10 Tips for trader

Terms which every Stock Traders must Know

Stocks is one of the topic which is full of curiosity to public who aren’t into stock trading. Here are some of the terms one must have come through the newspaper or must have heard somewhere or the other, all of which relates to financial sector specifically stock market. Stock traders must be familiar with many of the terms.

  1. Broker – A broker or stock broker is a person who is responsible to carry out transactions on behalf of a person (client). This person is registered with the SEBI or Securities and Exchange Board of India and also registered with the Stock Exchange. In share market, the Broker is the face of his Client and buys and sells on his behalf making sure his client has the best price in each of the cases.
  2. Stocks or Shares – In the share market, Stocks or Shares are both with the same meaning. It means a portion or part of the company. In short, the shares and stocks which people buy or sell are the shares of ownership of a company that they buy or sell.
  3. Equity – Equity in simple terms means the value of the total assets of the company minus the value of the liabilities that the company holds. In a way it is the profit earned by that company after all the debts and other liabilities have been paid. For eg – If a company say XYZ has an asset value of worth $5 Billion but owes $1 Billion as liability which include all the various expenses and debt, then the equity for the company would be $4 Billion.
  4. Mutual Fund – Mutual Fund is an investment program that collects the money of its investors and invests in shares or securities which is regulated by professionals.
  5. Systematic Investment Plan or SIP – This is a plan which allows you to invest a certain fixed amount of money at a regular interval in Mutual Funds. The amount is Auto debited provided you instruct the bank about the SIP. This makes it less tiresome for you as you don’t have to take out money everytime and invest as all of this is automatically done and taken care of properly.
  6. NIFTY – NIFTY is a stock market Index which consists of 50 shares and which is managed by India Index Services and Products Ltd (IISL) which is a project of NSE ( National stock Exchange) and CRISIL. It covers much broader sector of India which is why it is said to be the economic Indicator for India.
  7. Sensex – Sensex is also a stock market index which consists of top 30 companies of the Bombay Stock Exchange unlike NIFTY which has top 50 of the NSE.
  8. ULIP – ULIP or Unit linked Insurance Plan is an insurance plan of its own kind. This involves insurance as well as investment. When a person pays for the premium for an insurance, some part of the premium is used in insurance and the rest in investment.
  9. Bonds – Companies are always in need of money which they satisfy by taking loan or by bonds. When the money borrowed is by many investors then the borrower promises a timely payment of interest rates to the person from whom the money is taken. This is Bond.
  10. Derivatives – These are products whose value depends on the assets underlying it. If there is any fluctuation in the price of the underlying asset the price of derivative too changes. For eg. The Milk is the underlying asset and the derivatives can be curd. So if there is a fall in price of Milk, the price of Curd also falls.
  11. Futures – it is an agreement or contract between two teams which says the two teams have agreed to buy or sell a specific asset of a specific quantity with a price which has been decided today, and the final transaction which will be carried out on a date in the future.
  12. Leverage – In general financial term, it involves borrowing funds and buying an asset with the borrowed fund with the faith that the price of the asset increases and to such an extent that it will be more than borrowing cost. In a way it means to grow profits or loss. It also means in a way that a small change in the underlying asset in context to the Derivatives, there is a large change in derivatives.

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