I usually engage in conversation about the Financial world with someone and they are almost clueless about a few jargon or words used in the Financial World.
Well, atleast I can try to to explain the few jargon here and there to get you the better understanding of this unique finance world.
Practically, not all jargon you’re used to hearing daily unless you’re really from a Finance background. Since I also don’t belong there and I will only mention those usually used words often.
Top Financial Jargon You Might Never Heard of
Stocks
Stocks are nothing but the shares of a company. When you own stocks/shares, you’re basically a part of the company and bear its losses and profits.
Assets
The asset is a resource that has an economic value attached to it and you keep an expectation that it will provide you with future benefits. Assets can be owned by a Person, Organization, & even Country.
For Ex: You own a piece of land in India, this piece of land is your asset. In short, what you have or own is your assets.Liability
Liability on the other hand is the complete opposite of assets. In short, liability is something you owe i.e, money, goods, etc.
For Ex: You have a loan or EMI taken from a bank, the remaining money is a liability for you.Balance Sheet
Balance sheeting is a financial statement which reports all the company’s liabilities, assets, etc. It also provides computing rates of return and overall dozen of calculations to determine whether the company is doing good or not.
Capital Gains
It is your profits/returns from the shares, mutual funds or other bonds, etc. The returns you get are also a part of income and they are called Capital Gains.
Credit Score
It is an important 3-digit number given by different credit bureau. It consists of your credit history, whether you pay EMI/Loans on time or default them. Based on this and many different factors, you are given a loan or credit cards in the future.
If you want to know the ways to increase your score, comment below.Net Worth
Net worth is nothing but all your assets minus the liabilities is your Net Worth. The assets include all balances from savings account, land, house, or car you own minus all the money you owe whether it is EMI, Loan, or outstanding amounts.
Stock Options
Stock options can be offered by different companies in the market and they allow you to buy the option which gives you rights to own the stock but not the obligation to buy at a pre-set price. The options are also tradable in the Stock Market.
In short, Options are traded at a premium price and they are almost the same as Insurance. You pay a little premium to have the rights to buy 1 lot of stock but it’s not obligatory. The options are transferable hence, it is tradable as well.
When you type in the company name for searching in your broker account, you sometimes see the RELIANCE 2000CE or RELIANCE 2000PE.
These are nothing but the Reliance Stock Options.
Bonds
You heard of this word often right? Bonds are issued by organizations generally for a period of more than one year to raise money by borrowing. Therefore, it involves interest and is usually a form of debt.
A bondholder (or investor) is offering credit to the company issuing the bonds to raise funds. These bonds are offered for a particular time frame, and you can only withdraw at maturity, mostly like an FD. However, the interest rate is much lower than FD but it comes with great tax benefits.
PPF (Public Provident Fund)
It is a scheme that provides a long-term investment option that offers an attractive rate of interest and returns on the amount an investor invested. Also, the interest earned and the returns are not taxable under the Income Tax.
Mutual Funds
It is a pool of money collected by the investors to invest in bonds, stocks, and short-term debts. The combined holding of the mutual fund is known as a portfolio and this portfolio is managed by expert fund managers.
Managing such portfolio of stocks and bonds require money and this small money is taken as fee and expenses when you buy units in Mutual Funds. Mutual funds are less risky because of good diversification, affordability, and so on.
Intraday Margin
Brokers allow you to trade more than the money you have in your trading account. You can do trading with good quantity.
For example, I have Rs 100 and I want to trade in ABC stock. The stock is trading at Rs 10 per share. I can only buy 10 shares, however, with margin provided by the broker on Intraday trades, I can buy 20 or more shares depending on the margin your broker provides.
Note that, margins are provided only on an Intraday basis.
Intraday
It is a term for buying and selling a share of a company with the market hours i.e, In India from 9:15 to 3:15. You earn profits or make losses due to the fluctuation of price within a day.
Stoploss
It is a term for entering a defined loss to the Risk Management System of Broker and it will exit your stock at that price automatically. It is also used generally for Delivery that you will exit the trade at a point called Stop Loss to avoid further losses.
CO or BO Orders
CO is a term used for an order which is placed with a specified Stop Loss price as well along with the buying price. It is an intraday order.
While in BO order, you also specify all 3 things, Buy Price, Target Price & Stop Loss price. In this order, you usually require more margin. This is an Intraday feature as well.
Delivery Order or CNC (Cash N Carry) Order
This is a simple order which is used to buy shares in a company for holding either for short term, medium, or long term. In this order, you don’t need to sell in a single day but you won’t get any margin, you will have to use your own money.
Return on Investment (ROI)
ROI is used to measure the performance of an investment in order to compare the efficiency of several different investments. To calculate ROI, the formula is
ROI = (Total Investment Return - InvestmentCost) / InvestmentCostInflation
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
Bear & Bull
A bear is a term used in Stock Market. Bear is usually RED. Since the bear uses its claws to slam down right? Hence, the term bear. Bear is the people who sell or have views that the market will fall. They are also called Shorters.
A bull is a term used in the Stock market and since the Bull uses its horn to take up, therefore, bull. Such people have views that the market will go up.
In short, if you have views that the market or stock will go down, you’re bearish on a particular stock or market while if you have views that the market or stock will go up then you’re bullish on a particular stock or market.
Short Selling
Short selling is a term where you buy first to sell the stock at a high price and then buy back the stock at a lower price. Short selling is done to make profits out of the bearish market.
Wrapping Up
These twenty jargons are the most commonly asked ones. There are a lot many and ofcourse I can’t cover it up in the article, but I strongly believe that these jargons are more than enough for a beginner to know.
Once they take up the pace in learning more about the financial world, you will be able to pick up more jargon as you go. Hope you guys got to learn something out of this post.
See you in the next post.