Basics of Stock Market- 9 important terms for beginners
When you make your mind to invest in Stock Market, the problem you face is that you don’t know many basic financial terms specially when you are not from financial background. This article focuses on most basic terminologies which are used day-in-day-out in Stock Market. When you understand these terminologies it will be easy for you to understand financial articles or videos. So let’s understand 9 basic terms related to Stock Market in detail-
- Shares, NSE and BSE: Almost everyone in the planet has heard the word Share or Share Market but it is also true that very few know the meaning of Share. Share is a part of a company which is owned by investor who had invested in that company. If you have the shares of Reliance it means you are the owner of Reliance, yes you read it correct the owner, of a small portion. Companies ask for funds from general public and allot them shares against that money, these shares transact in BUY/SELL in stock market where its price get determined through demand and supply mechanism. Now, where shares are getting BUY/SELL or traded, there 2 exchange platforms in India- NSE and NSE is National Stock Exchange and BSE is Bombay Stock Exchange. In these 2 platforms, first company list their shares and then investor can BUY/SELL their shares on NSE and BSE.
- Stock broker: Now you know that the shares can be BUY/SELL on BSE or NSE but Can you directly BUY/SELL shares on NSE and BSE? NO, You can not directly BUY/SELL shares on NSE or BSE, there are registered stock brokers who connect companies and investors. Stock broker charges fee for these transactions from investors. The Stock Brokers are of 2 types- First, Full service brokers who provide you all necessary services and guide you for your investments. For example Kotak Securities, ICICIDeirect, HDFC securities etc. Second, Discount brokers who provide the service only for BUY/SELL of stocks and charges fee for that example- ZERODHA, UPSTOX,GROWW etc. Now a day’s discount brokers are dominating in the market because they are less expensive compared to full service brokers.
- Demat and trading account: Now you know the stocks are traded on NSE/BSE through stock brokers but HOW? What is the process? Once you choose the broker, you need to open your Demat account where all your shares and other securities are stored. It is same as opening bank account and putting money in that bank account. In Demat account all shares are stored in digital form and Demat account is linked with your bank account to transact money. For BUY/SELL of shares you need your trading account to trade these shares, it is also linked to your Demat account. So basically Demat account is linked with your bank account and with you trading account.
- Depositaries: NSE and BSE are platform for Stock trading, while these stocks are stored in digital form in Depositaries. Depositaries are Government backed and they work for NSE and BSE. There are 2 Depositaries- First is CDSL (Central Depositaries Services Ltd.) and Second is NSDL (National Securities Depositary Ltd.). CDSL works for BSE and NSDL works for NSE. You can see your stocks in your Demat account in digital form, but before you get it your account it is should be in digital form somewhere, it is stored in CDSL and NSDL. So basically Depositaries are the organisations which have all shares in digital form and it keep record of shares in all Demat accounts of investors.
- Market Cap: Market Cap or Market capitalisation of a company is a figure which gives value of all outstanding shares of that company. For example if a company’s share price is Rs. 100 and it has allotted 10 Lakh shares so its Market cap become Rs.100 X 10 Lakh = 10 crore. It gives the total capital which held to company’s shareholders in that moment. Currently the Reliance Industries has the highest Market cap and TCS is on second position.
- Indices- Sensex and Nifty 50: You must have heard the terms Sensex, Nifty etc. very frequently. These are actually Stock market Index; Indian stock market has mainly 2 Indices (Indices is plural form Index) Sensex and Nifty 50. When current market cap of some companies listed in Stock market is compared with the market cap at the time of base year then it gives the value the Index. Sensex index has top 30 Market cap companies and Nifty 50 has top 50 companies. The base year of Sensex is 1979 and its base value is 100 while Nifty 50 has base year of 1995 and its base value is 1000. Simply put, in 1979 top 30 companies by market cap is made on scale of 100 and now whenever market cap of these top 30 companies increases with the same percentage the Sensex is also increased. These 2 indices are typical indicator of “Kya lagta hai market upar jayega?”
- Delivery and Intraday: Whenever you BUY shares of any company from your trading account- it gives you 2 options- Normal Delivery and other is Intraday. First, Delivery stocks are those which you Buy once and then you can sell it any time may be on same day, after one day, week, month, year or decade, even you can hold it forever. This delivery stocks are also called Cash trading. On the other side, Intraday stocks if you Buy it, you need to sell it on same day. If don’t sell it then it will automatically sold during that trading day end (usually at 3.15 PM). In Intraday you can even SELL first then BUY any stock. But caution is that the position will be squared-off (it means you BUY then it will be sold and vice versa) during end of the trading day. Intraday trading is considered as risky as it depends on daily volatility of the market.
- Bull and Bear: These are two animals but it has different meaning in Stock market. When market is going up then it is called Bull market while when market is going down it is considered as Bear market. If you think market can go up in future then you are Bullish and if you think market can go down your Bearish. The biggies of stock market named as Big Bulls.
- Dividend: It is an income which company gives to its shareholders usually on annual basis. This comes directly in your Bank account which is linked your Demat account. For getting dividend there is a criterion that you should be holding the shares of the company before X date, here X date is decided by the company. If you hold the shares of the company before X date dividend amount directly credited in your bank account. Dividend is usually a fix amount per share like Rs. 5 per share etc. For example- TCS paid its final dividend of Rs. 22 for year 2021-22 so if you have 10 shares of TCS then you will get 10X22 = Rs. 220 directly in your bank account while your shares value will remain intact.
Conclusion- These are very basic terms of stock market, if you are new to stock market you will encounter these terms frequently. Now you know about these terms you will be able to understand concept of stock market with ease. Happy Investing.