Terminology

Stock Market Fundamentals: Every Term, Simply Explained

No definition longer than a sentence. Read it top to bottom once, then come back to it as a reference whenever a dispatch uses a word you've half-forgotten.

8 min read · Core Curriculum, Module 3 of 4

Every field has its own vocabulary, and the stock market's can feel deliberately intimidating — it isn't. Almost every term below describes something you already understand intuitively, just wearing a finance costume. Here's the full undressing, grouped the way you'll actually run into these words.

The basics

Share: One unit of ownership in a company. Own a share, own a tiny slice of that business.
Equity: Another word for ownership — "equity" and "shares" are used almost interchangeably.
Listed company: A company whose shares are available to trade on a stock exchange.
IPO: Initial Public Offering — the first time a company sells shares to the public.
Market cap: A company's total value on the market: share price × number of shares outstanding.
Large / Mid / Small-cap: Rough size buckets for companies by market cap — larger usually means more stable, smaller usually means more volatile.
Promoter: The founder(s) or controlling group who hold a significant stake and typically run the company.
Free float: The portion of a company's shares actually available for public trading, excluding promoter and locked-in holdings.

Price & value

Face value: The nominal, printed value of a share when first issued — usually far below its market price.
Market price: What the share actually costs to buy right now.
P/E ratio: Price ÷ Earnings per share — a quick read on whether a stock looks expensive relative to its profit.
EPS: Earnings Per Share — a company's profit divided by its number of shares.
Book value: What a company would theoretically be worth if it sold everything and paid off every debt, per share.
Dividend: A portion of company profit paid directly to shareholders, usually per share, usually not guaranteed.
Dividend yield: The dividend as a percentage of the current share price — like an interest rate on your investment.

Orders & trading

Bid: The highest price a buyer is currently willing to pay.
Ask: The lowest price a seller is currently willing to accept.
Spread: The gap between bid and ask — a narrow spread usually means an easy, liquid market.
Market order: "Buy/sell now, at whatever the current price is."
Limit order: "Buy/sell only if the price reaches exactly this level."
Stop-loss: An automatic order to sell if a price falls to a set level, capping how much you can lose.
Volume: How many shares changed hands in a given period — a rough gauge of how much interest a stock has.
Liquidity: How easily you can buy or sell without moving the price much — high liquidity means an easy exit.
Circuit breaker: An automatic trading halt when a stock or index moves too far, too fast, in either direction.

Indices

Index: A single number tracking a basket of stocks together, as a shorthand for "how's the market doing."
Sensex: BSE's index of 30 major Indian companies, running since 1986.
Nifty 50: NSE's index of the 50 largest listed Indian companies, running since 1996.
Index weighting: How much each company counts toward the index's number — usually more for bigger companies.

Market participants

Retail investor: An individual investing their own money — you.
FII / FPI: Foreign Institutional/Portfolio Investors — overseas funds investing in Indian markets.
DII: Domestic Institutional Investors — Indian mutual funds, insurers, and banks investing on a large scale.
Broker: The licensed middleman whose app or terminal you use to place an order on an exchange.
Depository participant: The agent (often your broker) through whom your demat account connects to the depository.

Corporate actions

Bonus shares: Free extra shares given to existing shareholders, proportional to what they already hold.
Stock split: Dividing each existing share into multiple cheaper shares — total value unchanged, just more, smaller pieces.
Buyback: A company repurchasing its own shares from the market, reducing the number left in public hands.
Rights issue: An offer letting existing shareholders buy new shares, usually at a discount, before anyone else can.

Reading the mood

Bull market: A sustained period of rising prices and investor optimism.
Bear market: A sustained period of falling prices and investor pessimism.
Volatility: How sharply and quickly prices swing — high volatility means bigger, faster moves in both directions.

Trade types & derivatives

Covered in full, with a diagram, in Module 4 — the short version is below for reference.

Intraday (MIS): Buying and selling the same shares within a single trading day — no overnight ownership.
Delivery (CNC): Buying shares to actually hold — they land in your demat account until you choose to sell.
Futures: A contract obligating you to buy or sell at a set price on a future date.
Options: A contract giving you the right, but not the obligation, to buy (Call) or sell (Put) at a set price.
Strike price: The fixed price at which an option can be exercised.
Premium: What an option buyer pays upfront for that right — their maximum possible loss.
Lot size: The fixed minimum quantity a derivatives contract is traded in.
Expiry: The date a futures or options contract stops being valid.
Margin: The (smaller) upfront deposit required to hold a leveraged position, instead of its full value.
Leverage: Controlling a large position with a small amount of capital — it multiplies both gains and losses.
Open interest: The total number of outstanding (not yet closed) derivative contracts — a gauge of active positioning.

Settlement & regulation

Demat account: The electronic account that holds your shares, the digital equivalent of a bank account for securities.
Clearing corporation: The institution that steps in as counterparty to every trade and nets out who owes what to whom.
Depository (NSDL / CDSL): India's two institutions that actually hold securities electronically and move them between demat accounts.
T+1 settlement: The rule that a trade made today (T) is fully settled — shares and funds moved — by the next trading day.
SEBI: The Securities and Exchange Board of India — the regulator that writes and enforces the market's rules.

Test yourself: the Jargon Buster Quiz on the Practice Sheets page covers a working subset of these terms with instant feedback.

Next in the curriculum Module 4 — Types of Trade, and How an Order Actually Becomes a Trade →