SHARETIPSINFO >> Articles Directory >>Introduction to stock market and different financial terms

 

If you are about to start stock market trading you should have a complete understanding of different methods and process of stock trading. It would be impossible to make profitable stock market investment if you do not have complete grasp over the financial terms that are used at the stock market for different purposes. Here we are presenting an overview of some of the most widely used financial terms that you would be hearing everyday at the stock market.

Cash Segment – This is the basic and the most widely popular method of trading at the stock market. In this segment the investors buy the stocks and they are deposited in their demat accounts and they have to pay for the entire cost of the stocks unlike the margin trading where they only need to pay for a portion of the entire value of the stock.

Derivatives – In this form of trading the investors get into a financial contract. In derivative trading a future or option contract is made between the buyer and seller. In derivative trading the contract is done for a fixed price of the value of the stock and the contract ends after a specific period of time. In derivative trading you have to invest for a lot and each lot consists of number of stocks. The price of the lot is determined by multiplying the current price of each stock with the number of stock in the lot.

Futures – Future is one type derivative contract where the buyer or the seller gets into a contract to sell a financial instrument on a future date at a fixed price. The future contracts are essentially used at the stock market but they can also be used for trading in commodity, funds and indices.

Call Option – The option contract is also a type of derivative trading. In option contract that buyer has the right to buy a lot of stock at a fixed price on a fixed date but it is not his obligation to do so. If the buyer does not want to exercise his right to buy the lot he can opt to do that by paying a premium. But in case if the buyer wants to buy the stocks as per the option contract, the seller is bound to honor the contract.

Fundamental Analysis – This is the method for selecting the stocks for investing. As an investor you have to find out the right stocks that would be appreciating in the future. Fundamental analysis is one of the many methods that are used to predict the future of the stocks. The method for fundamental analysis is based on the principle of determining how financially strong the company is. It is the past performance of the company, assets and liabilities of the company – all these factors are considered for fundamental analysis of the stock.

P/E (Price/Earnings Ratio) – This is the ratio of the current price of each stock and the earning per share of the company. This ratio is considered to be a vital indicator of the performance of the stocks at the stock market.

Earnings per Share (EPS) – Earning per share is determined by dividing the total earning of the company in a financial year with the total number of issued shares by the company. It is often considered to be more important than the profit of the company as it is more specific and exact measurement of the profitability of the company.

Short Sale – Short selling is a method to get benefited from the falling price of the stock. In this way trading you are actually selling a stock that is not owned by you at the time of selling. In short selling you can sell the stock that you think will go down in future and then buy back the same amount of stock when the price of the stock falls at the stock market.

Stop Loss Order – A stop loss order is the precautionary measure that is taken by the investors to reduce their loss. It is an order that is given by the investors by mentioning a trigger price. This order can be exercised either for buying or for selling the stocks. The order is executed when the price of the stock reaches the predefined price.

 

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