Stock market basic knowledge consists of all general terms about stock market. In this article, you will learn about 44 stock market basic terms so that you to achieve stock market basic knowledge. Before starting stock investing, you have to learn about stock market basic knowledge.

After reading this article, you will learn all stock market basic information. As this article is little bit large, you should read carefully in order to learn stock market basic knowledge.

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1.  What is share?

Share is a small piece of a company’s capital. Shares measure the unit of ownership of a company. Such as, if you hold 10 shares of “Z” company. That means you hold ownership of “Z” company and that is equal to 10 shares. A listed company’s capital is divided by per value of a share to get the number of shares.

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2. What is stock?

Stock is a type of security(equity) that gives an investor a stake of public limited company. Stock measures the stake of ownership. Suppose, a director holds 10% of a company that means he holds 10% stock of this company.

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3. Difference between share and stock?

Most often share and stock are treated similarly. An investor may say that he has 100 shares of a company. But a big investor may say that he holds 5% of a company. That means share is a unit and stock is a stake of a company. But, both terms are part of ownership of a company. Suppose, you hold 50000 shares of RM company. RM company has 1000000 shares. Your holding percentage is (50000/1000000)*100= 5%.

So, you can say that you hold 50000 shares of RM company or 5% of RM company. In real sense, we need not worry to differentiate between share and stock.

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4.  Volume (Quantity) of a company

Volume means the number of shares is traded in trading hours. A company’s total quantity of shares are shown as million. Suppose, a company has traded 5000000 shares in trading hours. We call volume of shares of this company is 5 million.

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5. Value (Turn Over) of a company

Volume is multiplied by per value of a share to find out value of a company. A trader needs to consider both volume and value in intraday trading in order to take decision. Turn over (value) and volume (quantity) are two important indicators for stock traders.

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6. Authorized capital for a company

Authorized capital is the maximum capital a company can take from shareholders. Authority fixes the maximum capital limit for a company at the time of listing stock market. A listed company can’t withdraw more than authorized capital.

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7. Paid up capital

Paid up capital is actual collected capital of a listed company. Simply, company does not need whole authorized capital at the beginning. Hence, a company issues shares on the basis of its requirements. So, paid up capital is less than authorized capital.

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8. Face value of a company’s stock

Face value is written value or book value of a share. Generally, a company enters into stock market through IPO (Initial public offering). A company’s per value of a share is remained fixed all the time.

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9. Market value of a company’s stock

Market value of a share means secondary market’s trading price. Current price of a share is called market value. Moreover, market value of a stock may greater than face value or less than face value. Even in some rare cases, market value and face value may be same for a minute. That means market value changes with demand and supply of a stock.

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10. Outstanding securities for a company

Outstanding securities mean the number of shares is currently tradable in the stock market. Paid up capital and registered capital of a company may not be same. Generally, outstanding securities are currently tradable shares.

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11. Director’s shares

The number of shares is held by directors is called director’s shares. In many countries, authority concern assigns the minimum number of shares for directors. Directors’ shares are not saleable. Directors need to take permission before selling their holding.

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12. Market cap of a company

Market cap is the current value of a company’s stock. Total number of shares outstanding is multiplied by market value of a share to get market cap.

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13. Block transaction for a stock

Block transactions are held outside the trading market. Big market players want to buy large volume shares from a specific company. They order large quantity of stock outside the trading platform. Authority gives them chance to buy and sell in block market. In this way, their large volume transactions don’t influence the normal trading platform.

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14.   Market lot of a stock

Market lot is defined minimum number of shares can be traded in a single transaction. this lot may be consisted of a single share or minimum quantity assigned by market maker. Only one unit of share may be a market lot.

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15. Debut trade for a company

Debut trade means the initial trading day. A company’s first trading day in the secondary market is called debut trade.

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16. Bull market for stock

Bull market is uptrend market. More specifically, bull market indicates buying pressure. In bull market, maximum investors and traders are in buying mood at high price. Anybody can make money in bull market.

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17. Bear market for stock

Bear market is downtrend market. In bear market, all are in selling mood. Excessive sale pressure creates bear market. It is difficult to survive in bear market. You have to learn how to trade trend at downtrend reversal.

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18. Margin loan for stock trading

Margin loan is similar to debt, which provides by broker house or financial institutions to buy stock. It provides in percentage basis of own capital. In many countries, margin loan percentage varies between 50% to 80% of trading capital.

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19. Market Pullers

A list of top market mover companies. Each trading day, top 10 highest positive transactions holding companies are listed in market puller list. These companies contribute market to create uptrend movement.

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20. Market Draggers

Market dragger is opposite to market puller. These companies contribute to create downtrend market. They have huge transactions but their price change to negative. Excessive sale pressure creates market dragger.

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21. Circuit Breaker

Market makers may fix the highest percentage of gain and loss in intraday transaction of a company to control the market. Circuit breaker is a restriction, which control the market. It has both merits and demerits.

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22.  OTC Market

Over the counter market (OTC) is a type of market outside stock market. Generally, authority allows weak companies to trade in OTC market. This market is risky and traders and investors have less interest on this market.

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23. Floating Share

Floating shares are the number of salable shares of a company. These shares are calculated like this: directors’ share minus total shares.

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24. IPO meaning and application

IPO is initial public offering. It consists of the number of shares a company wants to issue. First time a company enters the market by IPO. Then, this company’s shares are traded in secondary market.

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25. Primary market

Primary market is the initial market where a company issue shares at fixed price. A company enters in stock market through primary market. The method of entering in primary market is IPO.

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26. Secondary market

Secondary market is called trading market. All listed companies’ shares are traded in secondary market. Anyone can buy and sell in secondary market in trading hours. Secondary market determines market price of a stock.

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27. Record Date

A company fixes record date to determine actual stockholders on this date. Generally, a company fixes record date to distribute dividend.

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28. Ex- Dividend Date

Ex-dividend date is the immediate previous day of record date. Ex-dividend date is fixed to ensure actual stockholding.

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29. Cash dividend

Dividend is a part of net profit. If a company shares cash return to its stockholders, it is called cash dividend. A Listed company collects capital from stockholders. Hence, it has obligation to share profit to its shareholders. Dividend declaration has negative impact on stock price.

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30. Stock Dividend

Stock dividend means a company distributes stock instead of cash as dividend. Company’s existing shares will be increased for stock dividend.

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31. Reserve and Surplus

Total undistributed profit is defined as reserve and surplus. Moreover, reserve and surplus is a fund. Company creates this fund to preserve capital. Company uses this fund in crisis or reinvestment.

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32. Intrinsic value of a share

Intrinsic value is the actual value of a stock. This value is calculated by this formula. Many investors want to buy stock at discounted price. In some cases, discounted price may similar to intrinsic value. According to Benjamin Graham– writer of “Intelligent Investor” defined

Intrinsic Value = {EPS*(8.5+2g)*4.4}Y. Here, he expects 8.5 return each year.

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33. T+1,T+2 and T+3

T means time. This shortcut indicates when a share is salable. T+1 means that if you buy a stock today, you can sell this stock tomorrow. For example, If you buy a stock Sunday, you can sell it Monday. On the other hand, T+2 means that if you buy a stock today, you can sell it day after tomorrow. That means you have to wait trading day and one more day to sell. For example, If you buy a stock Sunday, you can sell it Tuesday.

T+3 means that you have to wait two days except trading day to sell your stock. If you buy a stock Sunday, you can sell it Wednesday. Generally, T+1 and T+2 are applicable for A, B and N categories stock. On the contrary, T+3 is applicable for Z categories stock.

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34. Categories of share- A,B ,N and Z

A category stock gives 10% or more dividend and holds annual general meeting (AGM) each financial year. B category stock gives less than 10% dividend and holds annual general meeting (AGM). N category stock is new company. This company’s dividend is yet to known. Z category stock similar to junk stock. This company does not give any dividend. Moreover, Z category company may not hold AGM.

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35. Trading Halt

Trading halt means for a stock that this stock currently has no seller. It creates when demand increases and supply doesn’t increase compared to demand. Buyers want to buy at maximum intraday price but sellers are not eager to sell.

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36. opening price

Opening price is the beginning price of a stock. This price is calculated on the basis of pre-market demand and supply.

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37. Closing Price

Closing price is the last intraday selling price of a stock.

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38. When to buy

You have to buy at downtrend reversal point. Or you need to buy at discounted price. You should follow stock buy or sell strategies.

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39. When to sell

You need to sell at uptrend reversal point or high price. You should apply selling styles to sell at maximum price.

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40. Day Trading

Day trading means buying and selling of stocks in intraday. Traders are trend reversal business men. They buy at downtrend reverse point and sell uptrend reverse point. They may buy short or sell short. But, day traders don’t hold stock for next day.

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41. Swing Trading

Swing traders trade in swing. They may hold stock for one day to several weeks. They also trend reversal trader. But, they wait for some time. Day traders and swing traders are similar in nature. But their holding time is not same.

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42. Investing

Investors hold stock year after year. They prefer to take dividend and capital gain. They may be short term investors or long- term investors. Investors want to buy fundamental stock at discounted price.

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43. Support and Resistance Level

Support level is an expected downtrend level. Traders hope that a stock may reverse back after it reaches at support level. Suppose, A stock’s market value is 55 dollars. If this stock price reverses to downtrend, it may come at 50 dollars. A trader sets 50 dollars is support level.

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On the other hand, resistance level is bounce back from an uptrend stock. If market value of a s stock is 50 dollars, a trader thinks that this stock reaches at 55 dollars. Then, it will reverse to downtrend. Traders set support and resistance lever from their experience. These levels may execute or not. Support level is important for applying stop loss rule and resistance lever is essential for selling decision.

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44. Influence of indexes on market price

Indexes are very important indicator to know the market performance. All the stock markets have more than one broad market index. Such as, New York stock exchange has S&P500 index. These 500 companies are market draggers or market pullers. So, broad market index is the reflect of whole market.

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Conclusion

In this above discussion, you have learnt all stock market related terms. If you have understood all 44 stock market terms, you have achieved stock market basic knowledge. Moreover, you need to know both technical and fundamental indicators. RSI and candlestick chart are the top technical indicators.

On the other hand, EPS, Dividend yield and P/E ratio are the top fundamental indicators. If you can’t take risk, you should not start investing in stock market. Wait until you become a risk taker. Any trading mistakes may occur huge loss.

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Founder of The Financial Ask