Hello readers, we are happy to announce that our
team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A For Stock
Market Newbies”, to spread the basic stock market knowledge to the
beginners.
Day 3: Basic Stock Market
Concepts
1. What is a Limit Order?
A limit order is a
type of order to buy or sell a stock at a specific price or better. It ensures
that the investor does not pay more or sell for less than the desired price. Such
type of order is advisable to track share prices.
2. What is a Market Order?
A market order is an
order to buy or sell a stock immediately at the current market price. It
guarantees execution but does not guarantee the price. Several traders don't go
with the market order, because trade price in such order remains
volatile.
3. What is Stop Loss Order?
A stop loss order is a
type of buy or sell order used by the traders to limit losses when there is a
possibility that prices may move against the trades. For example, if a stock is
bought at Rs. 200 and the trader wants to limit the loss at Rs.180, then an
order to be placed to sell the stock, immediately reaches at Rs.180.Such an
order is placed to limit unlimited loss.
4. What is Diversification?
Diversification is an
investment strategy that involves spreading investments across various assets
to reduce risk. By diversifying, investors can minimize the impact of any
single asset's poor performance on the overall portfolio.
5. What is Short Selling?
Short selling is an
investment strategy where an investor or trader sells shares with the intention
of buying back at a lower price to profit from a decline in the stock's price
on the same day. He can sell shares of his existing portfolio or can sell fresh
shares to buy them at lower price on the same day. Because, short selling of
stocks is not allowed in positional trading. It can be done in day
trading.
Short selling involves
a significant risk and requires a margin account. It is not recommended to the
newbies to indulge in short selling. It needs an upper level of skills,
technical knowledge, and solid experience in the stock market.
6. Long Position
Long position means
going long in a stock or buying a stock in expectation that the stock price
will rise in future and it will give profits. Going long means buying the
security to make profits from price appreciation. It is the opposite of short
selling or short position.
7. What is a Blue-Chip
Stock?
A blue-chip stock
refers to shares of well-established, financially sound, and historically
stable companies with a track record of reliable performance. Examples include
all the 50 companies in Nifty 50.Besides, Microsoft, Coca-Cola, Johnson
& Johnson, are world famous companies.
8. Face Value
The term face value is
used to indicate the nominal value of the stock. We can also call it par value.
It is very important in respect of corporates perspective. When the companies
announce dividends, bonuses, stock splits, they mention the face value of the
share prices at the time of executions of announcements.
For example, suppose
the face value of TCS share is Rs.10 each, TCS announces a dividend of Rs.125
per share. Then, the dividend paid is 125% (125÷10).
9. What is a Stock Split?
This is a process of the corporates
activities. A stock split occurs when a company divides its existing shares
into multiple shares to boost liquidity. For example, in a 2 :1 split,
each shareholder receives 2 shares an additional share for every share they
own, and consequently the stock price is halved.
10. What is a Reverse Stock Split?
This is another action by the
corporates,the opposite concept of stock split. A reverse stock split happens
when the existing shares transformed into fewer, more valuable shares. For
example, in a 1:5 to reverse split, five existing shares are merged into
one, and the stock price increases proportionately.
If you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same.
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬: Last Week's Topic
Weekly Q&A For Stock Market Newbies: Part - 2
Very nice definition.. thanks
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