These are some of the basic terminologies that are commonly used in any financial market.
Stock Trading Common Terminologies or Vocabulary:
They are the typical words used in the securities industry. When someone talks about stocks then they talk about patterns, indices, charts, and patterns.
It is highly advisable to learn stock market terminologies and mechanisms before investing in this industry and do a hell of research before diving into stocks.
Let’s have a look at key terminologies which are most commonly used in this industry:
1. Bull Market
It is the opposite terminology to bear market. It defines the scenario when the stock market is in a prolonged period of increased stock prices. Even a single sector or stock can be bullish or bearish .
2. Broker
An agent who sells or buys investment for you in return for a commission. According to rules of the Pakistan Stock Exchange, you need to first open an account with a brokerage house to get into the market.
3. Bid
It is the price a trader is willing to pay per share for a stock. It gets balanced by the ask price that is what a seller needs per share of the same stock.
4. Close
Pakistan Stock exchange closes at 3:30 p.m on working days whereas 4:30 pm on weekends. Moreover, there is 15 minutes’ time after closing for adjustments. It means that it’s the time when the stock exchange closes to trading.
5. Day Trading
It is the phenomenon of buying and trading on the same trading day before the closing of the stock market. Those traders who deal in day trading are also called active traders.
6. Dividend
It is the amount that is paid to stakeholders by the company typically to those who have shares in a particular company. Generally, dividends are not paid by every company. Let’s say, if you trade penny stocks then you will not be after dividends.
7. Exchange
It is a marketplace where investors buy or sell stocks. Pakistan’s stock market is known as the Pakistan Stock exchange.
8. Execution
Once buying or selling is accomplished then the trader executes the payment. If you order to sell 1000 shares then it means all 1000 shares are sold out.
9. Haircut
It is a minor spread between the ask price and a bid. It also refers to a scenario when the stock price gets decreased by a particular percentage for margin trades.
10. High
It is a condition when the index or stock rate exceeds the previous point. Record highs depict that the index or stock has never touched the current price point. Similarly, there are also time-oriented highs like 30-day high in the market.
11. Index
Stock markets index is the measurement of the stock market which helps investors to compare prices with past to calculate market performance.
12. Annual Report
The annual report is prepared for transparency. It consists of very important information about the company including management strategy and cash flows. An annual report is enough to get insights into a company’s financial situation.
13. Arbitrage
This is the phenomenon of selling and buying the same security with different price points and different markets. For example: If Stock XYZ is trading at 100 Rs in one market and 105Rs in another market then traders may buy shares from the first one and sell in another.
14. Averaging Down
This is basically an investment strategy that enables the stock owner to purchase extra shares of the last investment after the price drop. Second purchase results decline in average price at which stock was sold. For instance, investors purchased 10 shares of a stock at 5 Rs per share might purchase extra 10 shares when the price drop to 4 Rs per share Hence average price brought to 4.5 rs per share. Few financial advisors suggest investors adopt this strategy with stocks they want to buy or hold.
15. Bear Market
A bear market is a market that is in decline. Generally, a market is never considered bearish until it falls 20% or more from recent highs. In a bear market, share prices continuously drop. The bearish market slows down the economy and increases the unemployment rate.
16. Beta
It is the correlation between index and stock price. Beta depicts the strength of relationships. For instance: If stock ABC has beta 2, it implies that for every 1 point move in the stock market, stock ABC will move 2 and vice versa.
17. Blue Chip Stocks
A blue-chip stock is a large company with a great reputation in the market. They are financially strong companies. These companies are being operated for many years and have dependable earnings. They are most commonly paying dividends to investors.
18. Initial Public Offering (IPO)
It is the first offering of shares by any organization to the public. It usually happens when a company moves public in spite of being solely owned by internal investors.
19. Leverage
It is basically a stock trading mechanism used by investors for getting more exposure to the market by paying less than the full amount of investment. In this mechanism, the trader uses the broker’s credit in such a way that he/she will have to pay a percentage of the value of the transaction only.
20. Low
It is the counterpart of High. It shows a lower price point for a stock or index from the previous level.
21. Margin
Margin enables you to borrow money from brokers for purchasing the investment. The difference between the price of securities and loan amount is called margin.
Trading on margin is also risky. You may lose a handsome amount if you go in the wrong direction. So, it is highly recommended to maintain a particular balance in a margin account.
22. Moving Average
Stock average price per share for a certain period of time is known as the moving average. Few common time frames are 50 – 200-day moving averages.
23. Open
It refers to the time of the market when trading begins. In Pakistan, the stock market opens at 9:30 am. There is usually 15 minutes preopening session in the stock market.
24. Order
When an investor bids to sell our purchase specific amount of stock then it means he is placing an order. Generally, an order is made to sell or purchase 100 shares of stock.
25. Stock Symbol
It is typically one to four character alphabetic symbols which represents a trading company in the stock exchange. For example, ACPL represent Attock Cement Pakistan Limited, MLCF represents Maple Leaf Cement Factory, etc
26. Volatility
Volatility is the price movement of the stock market as a whole. Highly volatile stocks are the ones with extreme ups and downs movements. These are generally the stocks with low trading volume.
Investing in high volatile stocks is risky but brings a chance of big profit margins on the same side.
27. Volume
They are the shares numbers that are being traded for a particular time instant. For example: buying 1000 shares of an organization is a high volume purchase than buying 100 shares.
28. Yield
It is the return on a given investment in the form of either dividends, payments and cash flows. It is obtained by dividing the annual dividend amount by the price paid for the stock. For example: if someone buys stock ABC for Rs 100 per share and pays Rs20 per year dividend then you may have a yield of 20%.
29. Portfolio
A portfolio is actually a collection of investments by a single owner. Somebody may have even 1 stock in a portfolio but he/she may also own numerous stocks or securities.
30. Quote
The quote is the latest trading price of a stock. It may be delayed up to 20 minutes if you are not using an actual broker platform.
31. Rally
A quick increase in the price level of a market or stock is termed as Rally. The rally could be bear rally or bull rally.
32. Sector
Stocks that belong to the same industry are said to belong to the same sector. An example is the construction sector. Dewan cement and Attock cement belong to the same sector. Many traders prioritize investments with respect to specific growing sectors in the country.
33. Short Selling
It is the phenomenon of borrowing shares from someone with the commitment of returning them back. These stocks are sold for profit.
Short selling is advantageous when you are pretty much sure that specific stock will decrease in price.
Once you short sell, you can again buy back the shares at the lowest price point and make the difference as a profit. Short selling is advantageous in a volatile market.
34. Spread
The total difference between the ask price and a bid is called spread. It also depicts the liquidity in the share. For example: if a trader is willing to trade ABC stock for 100Rs and buyers willing to pay 90Rs then the spread is 10Rs.
Wrapping up:
Learning the stock market vocabulary may make you a better trader and will help you to communicate with fellow traders effectively. For better learning, follow our blog updates.
