The stock
market can feel like a foreign country where everyone speaks a language you
don’t understand. “Buy the dip,” “support and resistance,” “call options,” “red
day”—if these phrases make your head spin, you’re not alone. Every beginner
investor faces this jargon barrier, and it’s one of the biggest reasons people
delay starting their wealth-building journey. The good news? Stock market
terminology isn’t actually complicated once you understand the logic behind the
words. This comprehensive glossary breaks down 50+ essential stock market terms
in plain English, with real examples from Indian markets. By the end, you’ll
speak stock market fluently—and realize the complexity was mostly in the
unfamiliar words, not the actual concepts.
What does
intraday trading mean? Intraday trading (also called day trading) means
buying and selling the same stock on the same trading day, squaring off your
position before market close. Unlike delivery trading where you hold stocks for
weeks or years, intraday traders profit from short-term price movements within
a single day. For example, buying TCS at 9:15 AM and selling it at 3:00 PM the
same day is intraday trading. This requires active monitoring and carries
higher risk than long-term investing.
A demat account (dematerialized
account) is your digital locker that holds stocks, bonds, and other securities.
Think of it like a bank account, but instead of holding cash, it holds
electronic securities. You can’t buy stocks without a demat account. Parasram
is a Depository Participant with both NSDL and CDSL, India’s two largest
security depositories, ensuring your securities are held safely.
Example: When you buy 10 shares of Infosys,
those shares are credited to your demat account within T+2 days (two business
days after purchase).
Your trading account enables you to
buy and sell securities on stock exchanges (NSE and BSE). While your demat
account stores securities, your trading account is the marketplace where you
execute buy and sell orders. Most brokers, including Parasram, open both accounts
simultaneously in a single application.
Example: You use your trading account to
place the order “buy 100 shares of Reliance,” and when the order executes,
those shares go into your demat account.
These three terms are often used interchangeably.
A stock (or equity or share) represents fractional ownership in a
company. When a company divides itself into 1 crore shares and issues them,
each share represents 1/10,000,000th of the company.
Example: If you buy 1 share of Infosys
(trading at ₹1,800), you own a tiny piece of the company. If Infosys has 100
crore shares outstanding, you own 1/10,000,000,000th of the company.
Market cap =
Current Stock Price × Total Shares Outstanding
This is the total market
value of a company. It categorizes companies: - Large Cap: Market cap
> ₹20,000 crore (established blue-chip companies like TCS, HDFC Bank) - Mid
Cap: Market cap ₹5,000-₹20,000 crore (growing companies) - Small Cap:
Market cap < ₹5,000 crore (emerging companies with higher risk/reward)
Example: If Reliance
trades at ₹2,400 and has 30 crore shares, its market cap is ₹72,000 crore,
making it the largest company on the stock exchange.
A dividend is a cash payment that
companies distribute to shareholders from their profits. Not all companies pay
dividends—some reinvest profits into growth. When companies do pay dividends,
they typically pay quarterly or annually.
Example: If HDFC Bank trades at ₹1,900 and pays
₹90 annual dividend, your dividend yield is 90/1900 = 4.74%. If you own 100
shares, you receive ₹9,000 as dividend annually.
P/E Ratio = Stock Price
÷ Earnings Per Share
This shows how much investors
are willing to pay for each rupee of company earnings. Higher P/E means
investors expect faster growth; lower P/E means the stock might be cheap.
Example: If Infosys trades at
₹1,800 and earned ₹90 per share last year, its P/E is 1800/90 = 20. Compare
this to the sector average P/E of 18—Infosys is trading at a premium,
suggesting investors expect faster growth.
At any moment, there are buyers and sellers
in the market: - Bid price: The highest price buyers are willing to pay
right now - Ask price: The lowest price sellers are willing to accept
right now - Bid-ask spread: The difference between them (bid-ask gap)
Example: If Infosys shows Bid: ₹1,999 and
Ask: ₹2,001, the spread is ₹2. This spread tightens for popular, liquid stocks
and widens for thinly traded stocks.
A bull market is when stock prices are
rising overall and investor sentiment is optimistic. Historically, bull markets
last 1-5+ years.
Example: Indian markets from 2009-2021 was a
prolonged bull market with occasional corrections, creating wealth for patient
investors.
A bear market is when stock prices are
falling and investor sentiment is pessimistic. Technically, a bear market is
when indices fall 20%+ from recent highs.
Example: 2008 financial crisis was a severe
bear market, with markets falling 50-60%. However, investors who continued
buying during this period made exceptional returns in the subsequent bull
market (2009-2021).
A circuit breaker is an automatic
trading halt triggered when markets move too far too fast. This prevents panic
selling from spiraling into crashes. The market halts for 15 minutes to give
everyone time to reconsider.
Example: If the Sensex falls 10% in a
single day, trading halts for 15 minutes, then resumes. If it falls another
15%, trading halts again.
Volume is the number of shares traded in a
stock during a specific period (day, week, month). High volume indicates strong
investor interest; low volume suggests few traders are interested.
Example: If Reliance trades 5 crore shares daily on
average, but today trades 15 crore shares, something significant happened
(earnings, news) causing high volume.
Liquidity describes how easily you can
buy or sell a stock at fair prices without moving the price significantly.
Liquid stocks trade in high volumes; illiquid stocks trade rarely.
Example: TCS is highly liquid—you can buy or
sell ₹1 lakh worth in seconds. A small-cap stock might take hours to sell the
same amount, or you might have to accept a lower price to sell quickly.
A limit order sets a specific price
you’re willing to pay (for buy orders) or willing to accept (for sell orders).
Your order only executes if the market reaches that price.
Example: You place a limit order “Buy 100
shares of Infosys at ₹1,980.” If Infosys reaches ₹1,980, your order executes.
If it never reaches ₹1,980, your order never executes.
A market order buys or sells
immediately at the current market price, whatever it is.
Example: You place a market order “Buy 100
shares of Infosys” at 10:00 AM. Your order executes immediately at the current
market price (say ₹2,005), even if you wanted a lower price.
A stop loss is a pre-determined price at
which you’ll exit a position to limit losses. It prevents you from holding a
falling stock in hopes it recovers.
Example: You buy Infosys at ₹1,800. You set a
stop loss at ₹1,710 (5% below your buy price). If Infosys falls to ₹1,710, your
position is automatically sold, limiting your loss to 5%.
A target or profit target
is the price at which you plan to exit a position and take profits.
Example: You buy Infosys at ₹1,800
with a target of ₹2,100 (16.7% upside). Once Infosys reaches ₹2,100, you sell
and lock in profits.
Intraday trading (or day trading)
means buying and selling the same stock within a single trading day, closing
the position before 3:30 PM market close.
Example: Buy TCS at 10:00 AM at ₹3,500,
sell at 2:00 PM at ₹3,550, profit ₹50 per share. This is very different from
delivery trading where you hold for weeks or years.
Delivery trading means buying
stocks intending to hold them for longer periods (weeks, months, years). The
stock is delivered to your demat account and held for the long term.
Example: Buy HDFC Bank at ₹1,900
intending to hold for 5 years for capital appreciation and dividends. This is
delivery trading, the foundation of wealth building.
To square off means to exit a position,
closing all holdings. In intraday trading, you must square off before market
close.
Example: You bought 100 shares in the morning; squaring
off means selling all 100 shares before 3:30 PM.
A support level is a price
level where a stock finds buying interest, preventing further price decline.
Think of it as the “floor” where demand is strong enough to stop the selling.
How support forms: - Multiple
investors bought at a certain price in the past - When the price falls back to
that level, those investors buy again, creating demand - This repeated buying
at certain price levels creates a support zone
Example: Infosys fell from ₹2,100 to
₹1,900 during a market correction. Every time it approached ₹1,900 in the
following weeks, buyers stepped in aggressively, preventing it from breaking
below. ₹1,900 became a support level.
Trading with support: Smart
investors buy near support levels because: 1. Demand is historically strong
there 2. Risk is limited (stop loss just below support) 3. Reward is
significant (stock usually bounces 5-10% from support)
A resistance level is the
opposite of support—it’s a price level where selling pressure emerges,
preventing further price increase. Think of it as the “ceiling” that stock
can’t easily break above.
How resistance forms: -
Multiple investors sold at a certain price in the past - When the price rises
back to that level, those investors sell again to book profits - This repeated
selling at certain price levels creates a resistance zone
Example: TCS rallied from ₹3,200
to ₹3,500. Every time it approached ₹3,500 in the following weeks, sellers
emerged and pushed it down. ₹3,500 became a resistance level.
Trading with resistance:
Smart investors sell or book profits near resistance levels because: 1. Selling
pressure is historically strong there 2. Profit is visible (stock usually falls
5-10% from resistance) 3. Risk is limited (you’re exiting near the top)
For buyers: -
Wait for price to approach support - When price touches support, it’s a good
buying zone - Set stop loss slightly below support (risk is small) - Set target
near the next resistance (reward is large)
Example: Infosys
supports at ₹1,850, resists at ₹2,050. You buy at ₹1,860 (near support), set
stop loss at ₹1,820, target at ₹2,000. Your risk-reward ratio is 40 points risk
: 140 points reward = great risk-reward.
For sellers: -
Wait for price to approach resistance - When price touches resistance, it’s a
good selling zone - Set target slightly below support (profit is visible)
Why Parasram’s SR
Analysis? Parasram provides daily support and resistance levels for 50+
major stocks, helping you identify these optimal entry and exit points. Our
research team analyzes: - Historical price levels where support/resistance has
held - Volume traded at each level (strong volume = strong support/resistance)
- Upcoming technical levels to watch
This advantage helps
Parasram clients time their entries and exits better than random
buying/selling.
A trend is the general direction of price
movement over time: - Uptrend: Higher highs and higher lows (price
generally rising) - Downtrend: Lower highs and lower lows (price
generally falling) - Sideways trend: Price moving horizontally without
clear direction
Example: Reliance from Jan-Dec 2024 showed an
uptrend, making higher highs and higher lows. This confirmed the overall
bullish direction.
Leverage means borrowing money from your
broker to increase your buying power. With leverage, you can control more
shares than your capital allows.
Example: You have ₹1 lakh. Without leverage, you
can buy ₹1 lakh worth of stock. With 2:1 leverage, your broker lends you ₹1
lakh more, so you control ₹2 lakhs worth of stock. If stock rises 10%, your
profit is ₹20,000 (20% of ₹1 lakh). If stock falls 10%, your loss is ₹20,000
(also 20% of ₹1 lakh).
Warning: Leverage is a double-edged sword.
It magnifies both gains AND losses. Most beginner stock investors should avoid
leverage until they’ve built experience.
Margin is the amount of your own money
required to open a leveraged position. Higher margin requirement = less
leverage available.
Example: If a broker requires 50% margin for
intraday trading, you need ₹50,000 of your own money to control ₹1 lakh worth
of stock. If you only have ₹40,000, you can’t open this position.
Your portfolio is your entire collection
of investments—all your stocks, mutual funds, bonds, etc. Portfolio management
means ensuring good diversification across sectors and stocks.
Example: Your portfolio might consist of: 50%
HDFC Bank, 20% TCS, 15% Reliance, 15% Infosys. This is a concentrated
portfolio. A better portfolio might have 5-10 different stocks with more
balanced weightings.
Diversification means spreading
your money across many different stocks, sectors, and asset classes to reduce
risk. The logic: if one stock crashes, it doesn’t crash your entire portfolio.
Example: A diversified portfolio across
sectors: - Banking: HDFC Bank, ICICI Bank - IT: TCS, Infosys - Energy:
Reliance, NTPC - Pharma: Cipla, Sun Pharma - FMCG: HUL, ITC
If Banking sector falls 20%, your
portfolio only falls 4% (because banking is only 20% of your portfolio).
Hedging means taking offsetting positions
to protect against losses. It’s like insurance for your portfolio.
Example: You own 100 shares of TCS at ₹3,500.
You’re worried about market crashes. You buy a put option (which profits if TCS
falls) as insurance. If TCS crashes, your put option gains offset your stock
losses.
Parasram’s derivatives team can help you design
hedging strategies protecting your portfolio during uncertainty.
A call option gives you the RIGHT (not
obligation) to buy 100 shares of a stock at a predetermined price (strike
price) on or before expiry.
Example: You buy a TCS call option with strike
₹3,500 expiring in 30 days. This gives you the right to buy 100 TCS shares at
₹3,500 anytime in the next 30 days. If TCS rises to ₹3,700, you exercise your
right, buy at ₹3,500, and immediately sell at ₹3,700, making ₹200 × 100 =
₹20,000 profit (minus the option premium you paid).
A put option gives you the RIGHT (not
obligation) to SELL 100 shares of a stock at a predetermined price on or before
expiry.
Example: You buy a TCS put option with strike ₹3,300
expiring in 30 days. This gives you the right to sell TCS at ₹3,300 anytime in
the next 30 days. If TCS falls to ₹3,100, you exercise your right, buy TCS at
₹3,100 in the market, and sell at ₹3,300, making ₹200 × 100 = ₹20,000 profit
(minus option premium paid).
The strike price is the predetermined
price at which you have the right to buy (call) or sell (put) the stock.
Example: A TCS call with strike ₹3,500 means
the right to buy TCS at ₹3,500, regardless of what the current market price is.
Expiry is the date when the option contract
ends. After expiry, the option becomes worthless if not exercised.
Example: A TCS option expiring on 25th Jan 2025 can
be exercised anytime up to market close on 25th Jan 2025. On 26th Jan, the option
is worthless.
Open Interest (OI) is the total
number of outstanding option contracts for a specific strike and expiry. Higher
OI indicates more active trading and better liquidity.
Example: If “TCS 3,500 CE 25-Jan-2025” has
OI of 50 lakh contracts, it means 50 lakh call options (with strike 3,500,
expiring 25-Jan) are currently open. High OI makes it easy to buy and sell
these options without moving the price significantly.
Technical analysis involves
studying price and volume charts to predict future price movements. It’s based
on the belief that historical price patterns repeat.
Example: When price breaks above
resistance level with high volume, it usually continues higher (called a
“breakout”). Technicians use this pattern repeatedly to identify trading
opportunities.
Parasram’s daily SR
(support-resistance) analysis is a form of technical analysis helping you
identify key price levels.
Fundamental analysis involves
studying a company’s financial statements, business model, and industry to
determine if a stock is expensive or cheap.
Example: You analyze Infosys’
quarterly results and find earnings grew 15% while stock P/E ratio is only 20
(vs sector average of 22). Conclusion: Infosys is undervalued based on
fundamentals. Good buying opportunity.
Volatility measures how wildly a stock
price swings. High volatility means large daily/weekly price swings; low
volatility means steady, stable prices.
Example: Small-cap stocks typically have 3-5%
daily swings (high volatility), while blue-chip stocks might swing only 0.5-1%
daily (low volatility).
For beginners, lower volatility stocks are less
stressful to hold through market downturns.
A stock split happens when a company
divides each share into multiple shares. The total market cap doesn’t
change—you just get more shares at lower prices.
Example: TCS 1:2 stock split means each share
becomes 2 shares, and price is halved. If you owned 100 shares at ₹3,500, after
split you own 200 shares at ₹1,750. Total value unchanged: ₹3.5 lakh.
A bonus is when a company issues free shares
to existing shareholders from its reserves.
Example: HDFC Bank 1:5 bonus means every shareholder
gets 1 free share for every 5 shares held. If you owned 100 shares at ₹1,900,
after bonus you have 120 shares worth approximately ₹1,583 each (total value
still ₹1.9 lakh). The company is rewarding long-term shareholders.
A rights issue is when a company
offers new shares to existing shareholders at a discounted price before
offering to the public.
Example: TCS announces 1:10 rights issue at
₹3,000 per share. If you own 100 shares, you get the right to buy 10 new shares
at ₹3,000 (discounted from market price). This gives existing shareholders a
chance to increase holding at bargain prices.
Q: What’s
the difference between bid and ask?
A: Bid is the price buyers are willing
to pay right now; ask is the price sellers are willing to accept. Bid is always
lower than ask. When you buy, you pay the ask price; when you sell, you receive
the bid price. The difference (bid-ask spread) is the cost of trading.
Q: What does
“red day” and “green day” mean?
A: A “green day” is when a stock closes
higher than opening (prices rose during the day). A “red day” is when a stock
closes lower than opening (prices fell). These terms come from color coding in
stock charts—green for up, red for down.
Q: Why is
support and resistance important for beginners?
A: Support and resistance
help beginners time their entries and exits better. Buying near support (when
price is about to bounce) gives you better prices and smaller losses. Selling
near resistance (when price is about to fall) locks in profits. It’s like having
a map of where prices typically go.
Q: What should
I focus on: technical analysis or fundamental analysis?
A: For long-term
investing (which we recommend for beginners), focus 80% on fundamentals and 20%
on technical analysis. Buy fundamentally strong companies using technical
analysis to time entries at support levels. For short-term trading, technical
analysis becomes more important, but this isn’t recommended for beginners.
Q: Do I need
to understand derivatives as a beginner?
A: No, you can build wealth
without ever using options or futures. However, understanding these terms helps
you understand market news. Learn the basics, but focus on stocks initially.
Derivatives are advanced tools for experienced traders.
Q: What’s the
most important terminology for beginners?
A: Master these first: Demat
Account, Trading Account, Support/Resistance, P/E Ratio, Dividend, Bull/Bear
Market, Diversification, Stop Loss. Once you understand these, the rest becomes
easier.
Key Takeaway
Stock market jargon exists because financial
professionals need precise terminology. But underlying each term is simple
logic you already understand. Bid-ask is just “seller’s asking price” vs
“buyer’s offering price.” Support is just “price level where people buy.”
Leverage is just “borrowing to invest more.”
Start with the fundamental terms (demat account, dividend,
P/E ratio), practice identifying support and resistance in charts, and
gradually expand your vocabulary. Within a few weeks of active investing, stock market terminology becomes second nature.
