The Stock Stethoscope

1) What is stock market index?

A stock index or stock market index is a measurement of a section of the stock market. It is computed from the prices of selected stocks. It is a tool used by investors and financial
managers to describe the market and to compare the return on specific investments.

You may often hear people speaking that the ‘market’ fell one day, or that the ‘market’ jumped.
However, if you read the stock table, you will realize that not all stocks rose or fell. There were some which moved in the opposite direction. This is called INDEX. The Sensex and Nifty are India’s two most prominent stock market indices. They are the benchmark indexes, which means they are the most essential and serve as a standard point of reference for the whole Indian stock market.

2) NIFTY 50

The NIFTY 50 index is National Stock Exchange of India’s benchmark broad based stock market index for the Indian equity market. Full form of NIFTY is National Stock Exchange Fifty. It comprises of 50 Indian company stocks in 12 sectors and is one of the main stock indices used
in India. NIFTY 50 Index has shaped up as a largest single financial product in India, with an ecosystem comprising of exchange traded funds, exchange-traded futures and options, other index funds and OTC derivatives.

3) SENSEX

The BSE SENSEX is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. The 30 component companies which are some of the largest and most actively traded stocks, are representative of various industrial sectors of the Indian economy.

4) What is Volatility?

Volatility is the range of price change that a security experiences over a given period of time. If the price stays relatively stable, the security has low volatility. A highly volatile security is one that hits new highs and lows, moves erratically, and experiences rapid increases and dramatic falls.

5) What is Liquidity?

Liquidity describes the degree to which an asset or security can be quickly bought or sold in the
market without affecting the asset’s price. Market liquidity refers to the extent to which a market, such as a country’s stock market or a city’s real estate market, allows assets to be bought and sold at stable prices. Cash is considered the most liquid asset, while real estate, fine art and collectibles are all relatively illiquid.

6) What is Pledging of share?

Pledging of shares basically means mortgaging of shares in return of funds to trade in the market.

7) What is open Position?

An open position in investing is any trade, established or entered, that has yet to be closed with an opposing trade. An open position can exist following a buy, a long position or a sell or a short position. In any case, the position remains open until an opposing trade takes place.

8) What is Trade book?

A trading book is the portfolio of financial instruments held by a brokerage or bank. Financial
instruments in a trading book are purchased or sold for reasons including to facilitate trading for the institution’s customers, to profit from trading spreads between the bid and ask prices, or to hedge against various types of risk. Trading books can range in size from hundreds thousands of dollars to tens of billions depending on the size of the institution.

9) What is Contract note?

A contract note is the legal document that presents the summary of all the trades executed during the trading day. It contains details of trades executed by your broker on your behalf on both of the stock exchanges, i.e., NSE and BSE, for equity and derivative investments.

Traders can view their transactions, time, trade, profit, loss summary, charges, taxes summary and much more from this one piece of document. 

10) What is ISIN number?

The International Securities Identification Number (ISIN) is a code that uniquely identifies a specific securities issue. Every stock listed in the stock market will have a unique ISIN number.

11) What is Inside Information?

Non-public information pertaining to the business affairs of a corporation that could affect the company’s share price should the information be made public is called inside information.

12) What does the term “Insider” mean in stock market?

All directors and senior officers of a company, and those who are presumed to have access to inside information concerning the company. An insider is also anyone owning more than 10% of the voting shares of a company.

13) What is Insider Trading?

There are two types of insider trading. The first type occurs when insiders trade in the stock of their company. Insiders must report these transactions to the appropriate securities commissions. The other type of insider trading is when anyone trades securities based on material information that is not public knowledge. This type of insider trading is illegal.

14) What is Inflation?

An overall increase in prices for goods and services, usually measured by the percentage change in the Consumer Price Index.

15) What are Blue Chip Stocks?

Stocks of leading and nationally known companies that offer a record of continuous dividend payments and other strong investment qualities.

16) What is Bull Market & Bear Market?

A market in which stock prices are rising is called a Bull Market and a market in which stock prices are falling is called a Bear Market.

17) What is Market Cap?

Market capitalization refers to the market value of a company’s equity. It is a simple but important measure that is calculated by multiplying a company’s shares outstanding by its price per share. (Shares outstanding are the stock that is held by a company’s shareholders on the open market).

For example, a company priced at $20 per share and with 100 million shares outstanding would have a market capitalization of $2 billion

18) What is Short Selling?

The selling of a security that the seller does not own (naked or uncovered short) or has borrowed (covered short). Short selling is a trading strategy. Short sellers speculates that price of the asset will fall and assumes the risk that they will be able to buy the stock at a lower price.

19)What is bid price and ask price?

Bid Price:
A bid price is nothing but the amount that you desire to pay for a particular share.

Ask Price:
Ask price is a specific price at which you are looking to sell a share.

20) What is an Annual Report?

An annual report is a yearly report that every company prepares to impress the shareholders of their company. The annual report consists of lots of information about a company, from cash flow to management strategy.

Several people read the annual report to look at the company’s solvency and judge their financial position.

21) What is a stock Portfolio?

A portfolio of stock means a collection of all the investments that an investor has made right from purchasing a share for the first time.

22) What does Averaging down mean in stock market?

Averaging down is carried out when the investor acquires more stock as the price of the stock steadily declines after the initial purchase, resulting in lower average cost per share. It is undertaken by an investor when he feels that the share is trading lower than the perceived value, and the general consensus of the market is wrong.

Averaging down is carried out when the investor acquires more stock as the price of the stock steadily declines after the initial purchase, resulting in lower average cost per share. It is undertaken by an investor when he feels that the share is trading lower than the perceived value, and the general consensus of the market is wrong.

23) What is Leverage in stock market?

Leverage in the stock market means borrowing capital to invest in more shares when one is financially capable of buying with the singular motive to boost profits. Leverage means amplification of comparatively smaller investment force into a correspondingly greater profit. Leverage can result in exponential gains; however, it can also result in massive losses.

24) What are Small-cap stocks?

Most small-cap companies are early start-ups and entrepreneurial ventures that present the opportunity to earn astronomical returns. Understandably they are companies with inconsistent returns and low revenues. Many of these companies can go bust. But at the same time, many such companies are unicorns that are trading abysmally below their intrinsic value. The information about these companies is not readily available. Hence these small-cap stocks are a winner for investors with a long investment horizon and an appetite for high risks.

Small-cap companies have a market cap of below Rs 5,000 crore.

25) What are Mid-cap stocks?

Mid-cap stocks are stocks of companies with a market capitalisation between Rs 5,000 crores and 20,000 crores. Mid-cap stocks attract investors as they provide the possibility of earning exponential returns in the long-term. However, mid-cap companies are discrete about the internal operations of the company and expansion plans, as they endeavour to trump over the competition, and hence are furtive about the information of the company. This makes it cumbersome for the investors to judge the potential of the stocks. Therefore, conservative investors stay away from such stocks.

26) What are Large-cap stocks?

Large-cap stocks are stocks of well-established companies with a market capitalisation above Rs 20,000 crores. Large-cap stocks are generally considered to be low-risk as they have a strong presence in the market, and have a history of providing potent and stable returns. Information about large companies is easily accessible. Most of the companies disclose timely information about the operations, products, expansion plans through media such as newspapers.

27) What does SEBI do?

Securities Exchange Board of India is the regulator that oversees the stock market in India. It provides a platform for investors and traders to trade efficiently, and for companies to raise capital fairly. It protects the interests of the investor and ensures accurate information is provided to the investors. It curbs fraudulent activities that can sink the stock market and obliterate the investors and traders wealth. It ensures that the company has prepared the financial statements with due diligence, and no incorrect information is provided to deceive the investors. It establishes a code of conducts for brokers, intermediaries and investors.