5 Financial Terms You Should Know When Trading Stocks

The stock market is where players purchase and sell equity interests in businesses (buyers and sellers of stocks). Participants may include investors and traders seeking gains in the short or long term. The investors are primarily interested in the long term and profit from capital growth over time. However, traders seek fast gains by concentrating on minor price movements in stock shares that often last just a few minutes or the duration of the trading session.

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two leading stock exchanges in India, where most stock trading occurs. Buyers and sellers submit orders through brokers that provide online trading services. The settlement cycle is T+2. In Layman’s terms, you have two days to complete the transaction cycle from start to final settlement.

Placing the order is the initial stage in the trade life cycle. Following that, the order is matched and executed. The transaction would subsequently be cleared via the stock exchange’s clearinghouse. The last step is a settlement, which entails the deposit and withdrawal of money and securities on the final day of the trading cycle.

Whether you are a beginner or a seasoned stock investor, you must understand the fundamental terminologies used in the stock market. As your stock market vocabulary expands, you will become a better investor and a successful trader. The following is a list of fundamental terms that every investor should be familiar with:


A stock (alternatively called equity) is a financial instrument that reflects ownership of a portion of a company. This allows the stockholder to a proportionate share of the corporation’s assets and earnings according to their ownership percentage. The term “shares denote Stocks.”

Stocks are primarily traded on stock exchanges, but private transactions form the backbone of many individual investors’ portfolios. These transactions must adhere to government laws designed to safeguard investors against fraudulent activities. 

Numerous beginners are entering the stock market to get a better understanding of the Indian financial sector. As a result of the widespread coverage in the mainstream media, a growing number of individuals are now coming on board. However, individuals need to have enough financial understanding to comprehend the market; otherwise, they risk losing their investment. For example, if IRCTC stock has grown or declined in percentage, an individual should have the capacity to reason behind the positive or negative return. Is it because the quarterly result announcing a year-on-year growth in usage of PNR status, or has there been some internal changes of working structure of the organization. Additionally, people interested in working in this industry should pursue a major in financial markets to get a firm grasp of market fundamentals.

Compounding interest

Compounding is a simple and very effective idea. It is very effective since it has a multiplication effect. Compounding is a term that refers to the practice of generating compound interest on your investment. The interest gained on the original amount is reinvested so that the interest added earns interest; this is referred to as compound interest. As a result, your investment will produce profits not only on the original capital invested but also on the interest generated during the following term.

Asset allocation

Asset allocation is a financial strategy that seeks to balance risk and return by diversifying an investment portfolio among asset classes such as equities, fixed income, cash equivalents, and real estate. According to the idea, asset allocation enables investors to mitigate risk on their portfolios since each asset class has a distinct correlation to the others.

Mutual funds

A mutual fund is a kind of financing method that pools money from many participants to invest in various securities, including stocks, bonds, money market instruments, and other assets. Mutual funds are managed by experienced money managers who handle the fund’s assets and seek to generate financial gains or income for investors. The portfolio of a mutual fund is created and managed by the investment goals specified in the prospectus.

Mutual funds provide access to professionally managed portfolios of stocks, bonds, and other assets for small and individual investors. As a result, each stakeholder shares proportionately in the fund’s profits or losses. Mutual funds invest in a diverse range of assets, and success is often measured in terms of the change in the fund’s total market capitalization, which is calculated by aggregating the performance of the fund’s underlying investments.


In India, there are a variety of investment choices, and bonds are one of them. A bond is a financial instrument in which the issuing business borrows money from the lender (bondholder) and is obligated to repay the lender with interest on the principal amount. The coupon is the term used to describe the interest.


The holder enters into a legal contract where the issuer agrees to return borrowed funds plus interest at specific periods, such as semi-annually, annually, or monthly.

Both bonds and stocks are considered capital market instruments; however, shareholders own an equity interest in the business, while bondholders own a creditor stake.

This implies that shareholders are considered owners, whereas bondholders are considered lenders to the business. Additionally, bonds often have a predetermined interest rate and a certain length of time or maturity at which they mature. By contrast, stocks stay outstanding forever.

Numerous company owners and the government issue bonds to finance long-term investments or current operating expenses. While there are many investment choices in India, bonds are regarded as a secure bet due to the minimal risk. In India, a lack of financial knowledge and access to these markets often dissuades individuals from investing in them.

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