This Blog is created to provide you with information about you the basic stock market terminology/jargon. There are the terms/jargon that every beginner must know before reading anything else. Generally in the all stock market-related articles which I’m writing here, I’ll talk about the Indian stock market, So don’t get confused about the foreign markets. Terminology and methods are the same in both cases, It’s just differentiated by nation and instrument that are being traded in a particular country.
This blog is designed completely in question/answer format to make it easier for users to read.
Stock Market Terminology
What is Share and Why company issues shares?
Share is a piece/fraction of ownership of any company. Suppose you and your friend go to the shopping mall and bought one football by sharing 50:50 percent money each, it shows you own 50 percent share of that football and the same for your friend.
So, When a company needs any financial need ( in terms of money ), they have 2 ways to raise money :
(i) Either They can reach out to a bank for a loan or,( But here they have to pay interest for the money they are borrowing, which company never want );
(ii) They can reach out to the stock exchange to list their company (By listing they can distribute a fraction/piece of ownership in the company in terms of shares to the public, who after purchasing shares becomes shareholder/partner of the company) and get interest free money from them to expand their business or accomplish their financial needs.
What is Stock Market ?
For shopping, We have a market like BigBazaar same as for purchasing shares, there is a stock market. A stock market is a place where shares of all the publicly listed companies are being traded on an exchange.
There are 2 types of markets for buying shares: Here is the best example for understanding primary and secondary market.
(i) Listed Market (Primary Market) :
It’s a place where companies are officially listed on an exchange and you can directly buy shares from the exchange through brokers.
(ii) Unlisted Market ( Secondary Market ) :
Here companies are not listed on the exchange but shares can be bought from this market. In this, you won’t be able to track the price of the share frequently as in like the listed market.
To Buy Unlisted shares, you have to contact some broker’s website, which after issuing DIS(Delivery Instruction Slip), transfers shares to your demat account which is eventually credited and available to see in demat within 6-24hr of transfer.
(Details about the complete process of “How to buy shares from Unlisted market?” is being written in an upcoming post, so stay tuned.)
What is Exchange?
For shopping, We have a different market like BigBazaar or D-mart, etc., for purchasing shares, there are 2 markets from which you can buy shares from anyone, the price would be the same at both almost.
Click on the above name to know more about the exchange.
We had 6-7 more exchanges in India, but they had been closed by the government.
What are Brokers ?
Brokers are the person/entity who on behalf of you place an order on exchange and fulfill your order. Now some of you think that why we need a broker, can’t we directly buy shares from the exchange?
Answer is no, you can’t directly buy it from exchange. To buy directly from market you need Direct Market Access (DMA) and to get DMA you must accomplish some of the requirements. You can check out the requirements and criteria on the exchange’s website. So as a retailer you can access the exchange data from the broker’s terminal.
Now, there are 2 types of brokers :
(i) Discount Brokers
(ii)Full Service Brokers
(Read Detail guide about “How to choose broker & which one is good for retailer ?”)
What is Demat and Trading Account ?
To save and transact money, you need bank account, same way, To Transact/hold the shares, you need Trading/Demat account.
(i) Trading Account
Where you can trade shares of the company. It’s a broker platform/application through which you can see all the trading-related data or transactions.
(ii) Demat Account
In a very simplified way :
As you have actual money residing in Bank ( for shares, it’s CDSL/NSDL – Demat account), you can access your money through the Banking App. ( for shares, it’s Broker’s Platform – Trading account )
(Read Detail guide about “How to Open a Demat Account for Free?” here .)
What is the difference between Trading and Investing ?
i) Trading :
Trading of instrument/script by their behavior/chart pattern, price, indicator, or with all other parameters is called Trading. Trading is completely based on technical analysis.
There are 3 types of trading, according to your behavior, patience, and psychology, you have to decide which one is best suitable for your trading career.
1) Intraday Trading: In this type of trading, trader closes their position with profit/loss on almost the same day before the market closes.
2) Swing Trading: Generally, in this type of trading, the position is being held for 2 days to several weeks.
3) Positional Trading: In this type of trading, the position is held for a month to several months but less than a year.
(* There are a lot more things to talk particularly about trading including earning method, which is all we’ll talk about in the upcoming post, so stay tuned.)
ii) Investing :
Investing is all about buying a good business based on financial statements ( like balance sheet, PnL statement, cash flow statement ), the company estimated future cash flow, and sectoral growth. Investing is completely based on fundamental analysis.
What is Technical Analysis ?
- Technical Analysis (or TA) is about forecasting the direction of prices through the study of past market data, primarily price and volume.
- Technical Analysis helps identify trading opportunities using the actions of Market Participants through charts, patterns, and indicators.
- Technical analysis helps traders and investors navigate the gap between intrinsic value and market price by leveraging certain techniques. Technical Analysis can give you an edge in the markets.
- However, Technical Analysis alone is not enough to become a profitable trader, You must have a trading strategy with an edge.
What is Fundamental Analysis ?
Fundamental analysis is a method of assessing the intrinsic value of a stock. It combines financial statements, external influences, events, and industry trends. Fundamental analysis is a method of determining a stock’s real or “fair market” value.
There are two main types of fundamental analysis –
i) Qualitative analysis
ii) Quantitative analysis
(*We’ll not goes into fundamental analysis more because at the end of the day “money matters” either from Technical analysis or Fundamental analysis. We’ll mostly learn about technical analysis in our blog. If you still want to learn about anything fundamental, please feel free to write in a comment, we would be happy to answer you or provide resources to learn.)
So that’s it for now.
Don’t forget to check out our more “Financial Market-related articles” to improve your learning & enhance your knowledge.