15 Basic Stock Market Terms Every New Investor or Trader Must Know

1. Stock/Share:

These two terms are often used interchangeably. Share refers to a unit of ownership in a company. When you buy a share, you own a fraction of the company and may earn dividends from its profits. As a shareholder, you have voting rights and therefore participate in the company's affairs. When a company offers shares, it dilutes its control over the ownership.

2. Bid & Ask:

The bid is the maximum price a buyer is willing to pay for a stock, while the ask is the minimum price a seller is willing to accept. It is directly responsible for the liquidity and activity of the market.

3. Broker:

A broker is a stock market intermediary that facilitates trades and serves as a link between investors and depositories. Brokers are responsible for providing trading platforms, research tools, and market insights, and they charge a commission or fee for their services.

4. Volume and Liquidity:

Volume refers to the total number of shares traded in a stock during a specific period, indicating market activity and investor interest. Liquidity, on the other hand, measures how quickly and easily a stock can be bought or sold without significantly affecting its price.

5. Volatility:

This term is frequently used in a stock exchange and trading environment. It simply refers to how much and how quickly a stock’s price moves over a given period (both up and down). A highly volatile stock represents higher risk but also the chance to earn profits in a shorter period (and also losses).

6. Market and Limit Orders:

These are two different types of orders. A market order is an instruction to buy or sell a stock immediately at the best available price, ensuring quick execution but not price certainty. On the other hand, you can bid your price through a limit order, where you're allowed to specify the maximum price you’re willing to pay when buying or the minimum you’ll accept when selling.

7. Bull and Bear Markets:

It is simply the mood and trend of the market, where a bullish trend represents the expectations of traders and investors of upward market movements. On the other hand, a bear market occurs when prices decline significantly, typically due to widespread pessimism or an economic slowdown.

8. Dividends and Earnings

A dividend is a portion of a company’s profits distributed to shareholders, usually as cash or additional shares, offering a steady income stream. Earnings represent the company’s net profit after all expenses, reflecting its financial performance.

9. P/E Ratio:

The Price-to-Earnings (P/E) ratio compares a company’s stock price to its earnings per share, helping investors evaluate whether a stock is undervalued, overvalued, or fairly priced based on its profitability.

10. IPO (Initial Public Offering):

IPO refers to the first time a company raises funds from the public through issuing shares. Besides listing on the exchanges, IPOs help companies raise capital for expansion while providing investors with an opportunity to invest in the company early.

11. Corporate Actions:

Any significant events of the company that can result in restructuring or have a direct impact on the shareholders, such as a stock split, bonus shares, rights issue, etc.

12. Stock Split:

A stock split occurs when a company divides its existing shares into multiple new shares, thereby reducing the price per share while maintaining the overall value.

13. Index:

It is a collection of shares that serves as a benchmark for the group's performance. For example, Nifty 50 represents the top 50 companies (in terms of market capitalization) listed on the NSE.

14. Portfolio:

A portfolio is the collection of all investments an individual holds, including stocks, bonds, and other assets. Building a diversified portfolio helps spread risk and balance returns, making it a cornerstone of sound investment strategy.

##15. Market Cap:

Market capitalization, or market cap, is the total value of a company’s outstanding shares, calculated by multiplying the stock price by the number of shares. It is categorized into large-cap, mid-cap, and small-cap.

FAQs

Do beginners really need to learn stock‑market terms?

Absolutely. Learning terms like bid, ask, liquidity, IPO, and P/E ratio helps you make informed decisions and understand market dynamics from day one.

What does the bid‑ask spread tell me?

The spread, the difference between the bid (buy price) and the ask (sell price), indicates liquidity. Narrow spreads suggest active trading and efficient markets.

Can I invest without a broker?

No. A licensed broker is essential for accessing stock exchanges, executing trades, and providing platforms and research services.

Why do companies issue an IPO?

IPOs allow private companies to raise public capital, fund growth, and gain credibility by listing on a stock exchange.

What does the P/E ratio indicate?

The P/E (Price-to-Earnings) ratio indicates how much investors are paying per rupee of a company’s earnings, which is useful for assessing valuation and comparing it with peers.