The Average Price to Earnings or P/E ratio is defined as the ratio of a company’s share price to its earnings per share (EPS). Investors generally use the ratio to determine the relative value of a company. When companies trade at low P/E ratios, sometimes it can be indicative of a company trading at an attractive valuation. The converse – a high P/E ratio indicates either over valuation of a company’s stock or signals that the company may see increased revenue in the future.
The all-time high/low refers to the highest or lowest price of a stock since it started trading. While an all-time high means investors are bullish about the company’s prospects, an all-time low price signals pessimism.
Any share market trade you conduct after the market close is known as after-hours trading. This facility allows you to buy and sell securities outside of the designated or regular trade timings. Such trades are conducted via electronic communication networks that match potential traders without using traditional stock exchanges.
The Ask or Offer refers to the price at which a seller accepts to sell their stock. Besides, the ask section on a ticker also mentions the volume or number of shares the seller is willing to offload at their preferred price. The opposite of this term is the Bid or Buy, which is the price and quantity at which a buyer is keen to purchase a stock.
The ask price is the minimum price a seller is willing to take for their stock. Only when a buyer’s price matches or is higher than the ask price is when a transaction goes through in the stock market.
An ask size is the number of shares a seller is willing to offer at a specific ask price. A high ask size means that there is more supply of the stock that traders want to sell. A buyer can accept the ask price and purchase shares up to the ask size amount at the specified price or bid against other interested buyers.
The average daily trading volume denotes the average number of shares traded on an exchange per trading session. The metric is an indicator of an investor’s interest in a particular stock and is also used to judge liquidity in the counter.
A bear market is a stock market situation when the market experiences continuous and prolonged price declines. In such a situation, the prices of stocks and other assets fall 20% or more from their recent highs due to widespread negative investor sentiment or pessimism.
Beta is a numeric value measuring stock price fluctuations in the stock market. It measures how responsive a stock price is to changes in the overall stock market. For instance, if the beta value of stock XYZ is 1:4, it basically means that the stock is 40% more volatile than the market. Beta is calculated using the regression analysis method to show a security’s response to the market.
Bid, also known as bid price, is the price an investor is ready to pay for a security. For instance, if you want to sell a stock, you will need to determine how much a buyer would be willing to pay for the stock. You can determine the price by considering the bid price, which represents the highest price a potential buyer would readily pay for the stock.
Blue chip stocks are stocks of large, well-recognised companies boasting a long history of sound and steady financial performance. These are stocks capable of enduring the toughest market conditions and generating significant returns during good market conditions. The cost of each blue chip stock is generally high since these stocks are usually market leaders in their industries.
A Bull or Bullish Market is a market trend characterised by rising stock prices of various market securities, typically equity instruments. When the prices of stocks rise by at least 20% on several stock exchanges, in terms of trading volume and stock purchasing, the market is considered a bull market.
A financial statement reporting a firm’s assets, liabilities and stakeholder equity at specific points in time is known as a balance sheet. This document provides the details needed to compute returns rates for investors and evaluates a firm’s capital structure. It is basically a financial statement summarising what a company owns, owes, and the sums invested by stakeholders.
Buy and Hold, also referred to as position trading, is a passive investment strategy under which you buy stocks, ETFs, and other market securities and hold them for an indefinite period, irrespective of market fluctuations. If you implement this strategy, you would be focused on maintaining a relatively stable portfolio instead of being bothered by short-term price movements.
Close price, also called closing price is the price at which a share closes at the end of trading hours in a stock market. It is the weighted average of all the prices in the last 30 minutes of trading hours. Close price should not be confused with LTP or last trading price, i.e., the final price at which the stock was traded before market closing.
Capital gain are the profits you earn on selling assets like shares, bonds, real estate, etc. If the selling price of the asset exceeds your purchase price, the gains earned in profits are deemed capital gains. Conversely, if the selling price is lower than the purchase price, the loss incurred is called a capital loss.
Capital gains are the gains you accrue when you sell an asset at a price higher than your buying price. It implies an increase in the value of the capital asset at the time of sale. If you earn more than what you originally paid for investments like stocks, bonds, gold, or real estate, the profits you book are called capital gains.
Capital Gains Tax is the tax a country's government imposes on its investors when they book profits or capital gains on selling an asset. You have to pay this tax when you convert your asset into cash upon selling, and not while it is still in your hand.
Stocks that consistently provide steady dividends and stable earnings, irrespective of overall stock market conditions (including during bull markets), are known as defensive stocks. These stocks offer substantial benefits, often akin to long-term gains but with lower risks. However, such stocks may accrue lower gains during bull markets.
Derivatives are financial contracts between two or more parties. These contracts derive value from an underlying asset, security, or index. Derivative contracts are broadly categorised into two types – Options and Futures. The underlying assets traded in the contract could be stocks, bonds, market indexes, currencies, commodities, etc.
The price, at which the supply of an asset is equal to its demand in the market, is called the Equilibrium Price. This results in the asset price remaining stable until the asset's demand or supply quantities change.
Buying equity helps you get stake in the company. This includes a part of its assets and its liabilities. It is essentially the money you would get paid if the company cleared all its debt and sold all its assets. There are broadly two types of equities you can buy: public equity and private equity. Public equity refers to the shares of a company that you can buy in the public market. Alternatively, private equity refers to the shares of a company that are sold to a select few investors. These shares cannot be bought from the public market.
Equity options is a class of derivatives that give the investors a right to buy (call option) or sell (put option) certain quantities of a company's shares at a pre-determined price in the future. The buyer pays a premium for the right. Equity options can be bought to profit from a stock’s movement without buying or shorting it.
Exchange Traded Funds (ETF) are investments funds whose units can be bought and sold on the stock market. ETFs are formed to track a specific index, currency, commodity, or any other such asset. ETFs can either be passively managed or actively managed.
Face value is the value of one share of the company. It is decided by the company at the time of its Initial Public Offering (IPO) and is mentioned in the company’s share certificates and books. Apart from equities, even corporate bonds have a face value. The face value of the equities issued by the company is affected by corporate actions and not by the demand and supply of the security in the market.
A follow-on public offering (FPO) is the second time a company issues its shares to investors in the public market. It is an additional issuance of shares by the company to raise funds. The FPO is offered by the company in the secondary market. The funds raised via FPO are used to acquire capital that helps them fuel their expansion or reduce their liabilities.
Buying and selling of futures contracts is called futures trading. Futures contracts are a form of derivatives meaning, they derive their value from an underlying asset. Futures gives the investor a legal obligation to either buy or sell the underlying asset at a set future date and at a pre-determined price.
A company is said to be going public when it launches its IPO and sells its shares in the public market. Companies go from being private to public entities primarily for raising capital. This helps them expand or clear off existing debts. IPOs also allow venture capitalists involved with the company to close their investment position and book profits.
Stocks of companies that perform or are expected to perform better than other companies that operate in the same sector are called growth stocks. These stocks have a high potential for profit. However, growth stocks are quite volatile in nature and do not pay dividends.
The time between the purchase and sale of an asset is called holding period. For example, if you buy a particular stock on June 15 and sell it on Sep 15, your holding period is said to be three months.
For a retail investor, assets that make up your investment portfolio are called holdings. These can either be stocks, mutual fund units, real estate, cryptocurrencies, etc. Holdings also indicate the controlling stake that one company has in another company.
A basket of stocks that serves as a benchmark for investors to gauge the performance of the overall market is called an index. Indices can be used to track the performance of various industries in the stock market. There are many types of indices; each is used to track a particular segment of the market or the overall market itself.
Opening and closing an investment position on the same day before the market closes is called intraday trading. You do not get delivery of the shares when you place an intraday trade in the equity market.
Index funds are a basket of securities that track the performance of a certain index. The investment portfolio of an index fund mimics the composition of the benchmark index tracked by it. By their nature of formation, index funds can be used to diversify your portfolio and mitigate investment risks. Index funds help you build a financial corpus that can support your lifestyle after retirement.
Limit order allows you to decide the price at which you wish to buy or sell a particular security. The limit order is only executed if the market price of the asset equals the buy or sell price specified by you at least once after the placement of the order. Limit orders can be used to buy or sell securities and to protect your open positions from large losses.
Listing date is the date when a company’s IPO is listed on the public exchange. This is the day you can start trading the shares of the company.
Listing refers to the shares of a company that is publicly listed on the stock exchange. A company gets listed on the stock market to raise capital that can be used for business expansion or to clear existing debts. To enter the secondary market, the company first has to issue an IPO and sell its shares in the primary market.
Taking a long position means buying a particular asset with the hope that its value increases in the future. You take a long position when you are bullish on the price of a specific asset.
Large cap stocks refer to the stocks of companies that have capitalised on a large portion of the market. These stocks can help you protect your portfolio from the volatility of the markets. Many large cap stocks are also known to provide dividends to their investors. Large cap companies have a market capitalisation of more than INR 20,000 crore.
A market order is an instruction to the broker to buy or sell a particular security at its current market price on the behalf of the investor. Market orders have the highest probability of being fulfilled. However, you may not get the price that you expect.
Stocks of companies that are expected to exponentially grow in value are called multi-bagger stocks. One of the easiest ways to identifying a multi-bagger stock is by analysing the fundamentals of the company and checking if its shares are undervalued in the market.
Mid-cap stocks are stocks of companies that have capitalised on a market size that is bigger than that of small-cap companies and smaller than that of large-cap companies. Mid-cap companies have a market capitalisation of more than INR 5,000 crore but less than INR 20,000 crore.
In the stock market, an offer date is the date on which the shares of a company are listed in the public markets for the first time. In other words, an offer date is the date on which an IPO is offered for subscription for the first time.
Options are financial contracts that give the investor a right to buy or sell a particular asset at a specific price and at a pre-determined date. You can buy and sell a call option and a put option. You buy a call option when you are bullish on an asset and sell a call option when you are bearish on an asset. Alternatively, you buy a put option if you think an asset is overvalued in the market and sell a put option when you expect the prices of an asset to go up.
The share market is a market where you can buy and sell securities in the stock exchange. The share market is made up of brokers, stock exchanges, companies, and investors. Companies list themselves in the share market to raise funds while investors buy and sell the shares of these companies either through short-term trades to profit from near-term movements, or to grow their wealth through long-term appreciation in the value of such companies.
You open a short position when you sell a security with the aim of buying it again at a lower price. Short positions are typically taken when you expect the price of an asset to fall. A short position can be initiated in the cash market (only for intraday trades). But most traders short the market or stocks through futures or options.
A stockbroker is essentially the middleman between an investor and the stock exchange. Brokers are regulated by SEBI in India. A broker can help you transact in the stock exchange and provide various other financial services as well such as investment advisory, portfolio management services, etc.
Top gainers are stock of companies that have the highest positive gap between their opening and closing prices on one trading day. In simple terms, top gainers are stocks that have increased the most in value during a specific time period. The top gainers of the day, month and year are listed on the exchange website and in various financial publications.
Opposite of top gainers, top losers are stocks of companies whose prices have dropped the most during a specific period of time. The top losers of the day, month and year can be found on the stock exchange’s website.
Trading indicators help investors get an insight on the emotions prevailing in the market. Investors can use trading indicators to get a better understanding of the price movements of an asset in the market and hence, take an informed investment decision. Broadly, there are two types of trading indicators, lagging indicators, and leading indicators. While leading indicators help traders anticipate where a stock price is headed, lagging indicators confirm the price trend before a trader enters into a trade. Leading indicators react to prices quickly, which bodes well for short-term traders. However, they tend to give out false signals. Conversely, lagging indicators are slower to react, which means traders can be more accurate about the price trend but could be late in entering the market.
When you transfer shares from your demat account to somebody else’s demat account, you are said to have done a transfer of shares. Shares of a publicly listed company are easily transferable. However, do remember that you would need to state clear reasons as to why you are transferring the shares to the other person.
Trend refers to the direction of the price movement of an asset in the market. It helps you understand the overall mood of the market. A market is said to be in an upward trend if the price of an asset makes higher highs and higher lows on the chart. Alternatively, the market is said to be in a downward trend if the price of an asset makes lower highs and lower lows on the chart.
Volume is the quantity of shares that were traded on a stock exchange in a specific period of time. An asset that has high trading volumes is said to have a highly liquid market as well. Additionally, volume analysis plays a significant role in formulating trading strategies.
Value funds are investment funds that pool money from multiple investors and invest the acquired capital in stocks of companies that they think are undervalued in the market. It would take a while for undervalued companies to get valuation that is at par; thus, value funds are long term funds that require you to have an investment horizon of at least 5 years.