Ever felt lost in the sea of stock market terms? From P/E Ratio to Bull & Bear Markets, the jargon can be overwhelming for beginners and even seasoned investors.
That’s where Stocktionary comes in! We’re breaking down complex stock market terms into simple, easy-to-understand explanations—so you can trade and invest with confidence.
Drop a stock market term that confuses you, and let’s simplify it together!
What is Return on Assets (ROA)? | Measure Profitability | Angel One
Return on Assets (ROA) is a financial metric used to assess a company’s profitability in relation to its total assets. It indicates how effectively a business is using its assets to generate profit. ROA is expressed as a percentage and calculated using the formula:
ROA = (Net Income ÷ Total Assets) × 100
This ratio is valuable because it helps investors and analysts understand how well a company converts its resources into earnings. A higher ROA suggests efficient use of assets to generate profits, while a lower ROA may indicate inefficiencies.
ROA is especially useful when comparing companies in the same industry, as it provides insight into operational performance regardless of size. It is important to note that industries with asset-heavy operations, such as manufacturing, may naturally have lower ROA compared to asset-light businesses like software firms.
Although ROA is a helpful measure, it should be used alongside other financial metrics for a comprehensive understanding of a company’s financial health. Analysts often review it in combination with return on equity (ROE) and other profitability indicators to evaluate performance effectively.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Portfolio rebalancing is the process of adjusting the allocation of assets in an investment portfolio to maintain a desired balance. Over time, the value of different investments may change due to market movements, causing the portfolio to drift from its original allocation. Rebalancing ensures the portfolio stays aligned with the investor’s financial goals and risk tolerance.
Why is Portfolio Rebalancing Important?
Rebalancing helps investors manage risk effectively. For example, if stocks perform better than bonds, a portfolio may become stock-heavy, increasing risk exposure. By rebalancing, the investor can restore the intended mix of assets, such as stocks, bonds, or other investments, to match their investment strategy.
When to Rebalance a Portfolio
Investors can rebalance their portfolios on a regular schedule, such as annually, or when the allocation deviates significantly from the target percentages. The choice depends on the investor’s preferences and market conditions.
Methods of Rebalancing
Investors can rebalance by selling over-performing assets and using the proceeds to buy underperforming ones. Alternatively, they may allocate new funds to underweighted assets.
Benefits of Portfolio Rebalancing
Regular rebalancing helps maintain consistency with financial goals, control risk, and take advantage of market fluctuations to optimise returns.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
What is EBITDA? | Meaning and Importance Simplified | Angel One
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is a financial metric used to evaluate a company’s profitability and operational performance without factoring in financing costs, tax expenses, and non-cash accounting items like depreciation and amortisation.
How is EBITDA Calculated?
EBITDA can be calculated using the formula:
EBITDA = Net Profit + Interest + Taxes + Depreciation + Amortisation
It provides a clear view of a company’s core earnings and operational efficiency, free from external factors like debt structure or tax policies.
Importance of EBITDA
EBITDA is widely used by investors, analysts, and businesses to assess financial health. It helps compare companies with different capital structures or tax environments, offering a neutral basis for analysis. This makes it a key tool in mergers, acquisitions, and valuation.
Comparative Analysis: Allows comparisons across industries and regions.
Cash Flow Insight: Provides a glimpse into cash-generating potential, though not a direct substitute for cash flow.
Limitations to Consider
While useful, EBITDA ignores interest, taxes, and capital investments, so it should be used alongside other metrics for a complete financial picture.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Financial Independence Retire Early (FIRE) | How to Achieve Financial Freedom
The Financial Independence Retire Early (FIRE) movement is a strategy designed to help individuals achieve financial freedom and retire at a younger age than traditional retirement plans allow. It focuses on saving aggressively, investing wisely, and maintaining a frugal lifestyle to accumulate sufficient wealth for early retirement.
Key Principles of FIRE
Aggressive Saving: A significant portion of income, often 50% or more, is saved and invested to build a substantial financial cushion.
Wise Investments: Investing in assets like stocks, bonds, and real estate helps generate passive income and grow wealth over time.
Frugal Living: Minimising unnecessary expenses and focusing on needs rather than wants helps maximise savings.
Steps to Achieve FIRE
Set Clear Financial Goals: Determine the amount needed to cover expenses for the rest of your life.
Create a Budget: Track income and expenses to identify areas for saving.
Build an Emergency Fund: Secure 3-6 months of living expenses to handle unexpected situations.
Invest Strategically: Diversify investments to ensure long-term growth and stability.
Adopt a Frugal Lifestyle: Focus on reducing discretionary expenses and increasing efficiency in spending.
Benefits of FIRE
Achieving financial independence provides peace of mind and flexibility to pursue personal interests without financial constraints. Early retirement allows more time for hobbies, travel, or other passions.
Challenges of FIRE
Reaching financial independence requires discipline, long-term planning, and managing lifestyle changes. It may also involve making difficult decisions about spending and career choices.
FIRE is a rewarding journey for those seeking freedom from financial limitations, enabling a fulfilling and self-determined lifestyle.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
What is Dividend Yield? | Meaning of Dividend Yield | Angel One
Dividend yield is a financial metric used to measure the annual dividend income an investor earns in relation to the current market price of a stock. It is expressed as a percentage and indicates the return on investment from dividends alone.
How is Dividend Yield Calculated?
The formula for calculating dividend yield is:
Dividend Yield = (Annual Dividends Per Share ÷ Current Share Price) × 100
For example, if a company pays an annual dividend of £2 per share and the stock price is £50, the dividend yield would be 4%.
Importance of Dividend Yield
Dividend yield helps investors assess the income-generating potential of a stock. It is particularly important for those seeking steady cash flow, such as retirees. A higher dividend yield generally suggests that a stock offers better income, but it is essential to evaluate the company’s financial health and dividend sustainability.
Factors Influencing Dividend Yield
Company Performance: Strong financial results may lead to higher dividends.
Market Price Fluctuations: A declining share price can increase dividend yield, even if the dividend remains unchanged.
Industry Trends: Dividend policies vary across industries, with some focusing more on growth than payouts.
Using Dividend Yield in Investment Decisions
Dividend yield is a useful tool for comparing income potential across stocks. However, it should not be the sole factor in choosing investments, as it does not account for risks or capital growth prospects.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
What is ROE? Meaning of Return on Equity | Angel One
Return on Equity (ROE) is the measure of the earnings of shareholders for their investment in a company. It is calculated by dividing the net profit by the net worth of a company. While it is a crucial indicator of a company’s profitability and exhibits how well the company has utilised the shareholders’ money, ROE should not be the sole factor in your investment decision making. In case the ROE turns out to be low, it is indicative that the company has not used the investments efficiently. On the other hand, a higher value means the company is efficiently generating income on the investment.
The return on equity is an important metric used by investors to make informed investment decisions because companies with higher ROE indicate higher chances of profit. The investors, however, should not base their investment decisions entirely on the ROE.
Why to Use ROE
It is used to estimate the growth of a stock and the growth rate of its dividends.
It can be used to determine whether the company has enough capital to pay dividends to its shareholders.
It is an indicator of the financial strength of a company.
By using ROE generated across a timeline, investors can estimate the growth of a company.
It can be used to detect financial discrepancies
It can be used to identify the established industry leaders and emerging industry leaders
Understanding High ROE of a Company
A company with a high ROE is well-trained in efficiently utilising the money of its investors.
A company with consistently high ROE is growing well and is a good place to invest.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
What is Short Selling in Share Market? Short Selling Explained | Angel One
The short selling is a high-risk sale of borrowed shares or securities where the trader bets on a price drop to purchase it back, return it to its original owner and make profit. In other words, the trader does not own the securities which are being traded. This trading method is meant for seasoned traders and should be avoided by the inexperienced and amateurs who do not fully understand the dynamics of the market. While the short selling technique offers good returns for a minimal investment, it also exposes the trader to serious losses.
How Does Short Selling Work
You will have to open a margin account with a brokerage firm.
Identify stocks you believe will decrease in value and borrow them from your broker.
Sell the borrowed stocks.
Buy back the same stocks when the prices fall, as anticipated.
Return the stocks to the broker.
The price difference between selling and buying is your profit.
Benefits of Short Selling
The trader requires low capital for investment
It offers potential for earning huge profits
It offers possibility of hedging against bear markets
Risks of Short Selling
A major risk associated with short selling is the scope of unlimited losses to the trader. It also poses a risk to the market as it increases volatility and allows the scope for market manipulation.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Arbitrage is often a short-lived trading opportunity when the same asset is simultaneously sold and purchased in different markets to gain from the difference in price in both the markets. In this trading technique, the traders seize the profit by capitalising on the short-term price variations in different markets. The arbitrage opportunities arise out of small inefficiencies in the market and the difference in price arises due to a discrepancy in supply and demand of an asset in different markets.
Since the price difference that is exploited by the traders is often small, a significant profit could only be made when the trade is carried out in a large volume. It make the arbitrage trading a capital-intensive affair as the trader needs to buy and sell a large amount of securities to book a decent profit.
Benefits of Arbitrage Trading
Arbitrage trading involves next to nil or at least close to zero risk.
Arbitrage removes price variations between marketplaces and aids in the better price discovery of an asset.
Arbitrage assists in making efficient and robust financial markets.
Arbitrage helps markets become more liquid because it invites institutional participation.
Disadvantages of Arbitrage Trading
Arbitrage trading is capital-intensive, which makes it off-limit to most retail investors
Arbitrage trading opportunities are short-lived and disappear quickly which make it difficult to execute such trades.
Types of Arbitrage
Pure Arbitrage
Futures Arbitrage
Dividend Arbitrage
Merger Arbitrage
Retail Arbitrage
Risk Arbitrage
Convertible Arbitrage
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
What is EPS? | Earning Per Share Explained | Angel One
EPS is the abbreviation for Earnings Per Share and is an important financial metric that represents a company’s earnings for each outstanding share. It allows investors to estimate a company’s profitability and compare it with the industry average and competitors.
The Earnings Per Share is critical for fundamental analysis and assists investors in assessing a company’s profitability and financial performance. If the EPS of a company is high, it is viewed as profitable and favourable by the investors.
Significance of Earnings Per Share
It indicates the financial health of a company
It is used to compare a company within the sector or industry
A high EPS means the company is profitable
A low EPS is unattractive to investors
Types of EPS
Ongoing EPS: This type of EPS is used to understand a company’s earnings via its core business. It is made by taking into account the net income that is current and discounts one-off events.
Adjusted EPS: It shows profits or losses that have come through the operations that are not at the ‘core’ of the business.
GAAP or Reported EPS: The formula applied here is based on principles of accounting also called GAAP (generally accepted accounting principles).
Trailing EPS: In this EPS calculation, the earlier year’s number is taken into account. It uses the earnings of the earlier four quarters and uses real numbers rather than projections.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
What is an ETF? | Meaning of ETF in Stock Market | Angel One
Exchange Traded Fund, or the ETF, is a basket of securities that track an underlying index. It is different from a stock and is more like a mutual fund as it includes various assets instead of just one. A single ETF could have hundreds of underlying assets.
In contrast to a mutual fund which is traded once in a day, an ETF is traded throughout the day and accordingly they are highly liquid and their price keeps fluctuating throughout the trading sessions.
ETFs are a great option for investors who seek to diversify their investments at a reduced risk factor. These funds could span across several different sectors or could be sector-specific, providing options to investors to spread their capital across different sectors.
Types of ETFs
Commodity ETF: It gives investors exposure to precious metals like gold and silver, natural resources such as oil and gas, and agricultural products.
Sector ETF: It is a sector-specific ETF and tracks a particular industry, such as technology, energy, or finance.
Bond ETF: It is formed of government bonds, or other typical investment tools that qualify as bonds.
Currency ETF: It lets investors invest in foreign currencies.
Inverse ETF: It involves a practice called short selling, where shares that are expected to fall are sold and repurchased at a lower cost.
Global Index ETF: It gives investors exposure to developed as well as emerging markets.
Benefits of Investing in ETFs
They offer diversification
They are highly liquid
They are transparent and holdings are disclosed on daily basis
They have a low expense ratio
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
What are Futures Contracts? | Meaning of Futures Contracts | Angel One
A futures contract is an agreement to buy or sell an asset at a future date but at a price that is agreed upon at the time of the contract. In other words, the date for trade as well as the price is predetermined. This format of trading is widely used across India and serves as a hedging against price fluctuations in commodities, financial instruments and currencies.
The futures contract can involve the trade of commodities like gold, oil, or agricultural products, as well as financial instruments like stock indices or currencies. These contracts are traded on regulated exchanges and require a margin deposit as collateral.
The futures contract offers high profit margins but also exposes the traders to significant risk, which makes it crucial for traders to have a proper risk management strategy in place. Also, these contracts are standardised to ensure swiftness and ease of trading.
Key Factors Affecting Price of Futures Contract
Supply and Demand
The decrease in supply or an increase in demand usually drive the prices up, while an increase in supply or a decrease in demand can pull the prices down.
Market Sentiment
The price of a futures contract is influenced by the collective mood of investors and the positive sentiment can increase prices while negative sentiment can pull down the prices.
Economic Indicators
The indicators like GDP growth rate and inflation rate can influence the futures price as strong economic indicators hint at potential for increased demand and lead to increase in price.
Types of Futures Contract
Financial Futures
Currency Futures
Energy Futures
Metal Futures
Livestock Futures
Grain Futures
Food and Fibre Futures
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Stocktionary: Simplifying Stock Market Jargons 
We’re breaking down complex stock market terms into simple, easy-to-understand explanations—so you can trade and invest with confidence.
