As a Stock Market Investor and enthusiast, you must know Stock Market terms really well in order to make money in the stock markets. Moreover, it will also enhance your understanding of the relationship between stock markets and events happening in the economy. You can accurately gauge market movements and be in control of your investments. At the same time, it helps you analyze expert opinions, read between the lines, and make an informed choice.

Below we mention some of the top Stock Market Terms every investor must know to start journey into the world of Stock markets.

Stock Market

A Stock market is a place where regular activities of buying, selling, and issuance of shares of publicly-held companies take place. In the stock market, one can also trade in financial instruments such as derivatives, bonds, mutual funds, along with shares of a listed company. When you buy a share, you become a part owner of the company.

In India, the prime stock exchanges are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Primary market

The primary market is where a company first gets registered to raise money and issues a certain number of shares or bonds. It's in this market that firms float new stocks and bonds to the public for the first time. When a company decides to list its shares for the first time this is known as an initial public offer (IPO).

Another way for a company can raise capital in the primary market is through rights offering or issues. A rights offering (issue) allows companies to raise additional equity through the primary market after having securities in the secondary market.

Secondary market

After stocks or securities of a company have been sold in the primary market, they are then traded in the secondary market. Investors trade previously issued securities without the companies' involvement. In the secondary market, the investor buys shares from another investor at the prevailing market price or whatever price both the buyer and seller agree upon.

In India, primary and secondary markets are governed by the Security and Exchange Board of India (Sebi).

Share

A share indicates a unit of ownership in a particular company. As a shareholder of a company, you hold a percentage of ownership of the company and are liable for the company’s profits and losses. You also get the additional benefits such as dividends, bonus shares and rights issue.

BSE

BSE Limited (formerly Bombay Stock Exchange) established in 1875 is Asia's first & now the world's fastest Stock Exchange with a speed of 6 microseconds. BSE is a corporatized entity with a broad shareholder base that includes the leading global exchange Deutsche Bourse as a strategic partner. BSE provides an efficient and transparent market for trading in equity debt instruments equity derivatives currency derivatives interest rate derivatives mutual funds and stock lending and borrowing. BSE is India's biggest bourse in terms of listed companies with over 5000 companies listed on the exchange. BSE's popular equity index - the S&P BSE SENSEX is India's most widely tracked stock market benchmark index.

NSE

National Stock Exchange is the leading stock exchange in India. It was established in the year 1992 as the first dematerialized electronic exchange in the country. It was the first exchange to provide a fully-automated screen-based trading system to the investors to facilitate easy trading. In the year 1993, NSE registered itself as a stock exchange under the Securities Contract Regulations Act. It operates with a vision to “to continue to be a leader, establish a global presence, facilitate the financial well-being of people.”

The benchmark index of NSE, Nifty 50 is used extensively by investors around the world to keep track of the Indian capital market. NSE had also played an important role in the creation of the National Securities Depository Limited. (NSDL) allows the investors to hold and transfer their shares electronically without any hassle. This eventually leads to holding the financial instruments conveniently in electronic form thereby reducing the fake certificate issues.

Portfolio

Portfolio it is a collection of a wide range of assets that are owned by investors. The said collection of financial assets may also be valuables ranging from gold, stocks, funds, derivatives, property, cash equivalents, bonds, etc. Individuals put their money in such assets to generate revenue while ensuring that the original equity of the asset or capital does not erode.

A stock portfolio is a collection of stocks that you invest in with the hope of making a profit. By putting together a diverse portfolio that spans various sectors you’re able to become a more resilient investor. That’s because if one sector takes a hit, the investments you hold in other sectors aren’t necessarily affected.

Bull Market

Bull Market means that the market is on an upward spiral. It is a result of investors’ palpable excitement and optimism about the market or the economy. It means that the aggregate market prices of the stocks are rising.

During this time, investors generate high expectations regarding the stock market performance, and pool their money readily into this sector. An increasing consumer confidence level, subsequently increasing the cash flow into this sector, allows companies to increase annual turnover, which leads to higher profits to be disbursed among shareholders.

Bear Market

The bear market definition is exactly the opposite of a bull market. It’s a market where quarter after quarter the market is moving down about 20 percent. That signals a bear market, and when that happens people start to get really scared about putting money into the stock market.

Interestingly, a bear market is named for the way that this particular animal attacks its victims. A bear swipes downward during an attack, thus becoming a metaphor for market activity under these conditions.

Broker

The broker is an intermediary between the stock exchange and the investors or traders who facilitate the transfer of funds and shares in exchange for a commission. A broker is a middleman that facilitates the trade between the buyers and sellers. A broker can also refer to a firm when it acts as an agent of the investors and arranges transaction between the buyers and sellers. The firm charges specific fees for these services.

Derivative

Derivatives are financial contracts whose value is dependent on an underlying asset or group of assets. The commonly used assets are stocks, bonds, currencies, commodities and market indices. The value of the underlying assets keeps changing according to market conditions. The basic principle behind entering into derivative contracts is to earn profits by speculating on the value of the underlying asset in future.

Index

A stock market index is a statistical measure that reflects the changes in the stock market. It is created by picking and grouping similar kind of stocks from the listed securities on the exchange.

Criteria for stock selection may depend on the type of industry, market capitalization, and size of the company. BSE Sensex and NSE Nifty are the two most widely used stock indices in India.

Stock split

Stock split refers to the increase in the number of outstanding shares by splitting the current ones. Companies do this to enhance the availability of their shares in the market.

The general split ratio is 2:1 or 3:1, which means that one share is split into two or three. A share’s price is also affected by a stock split. It reduces as the number of outstanding shares increases.

Bonus shares

Bonus shares are extra or additional shares that a company gives to its shareholders. And yes, they come at no additional cost. The number of bonus shares you get depends on the number of shares you originally own.

For example, imagine that you own a hundred shares of company X. Now, if the company announces a 2:1 bonus, you get two shares free for every share you own. That is, you would get 200 free shares and your total holding rises up to 300 shares.

Finally, like any field of activity, stock trading is also based on a set of very unique and specific terms. The stock market terminology for beginners can be quite wide and comprehensive. But you need to be familiar with some important terms used in stock markets. Above all, in the Indian context you must know some Indian stock market terms and definitions which are in common use. It helps you build a better conversation around the markets.