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Common Terms and Procedures Used for the Stock Market

Do you wish to invest in the market but are confused with the stock market terminology and terms?

If you are a beginner to the stock market and would like to invest in the market then we are here to help you with the common terms and procedures that will surely help you to understand the stock market.

So, in this article, we have covered a list of some common terms used for the stock market and also we will discuss the procedures of investment in the stock market.

Common Terms Used for The Stock Market

Having knowledge about the stock market terms is necessary. The stock market terms will improve your stock market vocabulary and help you to become a successful investor. Here are some common terms that you need to know as a stock market investor.

  • Stockbroker: A stockbroker is a person who acts as an intermediary and has the authority to buy and sell stocks in a stock exchange on behalf of the investor.
  • Equity: Equity is the number of shares owned by the investor in the listed company. As an investor when you invest in the company, it means you are taking some sort of ownership in the company.
  • Ask/ Offer: The asking price refers to the lowest price at which the stock seller is willing to sell the share in the market.
  • Dividend: A stock dividend is a payment or profits that are distributed to the equity shareholders on a quarterly or annual basis. It means a portion of the company’s profit is decided to be paid to their shareholders in return for their investment.
  • Bid: Bid refers to the highest price of the stock that the buyer is willing to pay for the particular stock.
  • Call Option: A call option gives a buyer the right but not the obligation to purchase the underlying assets at a predetermined period or expiry date.
  • Put Option: A put option gives the buyer the right but not the obligation to sell the underlying asset at a predetermined time or expiry date.
  • Bull Market: A bull market is where the prices of the stock are moving upward over a prolonged period of time. It is a period where the prices of stocks are increasing, showing an upward trend.
  • Bear Market: A bear market is just the opposite of a bull market. A bear market indicates a downward trend. In the period of the bear market, the prices of the stocks are declining downward.
  • Arbitrage: Arbitrage refers to purchasing an asset from one market and selling it to another market where the selling price is higher than the buying price in order to generate a good amount of profits.
  • Averaging Down: Averaging down is an investment strategy where investors buy multiple stocks when the price of the stock goes down, resulting in a lower average purchase price.
  • Market Trend: A market trend is a way that shows the status of the current stock market. If the performance of the stock market has been moving in an upward direction, then the market is said to be in an upward trend. On the other hand, if the performance of the stock market has been moving in a downward direction, then the market is said to be in a downward direction.
  • Volatility: Volatility is a measure that shows the fluctuations in the price of the equity share. High market volatility means frequent fluctuations during trading sessions. A highly volatile stock experiences daily ups and downs in stock prices which makes the investment risky.

Procedures Used for Trading in the Stock Market

To trade in the stock market, you must have knowledge about the procedures or steps required to trade in the stock market.

The steps followed for trading in the stock market are as follows:

  1. Selection of a Broker: As per the Securities and Exchange Board of India, one can trade through only authorized brokers. A broker can be a firm, an individual, or a corporate body. So it is most important for the trader to first find out the registered broker who can buy and sell the securities on their behalf for better returns.
  2. Open a Trading or Demat Account: Now the second step is to open a trading or Demat account. To trade in the stock market, it is important to have a trading or demat account. The Demat account is opened with the help of depositories, brokers, and banks. It is just like a bank account where you hold the money for trading purposes so that the transactions can be done smoothly without fail.
  3. Place the Order: Once the Demat account is opened, it’s time to place an order. The investor can place the order either through a broker by specifying the number of securities and the company at an expected price. At this stage, the price of securities is finalized and agreed upon by both parties at which the securities can be sold and bought.
  4. Execute the Order: Once the order is placed it’s time to prepare a contract. A contract note should include the name of both parties, the final price of securities, the time period, and, transaction details. It should be signed by the broker.
  5. Settlement: This is the last step of trading in the stock market. It includes the transfer of securities between both the parties; buyer and seller. There are two main kinds of settlement. The first is the on-the-spot settlement, which works as T+2 bases which means funds are immediately transferred on the second day of the transaction. Second is the forward settlement, which can take place at some point in the future. In this funds are transferred on some future date.

Conclusion

Learning is an ongoing process. As the stock market is very wide, the more you invest in learning the common terms, procedures, and fundamentals of the stock market, the more you will be confident in stock trading.

If you are looking for support and are confused about where to start then Get Together Finance (GTF) can help you. Our online trading courses will help you to learn these stock market terms and procedures and make you a trading expert.

You May Like to Read: Best Stocks for Beginners

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