Basic Terms
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KOSPI
South Korea's benchmark stock index, tracking the combined market value of every company listed on the Korea Exchange's main board.
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- It's indexed to 100 based on total market value on January 4, 1980, showing how many times larger today's total market value is.
- Large, established Korean companies like Samsung Electronics and SK Hynix make up most of the index, so it is widely used as a barometer of the Korean economy.
Example
A news headline like "KOSPI at 2,500" refers to this index value.
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KOSDAQ
South Korea's secondary market index, made up mostly of small and mid-cap or tech-growth companies that meet lower listing requirements than the KOSPI.
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- It was launched in 1996, modeled after the US NASDAQ.
- It has a heavier weighting toward biotech, IT, and gaming companies than the KOSPI.
- With smaller total market value and volume than the KOSPI, it tends to be more volatile.
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Market capitalization
The current share price multiplied by total shares outstanding โ the market's estimate of what a company is worth.
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- Market cap = current share price ร shares outstanding.
- Two companies with the same share price can have very different market caps if their share counts differ, so price alone is a poor way to compare company size.
Example
A company trading at $70 with 6 billion shares outstanding has a market cap of about $420 billion.
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P/E ratio (Price-to-Earnings)
Share price divided by earnings per share (EPS) โ a widely used gauge of how expensive a stock is relative to its profits.
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- P/E = share price รท earnings per share (EPS).
- A low P/E is often read as undervalued relative to earnings, while a high P/E often signals either overvaluation or strong expected growth.
- Average P/E levels vary a lot by industry, so comparisons are most meaningful within the same sector.
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P/B ratio (Price-to-Book)
Share price divided by book value per share (BPS) โ a gauge of the share price relative to a companyโs accounting net asset value.
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- P/B = share price รท book value per share (BPS).
- A P/B below 1 means the share price is theoretically lower than what shareholders would receive if the company were liquidated today, often read as a sign of undervaluation.
- It's especially watched when evaluating asset-heavy businesses like banks and manufacturers.
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ROE (Return on Equity)
A key profitability metric showing how efficiently a company turns shareholder equity into profit.
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- ROE = net income รท shareholder equity ร 100 (%).
- A higher ROE means the company generated more profit per dollar of shareholder capital.
- It is famously one of the key metrics investors like Warren Buffett look for when picking companies.
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Dividend yield
The ratio of a year's expected dividends to the current share price โ effectively the return you'd get from dividends alone.
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- Dividend yield = dividend per share รท current share price ร 100 (%).
- A high yield isn't automatically good โ sometimes it just reflects a share price that has fallen sharply, so it's worth checking whether the dividend itself is sustainable.
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Par value
The nominal face value assigned to a share when it was first issued โ distinct from the price at which it actually trades.
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- For South Korean listed companies, par value is commonly set at 100, 500, 1,000, or 5,000 won; in other markets par value is often a nominal $0.01 or $1, or shares may carry no par value at all.
- A stock split (lowering par value while increasing the number of shares) lowers the share price, but total market cap and company value stay the same.
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Rights issue vs. bonus issue
Two ways a company issues new shares to raise capital, differing in whether investors actually pay money for the new shares.
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- Rights issue (paid capital increase): the company issues new shares and receives real money from investors, usually to fund the business.
- Bonus issue (capitalization issue): the company converts existing retained earnings into share capital and hands out new shares to shareholders for free โ share count rises but underlying value often stays the same.
- A rights issue can dilute existing shareholders' stake, so the market sometimes reacts negatively to it.
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Listing and delisting
Listing is when a company registers to trade freely on an exchange; delisting is losing that right for various reasons.
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- To list, a company must clear an exchange's review standards for revenue, profit, market cap, and more.
- Accounting fraud, capital impairment, or prolonged trading halts can lead to delisting, after which the stock can no longer be traded normally on the exchange.
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Bid/ask and the order book
The order book shows the prices buyers are offering (bid) and sellers are asking (ask) at any moment.
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- The order book stacks up pending buy and sell volume at each price level, showing real-time supply and demand.
- The gap between the best bid and best ask is called the spread, and it's typically narrower for actively traded stocks.
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Execution (trade fill)
A trade is executed when a buy order and a sell order match on both price and quantity.
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- A trade only fills when a bid and ask meet; the filled price becomes the new "current price" in that instant.
- Placing an order doesn't guarantee an immediate fill โ without a matching counterparty at your price, it stays pending.
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Open, close, high, low
The four benchmark prices that describe price action over a day (or any period).
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- Open: the first price traded when the market opens that day.
- Close: the last price traded that day (the reference point for calculating the next day's change).
- High/low: the highest and lowest prices traded that day.
Example
These four values are also the basic data behind a single candlestick on a chart.
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Volume and trading value
Volume is the number of shares actually bought and sold over a period; trading value is the equivalent amount in money.
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- A sharp jump in volume alongside a big price move is often read as a sign of strong market interest in that direction.
- A stock with very little volume can be a 'low liquidity' stock โ hard to buy or sell at the price you want.
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Short selling
Borrowing and selling a stock you don't own, expecting to buy it back later at a lower price to profit from the difference.
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- It profits when the price falls as expected, and loses if the price rises instead.
- Its potential loss is theoretically unlimited (since a price can keep rising), unlike a regular long position.
- During sharp market declines, some regulators temporarily ban short selling.
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Limit order vs. market order
A limit order sets your own price; a market order fills immediately at the best available price โ the two most basic order types.
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- Limit order: you specify the exact buy or sell price. It only fills once the market reaches that price, so you get your target price but the order might not fill at all.
- Market order: no price is specified โ it fills immediately at whatever price is currently available, guaranteeing a fast fill but sometimes at a less favorable price than expected.
Example
Traders often use a market order when they need to sell urgently, and a limit order when they have a clear target price.
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ETF (Exchange-Traded Fund)
A fund designed to track an index (like the S&P 500) or a sector, but tradable on an exchange in real time just like a regular stock.
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- Buying a single ETF gives you instant diversification across many underlying stocks.
- Unlike a traditional mutual fund, it trades on an exchange throughout the day and generally carries lower management fees.
- Beyond plain index-trackers, there are ETFs covering specific sectors, commodities, bonds, and more.
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Preferred stock vs. common stock
Preferred shares get priority on dividends but usually no voting rights, while common shares carry voting rights โ two different classes issued by the same company.
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- Common stock is the standard share class that comes with voting rights at shareholder meetings.
- Preferred stock usually has no voting rights but gets priority over common stock for dividends or in a liquidation.
- A company's preferred shares usually trade with less volume and a different price than its common shares, and are marked in the ticker (e.g. with a 'Pr' suffix).
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Program (algorithmic) trading
Large trades executed automatically by pre-set computer algorithms based on defined conditions, without a human placing each order manually.
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- Used for purposes like arbitrage (exploiting price gaps between futures and the underlying stocks) and rebalancing after index changes.
- Large volumes executed in a short window can amplify market volatility.
- A "circuit-breaker for program trading" โ a market safeguard covered below โ temporarily halts this kind of automated order flow when futures prices move sharply.
Market Phenomena
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Hitting the daily limit up/down
Reaching the maximum amount a stock is allowed to move in a single day under an exchange's price-limit rule (in South Korea, ยฑ30% from the prior close).
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- When a stock hits the limit up, it can't rise any further that day and unmatched buy orders pile up; the limit down is the mirror image with sell orders piling up.
- South Korea widened its daily limit from ยฑ15% to ยฑ30% in 2015 to improve price discovery; other exchanges set their own limit-up/limit-down bands or use different circuit mechanisms entirely.
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Gap up / gap down
A price jump between yesterday's close and today's open with no trading in between, leaving a visible gap on the chart.
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- It usually happens when important news โ earnings, announcements โ comes out while the market is closed and gets priced into the opening trade.
- The empty space it leaves on a chart is sometimes later revisited, a move traders call "filling the gap."
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Dead cat bounce
A short-lived rebound in a stock or index that has been falling sharply, without an actual change in the underlying downtrend.
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- The name comes from the dark joke that "even a dead cat will bounce if it falls from a high enough place."
- It's often invoked as a warning against mistaking a brief rebound for a genuine trend reversal and buying in too early, only to see the decline resume.
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Stop-loss
Selling a losing position deliberately, at a pre-set threshold, to prevent a loss from growing larger.
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- Deciding in advance "I'll sell if I'm down X%" and executing it mechanically is widely seen as a way to reduce emotional decision-making.
- It's a core risk-management tool for avoiding a small loss snowballing into a much bigger one.
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Averaging down
Buying more of a stock after its price has fallen, to lower your average purchase cost.
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- A lower average cost makes it easier to reach break-even after even a modest rebound.
- But if the decline reflects a real deterioration in the company's fundamentals rather than a temporary dip, averaging down can deepen the eventual loss โ so it calls for caution.
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Bull market / bear market
A bull market is a sustained uptrend; a bear market is a sustained downtrend.
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- A popular explanation ties the names to how each animal attacks: a bull thrusts its horns upward, a bear swipes its paw downward.
- A decline of 20% or more from a recent high is commonly used as the threshold for calling it a bear market.
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Retail, institutional, and foreign investors
The three main categories of market participants tracked in South Korea's market, each with different trading behavior and capital scale.
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- Retail investors: individual traders, generally with smaller individual capital than institutions or foreign investors.
- Institutional investors: pension funds, asset managers, insurers, and other corporate entities that manage large pools of capital.
- Foreign investors: overseas investors, whose activity is closely watched since it links to currency moves and global economic conditions.
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Short squeeze
A sharp, self-reinforcing price surge that happens when short sellers, caught off guard by a rally, rush to buy back shares to cut their losses.
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- Short sellers lose money as the price rises, so once losses reach a painful level, many rush to buy back shares to close out (cover) their position.
- That rush of buying can push the price even higher, creating a self-reinforcing feedback loop.
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Theme stocks
A group of stocks that move together because they are perceived to be linked to a particular issue or industry trend.
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- Political events, new technologies (AI, batteries, etc.), and policy shifts are common sources of themes.
- Stocks can get swept into a theme on little more than a name or a rumor with no real business connection, so it pays to verify the actual link carefully.
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Suspected manipulated stock
A term for a stock suspected of having its price artificially pumped or manipulated by a coordinated group.
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- Repeatedly placing large fake buy/sell orders or spreading false information to move a price is clearly illegal securities fraud in most jurisdictions.
- A small-cap stock with an abnormal, sudden spike in both volume and price is worth treating as a possible manipulation risk and approaching with caution.
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Valuation
The process of judging whether a stock's current price is fair, typically by combining metrics like P/E and P/B.
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- Saying a stock's "valuation looks stretched" usually means the price has already run up a lot relative to earnings or growth prospects.
- It's often assessed relatively โ against industry peers or the stock's own historical average multiples.
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Rebalancing
Adjusting the weights of assets or holdings back to their originally planned proportions after they've drifted over time.
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- If one holding grows to dominate a portfolio, rebalancing means trimming it back to the planned weight.
- Stock indices also periodically rebalance their constituent list and weightings.
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Ex-dividend
On the ex-dividend date, the right to the upcoming dividend disappears, and the stock theoretically opens lower by roughly the dividend amount.
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- You must own the stock before the ex-dividend date to receive that period's dividend; buying on or after it means you won't receive it.
- The idea is that the value being paid out as a dividend leaves the share price, so the ex-dividend open tends to be lower than the prior close by about the dividend amount.
- In practice, actual supply and demand often make the real drop differ from the theoretical value.
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Earnings surprise / earnings shock
When reported earnings sharply beat expectations, it's called an earnings surprise; sharply missing is an earnings shock.
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- It's judged by comparing actual results against the consensus forecast that analysts had published beforehand.
- Even good results can sometimes send a stock lower if the good news was already priced in beforehand ("buy the rumor, sell the news").
- Individual stock volatility tends to rise during earnings season because of these surprises and shocks.
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Securities lending
Institutional or foreign investors lend out long-held shares for a fee to other investors โ the underlying supply that makes short selling possible.
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- To short sell, an investor first has to borrow the shares, and securities lending is the mechanism that supplies them.
- The lender earns a fee, while the borrower sells the shares and later buys them back to return them.
- A rising balance of shares out on loan is sometimes read as a signal of potential future short-selling or short-covering pressure.
Market Safeguards During Sharp Moves
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Daily price limit (ยฑ30% band)
A rule capping how far an individual stock's price can move up or down from the prior close in a single day.
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- On South Korea's KOSPI and KOSDAQ, the daily limit is ยฑ30% from the previous close.
- It exists to reduce market disruption and investor harm from extreme single-day price swings.
- South Korea widened the band from ยฑ15% to ยฑ30% in June 2015 to improve price discovery. Many other markets, including the US, instead use limit-up/limit-down circuit mechanisms with different bands rather than a fixed daily cap โ the exact approach varies by exchange.
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Static volatility interruption (VI)
A South Korean mechanism that pauses trading in an individual stock for two minutes and switches to a call auction when its price moves sharply from the prior close.
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- It triggers when a stock moves ยฑ10% or more from the previous close.
- It halts continuous real-time matching for 2 minutes and switches to a call auction, giving investors a moment to reconsider before trading resumes.
- It applies to a single stock, unlike a market-wide circuit breaker.
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Dynamic volatility interruption (VI)
A South Korean mechanism that switches to a call auction for two minutes when a stock moves sharply within a very short window relative to its last traded price.
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- It triggers at roughly a 3% move from the last trade for KOSPI 200 stocks, or 6% for other KOSPI and KOSDAQ stocks.
- While static VI compares against the previous day's close over the whole day, dynamic VI watches for sudden moves relative to the most recent trade.
- It mainly aims to soften momentary price distortions caused by algorithmic trades or unusual orders.
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Circuit breaker
An emergency measure that halts trading across the entire market when a broad index falls sharply โ used in various forms on exchanges worldwide.
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- In South Korea, level 1 (an 8%+ drop sustained for at least a minute) triggers a market-wide 20-minute trading halt.
- Levels 2 (15%+) and 3 (20%+) can trigger further halts, and hitting level 3 ends trading for the day entirely.
- The name comes from the electrical circuit breaker โ the goal is to give a panicking market a moment to 'catch its breath.' Other major exchanges, including US markets, use similar circuit-breaker frameworks with their own specific thresholds.
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Sidecar
A South Korean mechanism that temporarily suspends program (algorithmic) trading orders when futures prices move sharply, to prevent that shock from spilling straight into the cash market.
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- On the KOSPI, it triggers when KOSPI 200 futures move 5% or more from the prior close and stay there for at least a minute.
- On the KOSDAQ, it triggers when KOSDAQ 150 futures move 6% or more and the KOSDAQ 150 cash index also moves 3% or more, sustained for at least a minute.
- Unlike a circuit breaker, it doesn't halt the whole market โ it only suspends the effect of program trading orders, for 5 minutes, making it a lighter-touch measure. Similar 'program trading pause' mechanisms triggered by futures moves exist on other exchanges, with their own thresholds.
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Short-term overheating mitigation
A South Korean mechanism that flags stocks with abnormally rapid price and volume spikes as "short-term overheated" and slows down their trade-matching method for three trading days.
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- A stock is flagged when its price gain, volume, and turnover ratio exceed set thresholds.
- Once flagged, real-time matching is replaced with call auctions every 30 minutes for three trading days, to cool excessive short-term speculative trading.
- If the closing price on the last day of the designation is still 20% or more above the closing price before the designation began, the call-auction period can be extended another three trading days.
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Trading halt
A temporary suspension of trading in a single stock in response to a significant issue โ a disclosure violation, a possible delisting trigger, a requested clarification, and so on.
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- It applies to one stock at a time, unlike a market-wide circuit breaker.
- Trading resumes once the underlying issue is resolved or the relevant disclosure is released.
- It exists to prevent unfair trading before important information has been properly disclosed to investors.
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Short-selling ban or restriction
A temporary full or partial ban on short selling imposed by regulators during a market crisis or sharp downturn.
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- It is often introduced to stabilize markets when short selling is seen as adding to selling pressure during a decline.
- South Korea, like several other markets, imposed temporary short-selling bans during periods of severe stress, such as the early COVID-19 pandemic in 2020.
- The policy remains debated, since short selling is also argued to play a useful role in price discovery.
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Block trade
A large quantity of shares traded off the regular exchange order book, at a price and volume pre-negotiated between the two sides, usually after hours.
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- It helps a major shareholder or institution unload a large position without crashing the price by dumping it into the open market.
- It is often priced at a discount to the market price, which can have a short-term effect on the stock the next day.
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Share buyback
A company purchasing its own shares on the open market, typically to stabilize the price or boost shareholder value.
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- It reduces shares outstanding, which raises earnings per share (EPS) โ often viewed positively by the market.
- Companies may announce buybacks when they believe their stock is undervalued, or as a signal to restore market confidence during a downturn.
- The effect is stronger when the repurchased shares are canceled outright, though some companies just hold them instead.
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Administrative issue designation
A South Korean designation the exchange applies to flag stocks with seriously deteriorating financials or at risk of meeting delisting criteria, warning investors of elevated risk.
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- It applies after events like bankruptcy filings, bank transaction suspension, court receivership, or a disclaimer of audit opinion that could trigger delisting.
- Once designated, margin and credit trading are banned for that stock.
- If the underlying issues aren't resolved and persist, the stock can move toward an actual delisting review.
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Investment alert / risk-stock designation
A tiered market-alert system South Korea's exchange uses to flag stocks with abnormally rapid gains and warn investors, aimed at curbing unfair trading before it starts.
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- It escalates through stages โ caution, alert, then risk โ based on criteria like short-term and medium-term price surges.
- Alert and risk designations ban margin trading, and a stock newly designated as a risk stock has trading halted for the rest of that day.
- It aims to cool speculative demand, and continued sharp gains after a designation can push a stock to a higher-alert tier.
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Forced liquidation (margin call sale)
When an investor who bought stock on margin or credit fails to repay the outstanding balance by the deadline, the broker force-sells the shares to recover the debt.
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- Margin buying typically requires putting down at least 30% of the purchase amount, with the rest due, often within a couple of trading days.
- If the balance isn't repaid in time, the broker sells the position at the market price, locking in the loss and adding fees and interest on top.
- During sharp sell-offs, a wave of forced liquidations hitting the market at once can accelerate the decline further.
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