Terminology of the Stock Market and Concepts related to the Market

Stock Market Terminology and Market-Related Concepts

You would hear the following stock market terminology and concepts:

WHAT ARE DIVIDENDS?

A share is a percentage of the company. If the company has profits, you will often get a part. Dividends are a way to get a portion of the company's profits. Dividends are a portion of the profits that companies distribute to shareholders each year. This is the main source of income for long-term investors - those who don’t sell the stock over many years.

WHAT IS MARKET CAPITALIZATION?

When they are listed, different companies will issue different amounts of shares. One share's value is different from another company stock. These differences are smoothed out by market capitalization. It is the market stock prices multiplied with the number of shares owned by the public. This reflects both the market price and its size. If a stock is priced at Rs. If a stock is priced at Rs. 50,00,000.
When stacking stocks into different indexes, market capitalization is important. It also determines the index's weightage. This means that the index's value will be affected by the company's stock market value.

WHAT ROLLING SETTLEMENTS ARE?

All trades must be settled by the close of the current day to qualify as a rolling settlement. The entire transaction, where the buyer pays for the securities bought and the seller delivers the shares to be sold, must be completed within a day.
If your friend buys a book from a bookstore for you, you'll have to pay him eventually. The trade must be settled after you have sold or bought shares through your broker. The buyer must receive his shares, and the seller must receive his money. Settlement is when the buyers pay and the sellers deliver the shares.
India has adopted the T+2 settlements cycles. A transaction that is conducted on Day 1 must be settled on Day 1 + 2 working day. This is where funds are paid and securities transferred. Here, "T+2" means Today + 2 working day. Saturdays and Sundays do not count as working days. If you sign a trade on Friday, it will not be settled on Sunday. Even holidays at the bank or exchange are exempt.

WHAT IS SHORT-SELLING?

When an investor anticipates that the stock's price will fall, he sells short. The investor takes out a share to sell it. The investor will then buy the same share at lower prices and return it to the bank, making a profit. Simply put, you sell first at a high price and then you buy second at a lower price. Short-selling allows traders to profit from falling stock and index prices. Short-selling can be risky because it is done in anticipation of a stock move.

Let's take one example. Let's say you anticipate Infosys shares falling tomorrow. You enter an order to buy shares at the current market rate. You buy at the lower price if the share price falls sufficiently tomorrow. Your profit is the difference between the selling and buying prices. If the share price rises after you sell at a lower price, you will lose your profit.

WHAT CIRCUIT FILTERS AND TRADING BONDS ARE?

Certain stocks are more volatile that others. Investors should not be exposed to too much volatility. Circuit filters were created by SEBI to reduce volatility. The maximum price a stock can move in a day has been set by the market regulator. This is known as a price trading range. Trading in a stock that exceeds this limit is stopped for a time. There are three levels to these limits. Each limit causes trading to stop for a longer time. Trading is stopped for the remainder of the day if all three circuit filters have been violated. Circuit filters are defined by NSE in five categories, including 2% to 5%, 10%, 20%, and none.

Prices may also differ between the NSE and BSE exchanges. Circuit filters may be different for shares traded on both exchanges.

WHAT IS BULL AND BEARS MARKETS?

Markets are sometimes called 'bull' and 'bear'. These names are based on the way that animals attack each other. A bull will raise its horns in the air while a bear will swipe its paws downwards. These actions represent the market's movement: If stock prices trend upwards it is a bull market. If they trend downwards it is a bear market.

The market's bull or bear phases are determined largely by the supply and demand of securities. Market movements are also influenced by factors such as investor psychology, government intervention in the economy, and changes in economic activity. Investors can bid for stocks at higher or lower prices when these factors are combined.

WHAT IS MARGIN TRADE?

Many traders trade on stock markets using borrowed funds or securities. This is known as margin trading. This is similar to buying securities on credit. Margin trading can yield higher returns but can be extremely risky. Margin trading allows you to actively take advantage of market opportunities but it also exposes you to unique risks like interest payments for borrowed money. Kotaksecurities.com provides margin trading to its customers.

WHAT IS MAHURAT TRADE?

The stock market opens for a few hours every year on the first day Diwali. An hour-long trading session on the auspicious occasion Diwali. This usually takes place at night. The Bombay Stock Exchange has been carrying out Mahurat trading for more than 100 years. This marks the start of the new financial year 'Samvat'.

WHAT ARE TOP DOWN, BOTTOM UP APPROACHES?

These are methods to choose stocks from the thousands that are listed on the exchange.

• The macro-economy is first considered in the top-down approach. You are able to see the trends and future outlook of the economy. This information allows you to choose one or more industries that will be successful in the near future. Because every industry responds differently to economic factors like inflation, interest rates and consumer demand, this is why it is important to do your homework. After a thorough analysis, choose one of the industries. The next step is to understand the industry's workings, competitors, and other factors that impact the sector. You then choose one company in the industry.
• Bottom-up is the exact opposite. The bottom-up approach does not focus on the economy or select industries first. Instead, it focuses on company fundamentals. First, you need to understand your priorities - steady income through high dividends or high growth. You select several stocks by using appropriate ratios such as the Price-to Earnings ratio and the Dividend-yield. Next, you analyze these stocks and find out what factors are driving profits. How efficient is the management of the company? Are there any significant indebtedness issues? What are the future prospects? So on. Based on these results, choose the company that best suits your needs.
• For weak market conditions, the bottom-up approach works best. Because these companies are based on the belief that they will succeed even in difficult economic times, These companies are called anomalies, or companies that don’t conform to the market trends.

WHAT DOES THE COST AVERAGING IMPLEMENT?

Rupee-cost average is when you purchase a stock in smaller quantities than buying it in one lump sum. This reduces the investment's average cost.

Let's take an example. Let's say you buy 100 shares of a company that costs Rs. If you buy 100 shares of a company that costs Rs. 10, your total investment cost will be Rs. 1000 You can buy 50 shares of Rs. 100 shares for Rs. 95, your total investment cost would be lower. Your average cost per share would also be lower. This is known as rupee-cost average.

This is a great idea for when a stock drops after you've bought it. A fall in share prices gives you the opportunity to purchase more shares and lower your investment cost. You will make more profit if you decide to sell your shares in the future.

WHAT IS STOCK VOLATILITY?

Stock prices fluctuate constantly. Because the demand for stock changes, stock prices fluctuate. The Share price changes more frequently when there are more shares being sold. Stock volatility is what you call it. The market's volatility can change daily. The VIX India index (also known as the fear gauge) was created by the National Stock Exchange to measure market volatility. VIX is used often to indicate stock price trends. Because VIX rises in times of uncertainty and fear, VIX will also increase.

Investors perceive an increase of risk. This is usually triggered by a market decline.

WHAT ARE STOP-LOSS AND PRICE TARGETS?

To maximize your investment returns, you must get your pricing right. This applies to both buying and selling. Sometimes, however, prices can fluctuate more than anticipated. It can be difficult to decide whether you should trade immediately or wait. Stock recommendations can help you make an informed decision.

Analysts will give you stop-loss and price targets to help you decide how long you should keep a stock. The price target means that the share price is unlikely to rise above this level. Once the share price reaches the target, it is possible to look to sell it or pocket your profits. The stop loss acts as a target at the lower end. This allows you to know when to sell, before the stock drops further or worsens your loss.

WHAT IS INSIDER TRADING?

Insider trading refers to the trading of shares on the basis of knowledge that is not available to everyone else. After receiving confidential information about securities, it is illegal to trade.

This applies to both corporate employees and traders and brokers. The exchange requires that company management report trades. It is illegal to trade company stocks by corporate officers, directors, employees, after learning about significant corporate developments. This includes employees of law, banking and brokerage firms, as well as printing firms that were provided with such information in order to offer services to the corporation's securities. Even government employees who trade after receiving such information are considered to be in violation of the law. It is a punishable offense.