5 Trading Terms You Need To Know

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  • 28 Jan 2023
5 Trading Terms You Need To Know

Whether you are a beginner or have been trading in stocks for a while, you need to know some of the most common and essential reading terms. Knowledge is a crucial weapon to have when trading stocks online. Unless you are well aware of the market terminology, you won't make the right calls or maximise your profits.

1. Exchange

First, and most importantly, we have the stock markets where all the shares are listed. You buy and sell these same shares, which forms the crux of the trading job. The place where these stocks are listed is known as the stock exchange. There are many stock exchanges around the world. The BSE, or the Bombay Stock Exchange, in India, is the oldest. While some countries have only one stock exchange, others have multiple.

2. Equity

Equity refers to the stocks you buy and sell in the stock markets when you engage in online trading. The company's equities give you a share of the company's ownership. The equities are precisely what you buy and sell during trading. You can buy equities of all the listed companies from the various stock markets.

3. Broker

Brokers are agents who buy or sell the stocks on your behalf. A broker can be an individual or a company that helps you with your investments. Brokers give you advice and also guide you when to buy and sell. They often charge a brokerage fee for their services.

4. Yield

Yield is what you earn from your investments. It is the dividend or profits you make when you invest in the stock markets. As an investor, you aim to get the best and the highest yields from your investments. It refers to the earnings either generated or realised over a specific timeframe, including profit, dividends, and interest.

Thus yield = rise in price + dividends earned.

So, for example, if the price of a stock rises from Rs 100 to Rs 120 in a year and provides a dividend of Rs 2, then the yield would be (Rs 20 + Rs 2)/Rs 100= 22%.

5. Volatility

Volatile means fluctuations in the prices of the equities or the commodities for trading. The price of some shares change daily: these are considered highly volatile. Others with more stable pricing are known as non-volatile shares. It would help if you looked at investing in such shares based on your risk appetite and after considering your investment objectives. When you know these basic terms, you won't feel lost or confused in the stock market. Though most of the trading happens online these days, and you rarely even look at physical stock markets, the concepts remain the same.

This is why you should know and understand these important terms such as exchange, equity, broker, yield, and volatility before trading. Communication is a critical element in stock trading, and you need to be able to communicate clearly with your partners, brokers, etc., and only then invest properly. Speak to a financial advisor as and when needed; this will help you better understand and create a clearer picture of the investment practices.

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