Whether you're new to investing or already dabbling in the stock market, understanding the language of finance is essential. Without a firm grasp of key terms, you might struggle to evaluate opportunities, interpret reports, or even hold a conversation about the market.

In this blog, we’ll break down the fundamental investment terms every investor — especially in Bangladesh's capital market — should know before putting money on the line.

📘 1. Stock / Share

A stock (or share) represents a unit of ownership in a company. When you buy a share, you become a partial owner of that company and are entitled to a portion of its profits (usually through dividends).

💰 2. Dividend

A dividend is a portion of a company's profit that is distributed to shareholders. It is usually paid in cash but can also be given in the form of additional shares. Not all companies pay dividends — some reinvest their profits to grow the business.

🧾 3. Earnings Per Share (EPS)

EPS measures how much profit a company makes per share. It’s calculated as:

A higher EPS usually indicates better profitability and is a key factor in stock valuation.

📊 4. Price-to-Earnings (P/E) Ratio

The P/E ratio shows how much investors are willing to pay for one taka of a company's earnings. It’s calculated as:

A high P/E may suggest the stock is overvalued or that investors expect high growth in the future. A low P/E might mean undervaluation or financial struggles.

📈 5. Market Capitalization (Market Cap)

Market Cap is the total value of a company’s outstanding shares. It’s a quick way to gauge the size of a company:

Companies are often categorized as:

• Large-cap

• Mid-cap

• Small-cap

In Bangladesh, market cap is also used in index weighting (e.g., DSEX Index).

🏦 6. Initial Public Offering (IPO)

An IPO is when a private company sells shares to the public for the first time. IPOs can be an opportunity to invest early in a company’s public journey — but they also carry risk, especially if the company lacks a track record.

🔍 7. Net Asset Value (NAV)

This term is used mostly with mutual funds. It refers to the value per unit of a fund’s assets after subtracting liabilities:

Investors often use NAV to evaluate whether a mutual fund is fairly priced.

⚖️ 8. Diversification

Diversification means spreading your investments across different assets (stocks, sectors, or instruments) to reduce risk. Instead of putting all your money into one stock, a diversified portfolio minimizes the impact if one asset performs poorly.

⏳ 9. Capital Gain / Loss

• A capital gain occurs when you sell an investment for more than you paid for it.

• A capital loss is when you sell it for less than you paid.

In Bangladesh, capital gains on listed securities may have tax implications, depending on the holding period and investor category.

📉 10. Bear vs Bull Market

• A bull market is when prices are rising, investor confidence is high, and buying activity increases.

• A bear market is when prices fall, investors are cautious, and selling pressure dominates.

Understanding market sentiment is crucial for timing your entry and exit points.

⚙️ 11. Liquidity

Liquidity refers to how easily an asset can be converted into cash without affecting its price. Stocks with high trading volume are generally more liquid, making them easier to buy or sell quickly.

📑 12. Portfolio

Your portfolio is the collection of all your investments — stocks, bonds, mutual funds, etc. A balanced portfolio matches your risk tolerance, goals, and investment horizon.

🧠 Final Thoughts

Investing isn’t just about choosing stocks; it’s about understanding the market. These basic but powerful terms form the foundation of financial literacy. Whether you're trading actively or investing for the long term, being fluent in this terminology will help you make informed and confident decisions.

Remember — the more you understand, the better your chances of success in the capital market.