Stock market which is also known as share market or equity market which deals with shares, bonds and other securities of Companies registered with Stock Exchange. They can be traded through stock exchanges or over-the-counter markets.
Let me explain some terms of stock market which I had noted down during my interview preparation –
Shares – Company’s capital is divided into parts called shares. Investors earn dividend on the investment. They are of different types like ordinary shares, preference shares, cumulative shares, redeemable shares etc.
Stock – Group or lot of shares is known as stock.
Shareholder’s – The investors who invest in shares are known as shareholders. The amount/percent of shares they hold in the company’s capital makes them entitled to the proportion of profit. They are owners of the company and have some rights which can be used during their Annual meeting.
Bonds – It’s a type of investment where the investor loans money to the Government or Corporate entity. They in return issue bond certificates to the investors. Investors get interest on bonds.
Bond Holders – They are creditors to the company and hold the bonds/loan given by them to the latter.
Mutual Fund – Money is pooled in by investors which is collected and invested in the securities by the portfolio managers/experts of the mutual fund company.
Derivative Market – It’s a market where the price is derived from one or more underlying assets like stocks, bonds, commodities etc. It is divided into two types i.e. Futures and Options (F&O).
Commodity Market – It’s a part of stock market where commodities like minerals and crude oil/petroleum is traded.
Currency Market – Also known as Forex market, it trades in currencies of various countries. Most common currencies which are traded are Dollars, Euro, Yen, Yuan etc.
Spot Market – In this market the delivery of the instrument is immediate.
Underlying asset – It’s a financial instrument on which derivative’s price is based. The financial instrument can be anything like stock, futures, commodity etc.
Futures – It is a legally binding agreement which lets one buy/sell any underlying asset at a future date at a predetermined price.
Options – It’s an instrument which gives the holder of that the right to trade the underlying asset at predetermined price.
Call Option – It allows the investor to buy a stock for certain price.
Put Option – It allows the investor to sell the stock at certain price.
Speculation – Its an act where in investors speculate. They invest in stocks with the hope of gaining profit but with risk of loss. They are known as speculators.
Arbitrage – Investors trade in securities by taking the advantage of difference in prices of securities in different markets. They are known as Arbitrators.
Hedging – Hedging is an activity where the hedger (investor) makes a strategy or an attempt to reduce the risk of adverse price movements of the securities.
Bear Market – Markets are described as bear markets when the stock prices are falling.
Bull Market – Markets are described as bull markets when the stock prices are rising.
Defensive Stock – A stock which provides constant returns even when the economy is down.
These terms are just some basic ones ad there are many more terms which are used in stock market. I feel these terms are more than enough for beginners.