The language and jargon that are frequently used when discussing the buying and selling of stocks are referred to as “common terms used in the stock market.” In this article, You will learn about 83 common terms used in the stock market.
Common Terms Used in Stock Market
- EPS (Earnings per Share): A company’s earnings per share (EPS) is calculated by dividing its net income by the number of outstanding shares. It represents the amount of profit each shareholder would receive if the company’s profits were distributed equally.
- P/E Ratio (Price-to-Earnings Ratio): The P/E ratio is a measure of a company’s valuation calculated by dividing the stock price by the earnings per share (EPS). It indicates how much investors are willing to pay for each dollar of earnings the company generates.
- ROE (Return on Equity): ROE is a metric for a company’s profitability and efficiency that is calculated by dividing net income by shareholder equity. It reflects how efficiently the company uses shareholder equity to generate profits.
- ROA (Return on Assets): ROA is a measure of a company’s profitability and efficiency determined by dividing net income by total assets. It reflects how efficiently the company uses its assets to generate profits.
- PEG (Price-to-Earnings Growth Ratio): The PEG ratio is a valuation metric calculated by dividing a company’s P/E ratio by its expected earnings growth rate. It indicates whether the company’s stock price is over or undervalued in relation to its expected earnings growth.
- Graham Number: The Graham Number is a calculation of a company’s intrinsic value based on its earnings per share and book value per share. It is used to determine whether a company’s stock is overvalued or undervalued.
- Discount from Graham Number: The difference between a company’s stock price and its Graham Number is the discount from the Graham Number. It indicates whether the stock of the company is over or undervalued in relation to its intrinsic value.
- Market Value: The market value of a company’s shares is the current price at which they are traded in the market. It reflects the overall market conditions as well as the demand for the company’s shares.
- Book Value: The value of a company’s assets, as recorded on its balance sheet, is referred to as book value. It reflects the company’s net worth, which is calculated by subtracting the value of its assets from its liabilities’ value.
- PBV (Price-to-Book Value): The PBV ratio is a valuation metric calculated by dividing a company’s stock price by its book value per share. It indicates whether the stock of the company is over or undervalued in relation to its net worth.
- NAV (Net Asset Value): A company’s net asset value (NAV) is calculated by dividing its total assets by the total number of outstanding shares. It reflects the value of each share based on the assets and liabilities of the company.
- Dividends: Dividends are payments made by a company to its shareholders, which are typically made in cash or stock. Dividends are classified into three types: regular dividends, special dividends, and stock dividends.
- Right Shares: A company’s right shares are additional shares of stock issued to existing shareholders. They are typically issued at a reduced price and allow shareholders to purchase additional shares before they are made available to the general public.
- Outstanding shares: The total number of shares of a company owned by shareholders, including both common and preferred shares, is referred to as outstanding shares. These shares are deemed “outstanding” because they are held by external investors rather than the company or its insiders.
- Market capitalization: The total value of a company’s outstanding shares is referred to as market capitalization. It is calculated by multiplying the number of outstanding shares by the stock’s current market price.
- NEPSE Index: The Nepal Stock Exchange (NEPSE) Index is a market index that measures the performance of the Nepalese stock market. It is calculated by taking the average of the stock prices of the NEPSE-listed companies and multiplying it by 100.
- Auction share: An auction share is a type of share that is sold at a public auction. Interested buyers submit bids for the shares in an auction, and the shares are sold to the highest bidder.
- Floor sheet: A floor sheet is a document that lists the prices and quantities of stock exchange shares. It is typically prepared by a stock exchange or a brokerage firm and is used to increase transparency and accountability in the trading process.
- AGM: An AGM, or Annual General Meeting, is a meeting of a company’s shareholders that usually takes place once a year. Shareholders can ask questions of the company’s management and board of directors at the AGM, as well as vote on important issues such as the appointment of directors and the approval of financial statements.
- Bull and Bear: Bull and bear market trends are two distinct types of market trends. A bull market is distinguished by rising prices and optimism, whereas a bear market is distinguished by declining prices and pessimism.
- Consolidation: Consolidation is a period of time when a market or security has little price movement or volatility. This can happen after a period of strong price movements and is frequently interpreted as a pause before the next trend emerges.
- Fundamental analysis: Fundamental analysis assesses a company’s financial health and growth potential by scrutinizing its financial statements, management, and industry outlook.
- Technical analysis: Technical analysis is a method of evaluating a security’s price trends and patterns by examining historical price data and statistical indicators.
- Candlesticks: Candlesticks are a charting technique used in technical analysis to depict price movements in securities. Candlesticks are typically composed of a series of “candlestick bars,” each of which represents a price range for a specific time period.
- Positive Circuit: A positive circuit occurs when the price of a security or market index reaches its upper circuit limit, which is the maximum price movement permitted within a given time period.
- Negative Circuit: A negative circuit occurs when the price of a security or market index reaches its lower circuit limit, which is the smallest price movement permitted within a given time period.
- Market Trend – The general direction of the stock market or particular security.
- Annual Report – A company’s annual report that provides information on its financial performance and activities over the previous year.
- Broker – A person or company who acts as a go-between for buyers and sellers of securities, facilitating the sale and purchase of securities.
- IPO – Initial Public Offering, the process by which a privately-held company becomes publicly traded, allowing the company to raise funds by selling shares to the public. (Read in detail about IPO)
- FPO – Follow-on Public Offering, a process by which a company that is already publicly traded issues additional shares to the public.
- Blue-Chip Share – A stock in a well-established, financially stable company with a strong track record of performance. (Also read: Bluechip Companies of Nepal)
- Wholesale Stocks – Securities that are traded in large quantities, typically between financial institutions and other large investors.
- Retail Stocks – Securities that are traded in smaller quantities, typically by individual investors.
- Pump and Dump – A scheme in which a group of people artificially inflates the price of a security by falsely promoting it, then sells it for a profit.
- Volatility – A measure of the fluctuation in the price of a security over a given period of time.
- Portfolio – A collection of investments, such as stocks, bonds, or mutual funds, held by an individual or institution.
- Margin – The amount of money borrowed from a broker to purchase securities, typically using securities in the investor’s portfolio as collateral.
- Averaging – A strategy in which an investor buys a security at regular intervals over time, rather than all at once, to reduce risk.
- Capital Gain – Another most common term used in the stock market is Capital Gain which means the profit realized from the sale of a security or other asset.
- Short-Selling – The sale of a security that the seller does not own, with the intention of buying it back at a lower price in the future.
- Intraday Trading – Trading that occurs within a single trading day, with all positions closed before the market closes.
- Mutual Funds – A type of investment vehicle that pools together the money of multiple investors and invests in a diversified portfolio of securities.
- Debentures – A type of debt security issued by a company, typically with a fixed interest rate and a fixed term.
- Bonds – A type of debt security issued by a government or corporation with a fixed interest rate and a fixed term.
- Treasury Bills: A treasure bill is a type of short-term debt instrument that is issued by the government in order to finance its operations. These bills are typically issued for a period of up to one year and are issued at a discount to their face value, with the difference between the face value and the price paid to be the interest that is earned on the investment.
- Ordinary Shares: Ordinary shares, also known as common shares, represent ownership in a company and entitle the holder to a share of the company’s profits and assets.
- Preference Shares: Preference shares are a type of stock that entitles the holder to a fixed dividend but does not give the holder voting rights.
- Promoter Shares: Promoter shares are shares held by the founders or promoters of a company.
- Warrant: A warrant is a financial instrument that gives the holder the right, but not the obligation, to buy or sell a specific number of shares at a specific price within a specified time period.
- Stock Broker: A stock broker is a professional who buys and sells stocks on behalf of clients.
- Merchant Bank: A merchant bank is a financial institution that provides a range of financial services, including underwriting, corporate finance, and asset management.
- Issue Manager: An issue manager is a financial institution that manages the process of issuing securities, such as stocks or bonds, to the public.
- Book Building: Book building is a process used to determine the price and number of shares to be issued in an Initial Public Offering (IPO).
- Market Maker: A market maker is a financial institution or individual that buys and sells securities to maintain market liquidity.
- ICRA Rating: ICRA is a credit rating agency in Nepal that rates the creditworthiness of companies and other issuers of debt securities.
- Share Registrar: A share registrar is a financial institution that maintains a record of all shareholders in a company.
- SEBON: SEBON, also known as the Securities Board of Nepal, is the regulatory authority for the capital market in Nepal.
- Underwriting: Underwriting is the process of evaluating the risk of an investment and setting a price for it.
- Prospectus: A prospectus is a document that provides detailed information about a company and its securities, including financial statements and details about the offering.
- Over and Under Subscription: Over-subscription refers to a situation where there are more investors seeking shares in a company than there are shares available. Under-subscription refers to a situation where there are fewer investors seeking shares than there are shares available.
- Premium: Premium is another common term used in the stock market. A premium is an amount by which the price of a stock or bond exceeds its face value.
- Bid and Offer Price: The bid price is the highest price that a buyer is willing to pay for a stock or bond. The offer price is the lowest price that a seller is willing to accept for a stock or bond.
- Cash Dividend: A cash dividend is a payment made to shareholders in the form of cash based on the company’s profits.
- Bonus Share: A bonus share is a share of stock that is issued to shareholders at no additional cost, based on the company’s profits.
- Market Index: A market index is a statistical measure of the performance of a group of stocks or other securities. It is used to track the overall performance of a particular market or sector.
- Insider Trading: Insider trading refers to the illegal act of buying or selling securities based on information that is not publicly available. It is illegal because it allows insiders who have access to inside information about a company to profit at the expense of other investors.
- Pumping and Dumping: Pumping and dumping refer to a fraudulent scheme in which a group of individuals artificially inflates the price of a security by spreading false or misleading information about it. The goal is to sell the security at a higher price before the price drops again.
- Proxy: A proxy is a document that authorizes someone else to vote at a shareholder meeting on the shareholder’s behalf. Shareholders who are unable to attend the meeting in person frequently use it.
- Board of Directors: The board of directors is a group of individuals elected by the shareholders of a company to represent their interests and make decisions on behalf of the company. The board is responsible for setting the strategic direction of the company and overseeing the management of the company.
- Over the Counter: Over the counter (OTC) refers to securities that are not listed on a formal exchange, such as the Nepal Stock Exchange (Nepse) or the New York Stock Exchange (NYSE). OTC securities are typically traded directly between buyers and sellers rather than through a centralized exchange.
- Arbitrage: Arbitrage is buying and selling securities or other assets in different markets to take advantage of price discrepancies. It involves buying an asset in one market at a lower price and selling it in another at a higher price to make a profit.
- Opening Price: The opening price is the price at which a security or asset is first traded when the market opens for business.
- Closing Price: The closing price is the price at which a security or asset is last traded when the market closes for business.
- Low Price: The low price is the lowest price at which a security or asset is traded during a given period of time, such as a day or a month.
- High Price: The high price is the highest price at which a security or asset is traded during a given period of time, such as a day or a month.
- Leverage: The use of borrowed money or other financial instruments to increase the potential return on investment is referred to as leverage. It can also increase the likelihood of loss.
- Rally: Rally is another common term used in the stock market. A rally is a period of sustained price increases in a financial market or sector.
- Stock Symbol: A stock symbol is a unique code that represents a particular stock or security listed on a stock exchange.
- Volume: The number of shares or other securities traded in a given period of time, such as a day or a month, is referred to as volume. It is used to determine the level of activity in a specific market or security.
- Break Out: A break out is a price movement that occurs when the price of a stock moves above or below a resistance level. This can indicate a trend change and a potential buying or selling opportunity for investors.
- Break Down: A breakdown is a price movement that occurs when the price of a stock falls below a support level. This can indicate a trend change and a potential selling opportunity for investors.
- Circuit Breaker: A circuit breaker is a mechanism that is installed on a stock exchange to halt trading in the event of a significant price decline. This usually gives market participants time to reassess the situation and avoid panic selling. Circuit breakers are typically triggered when the market falls by a certain percentage in a short period.
Common Terms Used in the Stock Market: The Bottom Line
You can read through this list of common terms used in the stock market to become familiar with them because learning and understanding these terms can have a significant impact on your understanding of the stock market.