Why to know the terms
To invest money in the share market is assumed to be risky because stock markets are generally considered to be volatile. His factor of volatility comes in because the share market is influenced and impacted by a number of factors and this has a deep impact on stock pricing as well. More often than not, these variations cause the stock prices to fluctuate and the investor may end up making a profit or suffering a loss. These variations may also impact a particular company’s stocks or may impact the whole market in general. Whenever there is a steep decline in the stock process, the share market is said to have crashed and investments plunge to a low. This uncertain variation in the valuation and overall prices of stocks is what is defined as volatility. It is very difficult to estimate the volatility accurately. Although volatility is the factor that makes the markets fluctuate it is a double-edged tool. For those who know how to take advantage of it, volatility generates great profits. On the other hand for bad investments or for general share trading domains at times, volatility causes immense losses. Therefore, before undertaking any investment in the share market, it is very much essential that a deep understanding of the markets should be in place.
While share trading is emerging fast as a much sought-after model of generating monetary returns on a short-term basis, yet there remain concerns about money management in trading. Money management, especially for beginner’s online trading is a critically important parameter. It is an established fact that no investment is perfectly risk-proof. Although money management and concurrent avoidance of large risks is a wide study, yet the overall strategy is somewhat based on adopting a realistic approach.
This is where the importance of a credible knowledge base comes in as it helps you analyze everything from a bird’s eye perspective. All the expectations should be based on effective market analysis. Often investors tend to get swayed by high expectations from the stock –performance. However, a better perspective is to collaborate with the stockbroker and get in active communication with other stock traders and keeping an eye on the market news. This directly implies that the quality of information and the transparency of communication as very important factors.
While investing in share options is one of the key decisions for your investment benefit, it must be kept in mind that much of the share trade market theory is based on the fact that the stability of the profits is to be maximized at an optimum rate. This means that you, as an investor must be able to clearly understand the impact of the various market forces that are at work. Having the right kind of knowledge helps you do just that. It helps you to keep the end results insight while giving you the edge of being able to take firm and effective decisions regarding your investments.
List 10 key terms
The following are the important terms related to the share market that you must know about. Having this knowledge gives you a fair idea of the various technical terms in the market and also enables you to communicate effectively with the brokers and other key persons.
1. Bear Market – This term is used to define a situation where the market prices decline continuously. Also called Bear Phase, this is defined as a phase during which prices of stocks decline and the general investors are reluctant to invest their funds in the market options.
2. Bull market – This term is used to define a situation where the market prices increase continuously. Also called Bull Phase, this is defined as a phase during which prices of stocks increase and the general investors are enthusiastic to invest their funds in the market options. This phase is the opposite of a Bear Market.
3. Call Option – This term is defined as an agreement or a contract which gives the right of purchasing to the holder whereby he/she can buy an underlying stock at a strike price within the stated period of time.
4. Capital Gain –This is defined as the overall accrued financial profit that an investor gets when he/she sells off the stock option or share option at a price that is higher than the purchase price of the same.
5. Certificate of Deposit – This is a term that defines the certificate issued by the concerned bank stating that a particular amount of money has been deposited for a stipulated period of time. This certificate also defines the rate of interest that has been charged. Besides, this certificate is a tradeable document for the original depositor.
6. Depreciation – This term defines the variation or the change against the net earnings to salvage the purchase value of any asset over its projected life. It is used extensively in accounting terms and does not symbolize any outlay of funds or cash.
7. Dividend – Dividend is defined as the payable amount that has been formulated and designated by a company’s Board of Directors for the purpose of distribution among the holders of outstanding shares. For the segment of shareholders who qualify as preference shareholders, the dividend is fixed, while for equity shareholders, dividend yield varies as per the company’s profits.
8. Rights – Rights is defined as an issuance meant for existing shareholders of a company whereby they can purchase more shares in the company. A company issues Rights when enhanced capital funds are required. The existing shareholders have the opportunity of purchasing new shares at a rate that is less than the general market rate of the shares.
9. Portfolio – is the collection of different investment instruments owned by one individual or institution. A portfolio can consist of any combination of shares, bonds, derivatives and such other instruments.
10. Preference Shares – This term is used to define shares where the payable or accrued dividend stays at a fixed rate. In this case, unlike equity shares, the dividend does not vary with the company’s earnest profit but stays fixed.
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