NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets

Equity Trading and Market Mechanics Terminology for NISM Research Analyst

Updated 11 October 2026 · Fact-checked

Equity trading terminology covers the words used to place, price and settle trades: bull and bear markets, order types (market, limit, stop loss), circuit filters, margins, short selling and the settlement cycle. In India, equity cash trades settle on a T+1 basis. Learn each term's exact meaning and the trap it creates in MCQs.

Understand Equity Trading and Market Mechanics Terminology

Trading terms describe what you want to do, at what price, and how the trade finishes. The exam tests whether you can match a term to its meaning. It rarely asks for long calculations.

Bull market means prices are rising or expected to rise. Bear market means prices are falling or expected to fall. A bull is an investor who expects a rise. A bear expects a fall.

Order types tell the exchange how to buy or sell. A market order is executed at the best available price right now. Execution is likely, but the price is not fixed. A limit order sets your price: a buy limit executes at the limit price or lower, and a sell limit at the limit price or higher. The price is controlled, but execution is not guaranteed. A stop loss order becomes active only when the market reaches a trigger price. It is used to limit loss. A stop loss market order then executes at the market. A stop loss limit order becomes a limit order after the trigger.

Going long means buying a security, expecting its price to rise. Short selling means selling a security you do not own at the time of sale, expecting to buy it back cheaper. In Indian cash markets, naked short selling is not allowed. Settlement must be honoured with delivery. The profit from a short sale is the sale price minus the buy-back price. The loss on a short is theoretically unlimited because a price can keep rising.

Circuit filters are price bands that stop a stock from moving beyond a set percentage in a day. Hitting the band halts trading in that direction. Market-wide circuit breakers are different. They halt trading in the whole market when an index moves by set percentages. Margin is money or collateral a trader deposits to cover possible loss on a trade. Settlement cycle is the time between the trade date (T) and the day money and securities change hands. In India, the equity cash segment follows T+1, meaning settlement on the next working day.

Key formulas to remember

Profit on a long position: Profit = (Sell price − Buy price) × Quantity; Ignore brokerage and taxes unless the question includes them.
Profit on a short sale: Profit = (Sell price − Buy-back price) × Quantity; Profit arises when the buy-back price is lower. A price rise causes a loss.
Settlement date under T+1: Settlement day = Trade day (T) + 1 working day; Count working days only. Exchange holidays and weekends are skipped.
Buy limit order rule: Executes at limit price or lower; A sell limit executes at the limit price or higher.
Stop loss trigger rule: Order is dormant until the trigger price is touched; Trigger price is not the same as the limit price in a stop loss limit order.
Margin as a share of trade value: Margin amount = Margin % × Trade value; Use this when a question gives a margin percentage and a trade value.

How to solve Equity Trading and Market Mechanics Terminology questions

Most questions give a short scenario or a definition and ask you to name the term or its effect. Work through it in a fixed order.

1Read the last line first to see whether you must name a term, state a feature or compute a number.
2Identify the action: buy, sell, or sell without owning.
3Check whether price or certainty of execution matters. Fixed price means limit. Certain execution means market.
4Look for a trigger price. If an order activates only at a trigger, it is a stop loss order.
5For circuit questions, decide whether the limit applies to one stock (circuit filter) or the whole market (market-wide circuit breaker).
6For settlement questions, count working days from the trade date and skip holidays.
7For profit or loss, apply the correct formula for long or short and check the sign.
8Eliminate options that swap two terms, then pick the one that matches every condition in the question.

Quickest way: Keyword matching for trading terms

When to use it: Use this for definition and match-the-term MCQs when time is short.

Spot the keyword: trigger means stop loss, price specified means limit, immediate means market.
Rising prices point to bull. Falling prices point to bear.
Sells before owning points to short selling. Buys expecting a rise points to long.
One stock band points to circuit filter. Whole index halt points to market-wide circuit breaker.
Next working day settlement points to T+1.

Common mistakes in Equity Trading and Market Mechanics Terminology

Saying a limit order is always executed.
Students focus on the fixed price and forget the market may never reach it.
Fix: Remember: limit order controls price, not execution. Market order controls execution, not price.
Treating the stop loss trigger price as the guaranteed execution price.
The word stop sounds like the order is fixed at that level.
Fix: The trigger only activates the order. A stop loss market order executes at the prevailing market price, which can be worse than the trigger.
Mixing up circuit filters and market-wide circuit breakers.
Both use the word circuit and both halt trading.
Fix: Circuit filter applies to an individual security. Market-wide circuit breaker applies to the whole market based on index movement.
Counting calendar days for T+1 settlement.
Students forget holidays and weekends are not working days.
Fix: Count only working days. A trade on Friday settles on the next working day, usually Monday.
Calling a bull a person who sells.
Students link the animals to attacking motions instead of price views.
Fix: Bull expects prices to rise and buys. Bear expects prices to fall and sells.
Getting the sign wrong on short selling profit.
Students use buy minus sell, the long formula.
Fix: For a short, profit is sale price minus buy-back price. A fall in price gives profit.

Worked examples

Example 1

A trader short sells 500 shares at ₹240 and later buys them back at ₹225. Ignoring costs, what is the profit or loss?

Show the solution

A short seller sells first and buys back later.
Profit per share = Sell price − Buy-back price = 240 − 225 = ₹15.
Total = 15 × 500 = ₹7,500.
The price fell, so the short seller gains.

Answer: Profit of ₹7,500.

Example 2

An investor wants to buy a stock only if it is available at ₹180 or lower, and accepts that the order may not execute. Which order type should be used?

Show the solution

The investor specifies a maximum price, ₹180.
A buy order that executes at the limit price or lower is a buy limit order.
A market order would execute at the current price, which may be above ₹180.
A stop loss order needs a trigger and is used to limit loss, which is not the aim here.

Answer: A buy limit order at ₹180.

Exam tips

Learn each order type with one sentence on price control versus execution certainty. Options often swap these.
Do not memorise specific band percentages from outside the workbook. Focus on the concept and on which limit applies to which level.
Treat the settlement cycle as T+1 for equity cash market trades and count working days only.
With negative marking of 25% of the marks assigned to a question, skip if two terms look equally likely and you cannot separate them.
For short selling, check the formula sign before looking at the options.

Practice questions from Terminology in Equity and Debt Markets

Equity Trading and Market Mechanics Terminology in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Equity Trading and Market Mechanics Terminology: frequently asked questions

What is the difference between a limit order and a market order?

A market order executes at the best available price now, so execution is likely but the price is not fixed. A limit order fixes the price you will accept, so the price is controlled but the order may not execute.

What is the difference between short selling and going long?

Going long means buying a security expecting its price to rise. Short selling means selling a security you do not own at the time, expecting to buy it back cheaper. A long gains when prices rise and a short gains when prices fall.

What is a circuit breaker in the Indian stock market?

A circuit breaker halts trading when prices move too far, too fast. Circuit filters apply to individual stocks. Market-wide circuit breakers apply to the whole market when an index moves by a set percentage.

What does T+1 settlement mean?

T is the trade date. Under T+1, the trade settles one working day later, when money and securities are exchanged. Weekends and exchange holidays are not counted.