Navigating the stock market can be overwhelming for beginners, especially with the numerous terminologies used by traders and investors. This guide will help you understand some of the most commonly used market terms and their significance in trading and investing.
Key Stock Market Terminologies
1. Bull Market (Bullish)
A bull market refers to a period when stock prices are rising, and investor confidence is high. If you expect a stock’s price to increase, you are said to be bullish on it.
Example: The Indian stock market was bullish from mid-2020 to early 2022.
2. Bear Market (Bearish)
A bear market occurs when stock prices are falling, leading to pessimism among investors. If you anticipate a decline in stock prices, you are bearish.
Example: The market was bearish during the 2008 financial crisis.
3. Market Trend
The trend indicates the general direction of the market:
- Uptrend (Bullish) – Prices are rising.
- Downtrend (Bearish) – Prices are falling.
- Sideways (Range-bound) – Prices move within a narrow range.
4. Face Value of a Stock
The face value (FV) or par value is the nominal value assigned to a stock when issued. It is crucial for corporate actions like dividends, stock splits, and bonuses.
Example: If Infosys (FV ₹5) declares a ₹63 dividend, the dividend yield is 1260% (63 ÷ 5).
5. 52-Week High/Low
- 52-week high – The highest price a stock reached in a year.
- 52-week low – The lowest price a stock hit in a year.
Traders often view a stock nearing its 52-week high as bullish and one near its 52-week low as bearish.
6. All-Time High/Low
- All-time high (ATH) – The highest price ever for a stock since listing.
- All-time low (ATL) – The lowest price ever recorded.
7. Upper and Lower Circuit
Stock exchanges impose price bands to limit extreme volatility:
- Upper circuit – Maximum allowed price rise (e.g., 5%, 10%, 20%).
- Lower circuit – Maximum allowed price drop.
If a stock hits the circuit, trading may be halted temporarily.
8. Long Position (Going Long)
When you buy a stock expecting its price to rise, you take a long position.
Example: Buying Reliance shares at ₹2,500, expecting them to go up.
9. Short Position (Shorting)
Shorting means selling a stock you don’t own, hoping to buy it back at a lower price.
Example:
- Sell Wipro at ₹425 (expecting a drop).
- Buy back at ₹405, making a ₹20 profit.
Note: Shorting in the cash market must be squared off intraday.
10. Square Off
Closing an open position:
- Long position → Sell the stock.
- Short position → Buy back the stock.
11. Intraday Trading
Buying and selling stocks within the same trading day to capitalize on short-term price movements.
12. OHLC (Open, High, Low, Close)
- Open – First traded price of the day.
- High – Highest price during the day.
- Low – Lowest price during the day.
- Close – Last traded price.
Example: If ACC’s OHLC is ₹1486, ₹1511, ₹1467, ₹1499, it shows the day’s price movement.
13. Trading Volume
The total number of shares traded in a day. High volume often indicates strong interest in a stock.
Example: If ACC’s volume is 5,33,819 shares, it reflects active trading.
14. Market Segments
Stock exchanges operate in different segments:
- Capital Market (CM) – Trading of stocks and ETFs.
- Futures & Options (F&O) – Derivative trading.
- Currency Derivatives (CDS) – Trading currency pairs like USD/INR.
- Wholesale Debt Market (WDM) – Trading bonds and debt securities.
Frequently Asked Questions (FAQs)
Q1. Can I short-sell a stock overnight?
No, shorting in the cash market must be closed the same day. However, in the F&O segment, you can hold short positions longer.
Q2. What happens if a stock hits the upper circuit?
Trading may be paused, and only buy orders are allowed until the circuit is lifted.
Q3. How is face value different from market price?
- Face Value (FV) – Nominal value assigned at issuance (e.g., ₹10).
- Market Price – Current trading price (e.g., ₹1,500 for a stock with FV ₹10).
Q4. Is intraday trading profitable for beginners?
Intraday trading is high-risk and requires skill. Beginners should focus on long-term investing first.
Q5. What if I don’t square off a short position intraday?
The broker may auction the shares, and you could face penalties.