Stock market glossary for beginners

Market words explained in plain language, each with a worked example, the mistakes beginners make, and a one-question quiz.

Market basics

  1. 1Bonus issueA bonus issue gives existing shareholders extra shares for free, in a fixed ratio to the shares they hold, funded from the company’s accumulated reserves.read →
  2. 2Bull and bear marketA bull market is a sustained period of rising share prices and optimism, while a bear market is a sustained period of falling prices and pessimism.read →
  3. 3Circuit limitA circuit limit is the maximum percentage by which a share’s price is allowed to rise or fall in a single trading day, set by the stock exchange.read →
  4. 4Demat accountA demat account holds your shares and other securities in electronic form, the way a bank account holds your money.read →
  5. 5Face valueFace value is the fixed nominal value of one share as stated by the company, which is usually small and has nothing to do with the price the share trades at.read →
  6. 6IPO (initial public offering)An IPO, or initial public offering, is when a private company sells its shares to the public for the first time and gets listed on a stock exchange.read →
  7. 7NIFTY 50The NIFTY 50 is the National Stock Exchange’s main stock index, tracking 50 large Indian companies weighted by their free-float market capitalisation.read →
  8. 8Position sizingPosition sizing is deciding how many shares to buy in a trade so that, if your stop-loss is hit, the loss is a small, planned part of your capital.read →
  9. 9Risk-reward ratioThe risk-reward ratio compares how much you stand to lose on a trade if your stop-loss is hit with how much you stand to gain if your target is reached.read →
  10. 10SensexThe Sensex is the main stock index of BSE, tracking 30 large and actively traded Indian companies weighted by their free-float market capitalisation.read →
  11. 11Stock splitA stock split divides each existing share into several new shares with a proportionally lower face value and price, without changing the total value of your holding.read →
  12. 12Stop-lossA stop-loss is a price decided in advance at which you will exit a trade to stop a loss from growing larger.read →

Technical analysis

  1. 1ATR (average true range)ATR, or average true range, is an indicator that measures how much a share typically moves in one period, in rupees, including any gaps between days.read →
  2. 2BreakoutA breakout is when a share’s price moves decisively above a resistance level or out of a range, usually with higher volume, signalling a possible new move.read →
  3. 3CandlestickA candlestick is a chart shape that shows a share’s opening, highest, lowest and closing price for one period, such as a day.read →
  4. 4Support and resistanceSupport is a price level where falling prices have tended to stop because buyers step in, and resistance is a level where rising prices have tended to stall because sellers step in.read →
  5. 5VolatilityVolatility is how much and how quickly a share’s price moves up and down over a period, regardless of direction.read →

Fundamental analysis

  1. 1Book valueBook value is a company’s total assets minus its total liabilities, the shareholders’ money as recorded in the balance sheet.read →
  2. 2CASA ratioThe CASA ratio is the share of a bank’s total deposits held in current and savings accounts, which are usually its cheapest source of money.read →
  3. 3Dividend yieldDividend yield is the yearly dividend a company pays per share, shown as a percentage of the current share price.read →
  4. 4EBITDAEBITDA is a company’s earnings before interest, tax, depreciation and amortisation, a measure of profit from the core business before financing and accounting charges.read →
  5. 5EPS (earnings per share)EPS is a company’s net profit for a period divided by the number of shares it has, so it shows how much profit belongs to each share.read →
  6. 6Free cash flowFree cash flow is the cash a company generates from its business after paying for the investments needed to keep and grow it.read →
  7. 7Inventory daysInventory days is the average number of days a company holds its stock of goods and raw materials before selling it.read →
  8. 8Market capitalisationMarket capitalisation is the total value the stock market puts on a company: its share price multiplied by the number of shares it has issued.read →
  9. 9Net interest margin (NIM)Net interest margin is the difference between the interest a lender earns and the interest it pays, shown as a percentage of its interest-earning assets.read →
  10. 10NPA (non-performing asset)An NPA, or non-performing asset, is a loan on which the borrower has stopped paying interest or principal for a set period, so it no longer earns income for the lender.read →
  11. 11P/B ratio (price to book)The P/B ratio tells you how many rupees you pay for every ₹1 of a company’s book value, its net worth on the balance sheet.read →
  12. 12PEG ratioThe PEG ratio divides a company’s P/E by its expected yearly profit growth, to show whether the price you pay is in line with how fast profit is growing.read →
  13. 13Working capitalWorking capital is the money a company needs to run its day-to-day business, measured as current assets minus current liabilities.read →

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