Investing in the share market not only helps you grow and earn fast, but it can also provide financial security for your future. However, this exciting experience can also be risky if you don’t have enough knowledge and awareness about the terms and terminologies related to the stock market.
All investors, whether beginners or experienced, should know about a few common stock investment and trading-related terms to understand the share market better. This article will teach about a few common stock investments and trading-related terms.
A stock represents ownership in a company. When you buy a company’s stock, you become a shareholder, giving you a claim to a portion of the company’s assets and earnings.
A shareholder is a person or an entity that owns one or more shares of a company’s stock. Shareholders have certain rights, like voting on company matters and receiving dividends.
A dividend can be defined as the distribution of a company’s profits to its shareholders. Companies may pay dividends regularly, typically every quarter, or retain earnings from growth and expansion.
- IPO (Initial Public Offering)
An IPO occurs when a private company owner offers their shares to the public for the first time. This entire process allows the company to raise capital from investors in exchange for ownership stakes.
Volatility measures the degree of variation in a stock price over time. High volatility indicates significant price fluctuations, while low volatility suggests more stable price movements.
- P/E Ratio (Price-to-Earning Ratio)
The P/E ratio can be understood as a valuation metric comparing a company’s stock price to its earnings per share (EPS). It helps investors gauge the company’s relative value and growth prospects.
- Stock Exchange
A stock exchange is a marketplace where a buyer and seller come together to trade stocks. The Nasdaq and the New York Stock Exchange (NYSE)are well-known international stock exchanges. In India, we have BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).
- Stock Broker
A stockbroker can be understood as a licensed professional or firm that facilitates buying and selling stocks on behalf of investors. They may work for full-service brokerage firms or online brokerage platforms.
- Market Order
A market order implies an instruction to buy or sell a holding/stock at the prevailing market price. It guarantees the execution of the trade but does not guarantee a specific price.
- ETF (Exchange-Traded Fund)
An ETF is an investment fund that collects assets such as stocks or trades on the stock exchange like individual stocks.
- Stock Split
A stock split can be understood as corporate action that increases the number of a company’s outstanding shares while proportionally reducing the stock price. It doesn’t affect the total market value of the investment.
By understanding these common stock investment and trading terms, you will be able to navigate the stock market and make financial decisions in a better way. Remember, while investing can be rewarding, it also involves significant risk.
Therefore always conduct thorough research, check regular share market news, and, if needed, seek advice from expert investment advisors before making investment decisions. Keep these points in mind, and enjoy safe trading!