you can trade — e.g., a lot of 1 share in demat systems, or fixed lots for certain instruments.

Odd lot
A trade size smaller than the market lot.

Closing Price / Last Price
Price at which the last trade for a security executed during a trading session — used widely for charts and performance tracking.

3. Settlement, Clearing & Delivery

Settlement / Settlement Date / Account Day
Settlement is the process of transferring securities to the buyer and cash to the seller. Settlement date is the day this transfer is completed (e.g., T+2, two business days after trade date).

Clearing / Clearing House / Settlement Guarantee
Clearing reconciles and nets trades between members. Clearing houses ensure settlement — many jurisdictions provide a settlement guarantee even if a participant defaults.

Pay-in day / Pay-out day

Pay-in day: when members deposit securities or funds with the clearing house.
Pay-out day: when securities/funds are delivered to members.

Good Delivery / Bad Delivery

Good delivery meets all transfer requirements.
Bad delivery has defects (wrong signatures, missing transfer deed) and is rejected.

4. Market Participants & Roles

Broker / Jobber
A broker is licensed to trade for clients and charges commission. Historically, a jobber was a market maker or dealer specializing in certain stocks.

Institutional Investor
Large entities (mutual funds, pension funds, banks) that trade large volumes and can influence market prices.

Speculator / Stag / Day Trader

Speculator: aims to profit from short-term price moves.
Stag: participates in IPOs hoping to quickly flip allocations for small gains.
Day trader: opens and closes positions within same trading day.

Underwriter
Financial institution or bank that agrees to buy unsubscribed portions of a new issue to ensure full subscription.

5. Market Types & Instruments

Cash / Spot Market
Immediate delivery and payment — the ordinary stock market for shares.

Derivatives: Futures & Options

Future: contract to buy/sell a quantity at a fixed price on a future date.
Option: right (but not obligation) to buy (call) or sell (put) at a pre-set price before expiry, for a premium.

Index Futures
Futures contracts based on indices (Sensex, Nifty) allow traders to take positions on the market direction rather than single stocks.

GDR, ADR (Global/American Depository Receipts)
Instruments that let foreign investors invest in domestic companies (GDRs) or U.S. investors buy foreign shares (ADRs), via depositary banks.

6. Risk, Liquidity & Market Behavior

Liquidity / Illiquid Investments
Liquidity is how easily an asset can be converted into cash without a big price change. Illiquid investments are hard to sell quickly.

Volatile shares / Volatility
Shares with sharp price swings show high volatility — important for risk-minded traders.

Market risk (Systematic) vs Unsystematic risk

Systematic risk: affects whole market (interest rates, recession) — cannot be diversified away.
Unsystematic risk: specific to a company or industry — can be reduced via diversification.

Diversification
Spreading investments across asset classes/stocks to reduce unsystematic risk.

Hedging
A strategy to offset risk — e.g., buying put options to protect a long stock position.

7. Strategies & Trading Mechanics

Buy-and-Hold vs Buy-and-Sell

Buy-and-hold: long-term strategy focusing on fundamentals and compounding returns.
Buy-and-sell (active trading): trade on short-term price movement.

Short Selling / Going Short / Selling Short / Short Covering
Short selling is selling shares you don’t own (borrowed), hoping to buy back later at lower prices. Short covering is buying back the borrowed shares to close the position.

Carry Forward Trading / Badla / Contango
Historically in some markets, traders could carry forward positions by paying fees. Badla is a form of carry-forward margining (historic BSE term). Contango here refers to charges in carry-forward arrangements.

Index & Market Timing
Some use technical tools (charts, moving averages) to time entries; others believe in random walk (efficient market) and focus on long-term fundamentals.

8. Corporate Actions & Ownership

Dividend / Cash Dividend / Interim Dividend / Ex-Dividend (XD)
Dividends are company profits paid to shareholders. Ex-dividend date is when new buyers are not entitled to the declared dividend — usually price adjusts lower by roughly the dividend amount.

Rights Issue / Bonus / Cum Dividend / Cum Bonus / XR / XB

Rights issue: existing shareholders get right to buy additional shares, typically at a discount.
Bonus shares: extra shares given out of reserves — cum-bonus indicates entitlement until record date; ex-rights/ex-bonus follow the record date rules.

Buy Back / Takeovers / Delisting
Companies can buy back shares to reduce float. Delisting removes a company from an exchange, halting public trading. Offer document describes takeover bids.

Dilution of Equity / Share Premium / Face Value / Paid-Up Capital
Issuing new shares increases total shares, diluting ownership. Share premium is when shares are issued above face value. Paid-up capital is capital actually received from shareholders.

9. Accounting & Financial Ratios (Fundamental Analysis)

Earnings per Share (EPS) & P/E Ratio

EPS = Net income / shares outstanding.
P/E ratio = Market price / EPS — indicator of how much market pays per unit of earnings.

Return on Equity (ROE) / Return on Capital
Measures how effectively management uses capital to generate returns.

Book Value / Price-to-Book (P/B) ratio / Net Book Value
Book value = net assets per share. P/B compares market value to book value; low P/B may indicate undervaluation.

Debt-Equity Ratio / Leverage / Leverage Ratio
Indicates how much debt finances a company versus equity. High leverage increases financial risk.

Quick Ratio / Current Ratio / Inventory Turnover
Liquidity measures (quick/current) show ability to meet short-term obligations. Inventory turnover shows efficiency in managing stock.

Profit before tax (PBT) / Profit after tax (PAT) / Bottom line
PBT and PAT track earnings before and after tax; the bottom line is net profit.

10. Market Mechanics, Settlement & Market Integrity

Circuit Breaker / Price band
Limits that pause trading when prices move too sharply, to curb panic and excessive speculation.

Price rigging / Cornering / Cartel / Price manipulation
Illegal practices where a group controls supply or colludes to manipulate prices — authorities police such behavior.

Insider Trading / Transparency & Regulation
Trading on non-public, material information is illegal. Regulations (e.g., disclosure, listing rules) protect minority investors and market integrity.

Settlement Guarantee & Clearing Funds
Clearing corporations maintain funds and margin rules to ensure settlement even if participants default.

11. Charts, Technical Tools & Market Indicators

Line Charts / Bar Charts / Vertical Line / Point and Figure Charts
Different charting styles to visualize price action. Bar charts show daily high-low ranges; line charts show closing price trend; point & figure charts focus on directional moves ignoring time.

Moving Average / Momentum / Technical Rally / Technical Correction
Moving averages smooth price data to identify trends. Technical rally is short-term upmove; correction is a short-term downward move in an otherwise rising market.

A-D Index (Advance-Decline Index)
Measures market breadth — number of advancing stocks vs declining stocks — to detect underlying market strength/weakness.

12. Returns, Yield & Tax

Dividend Yield / Current Yield / Total Yield
Yield = dividend or interest divided by current price — measure of income return. Total yield includes price appreciation and corporate actions.

Capital Gains / Capital Loss / Holding Period Return (HPR)
Capital gains result from selling above purchase price; holding period matters for taxation in many countries.

Rule of 72
A quick way to estimate time to double an investment: 72 ÷ annual return ≈ years to double.

13. Money Supply & Macro Terms Affecting Markets

M1 / M2 / M3 / M4
Measures of money supply (narrow to broad) used by economists and central banks to assess liquidity and inflation trends.

Inflation / Real Interest Rate / Real Rate of Return
Inflation reduces purchasing power. Real interest = nominal interest minus inflation; real return accounts for inflation’s erosion on investment returns.

GDP / GNP / Business Cycle / Recession / Depression / Stagflation
Macro indicators that influence corporate profits and overall market direction.

14. Specialized Terms

Dematerialization (Demat)
Converting physical share certificates into electronic records held with a Depository Participant (DP) — simplifies settlement and reduces bad delivery cases.

Registrar / Transfer Agent
Entity that manages shareholder registers, corporate mailings, and distribution of dividends/notifications.

Custodian / Custody Services
Institutions that hold securities for institutional investors, handling settlement and safekeeping.

Greenshoe
An over-allotment option under which underwriters can issue extra shares when demand is high in an IPO to stabilize price.

Greymarket
Unofficial market, often for IPO allocations, where early buyers and speculators trade before formal listing; risky and unregulated.

15. Practical Tips for New Investors

Start with fundamentals: Learn EPS, P/E, ROE, and debt ratios to assess companies.
Diversify: Don’t put all money into one stock — diversification reduces company-specific risk.
Know your order types: Limit orders control price; market orders trade instantly but risk worse price.
Watch liquidity: Trade liquid stocks to avoid big slippage when entering/exiting positions.
Use stop-losses: Protect downside with predefined exit points.
Understand taxes & holding periods: Capital gains taxes vary by short/long-term holding.
Avoid market timing traps: Long-term investing and disciplined, periodic investing (cost averaging) works for many.

16. Conclusion: Speak the Language, Trade with Confidence

The stock market has its own vocabulary — but once you learn core terms like market capitalization, P/E ratio, dividend yield, limit order, settlement, short selling, and liquidity, the market becomes far less intimidating. Use this guide as a reference: re-read sections as needed, bookmark the key ratios and trading mechanics, and gradually add advanced topics (derivatives, options greeks, quantitative metrics) as you gain experience.

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