Market Terminology - City Invest Wisely

Commonly used Stock Market terminologies

Arbitrage: The business of taking advantage of difference in price of a security traded on two or more stock exchanges, by buying in one and selling in the other (or vice versa), like we can buy Reliance in NSE and can sell in BSE.
American Depository Receipts (ADR) (U.S.) A certificate issued in the United States in lieu of a foreign security. The original securities are lodged in Bank/Custodian abroad, and the American Depository Receipts (ADRs) are traded in the US for all intents and purposes as if they were a domestic stock.
AMFI- Association of Mutual Funds in India
Balance Sheet An accounting statement of a company’s assets and liabilities, provided for the benefit of shareholders and regulators. It gives a snapshot, at a specific point of time, of the assets that the company holds and how the assets have been financed.
Blue Chips: Blue Chips are shares of large, well established and financially sound companies with an impressive records of earnings and dividends. Generally, Blue Chip shares provide low to moderate current yield and moderate to high capital gains yield. The price volatility of such shares is moderate. In Indian Market Reliance, TCS, HDFC Bank, HDFC, TCS, Infosys etc are Blue chips
Basis Point One hundredth of a percentage point. Basis points are used in currency and bond markets where the size of trades mean that large amounts of money can change hands on small price movements . Thus if the yield on a Treasury bill rose from 5.25% to 5.33% the change would have been eight basis points.
Bonus: A free allotment of shares made in proportion to existing shares out of accumulated reserves. A bonus share does not constitute additional wealth to shareholders. It merely signifies recapitalization of reserves into equity capital. However, the expectation of bonus shares has a bullish impact on market sentiment and causes share prices to go up.
Book Closure Dates between which a company keeps its register of members closed for updating prior to payment of dividends or issue of new shares or debentures.
Base Price: This is the price of a security at the beginning of the trading day which is used to determine the Day Minimum/Maximum and the Operational ranges for that day.
Bid and offer: Bid is the price at which the market maker buys from the investor and offer is the price at which he offers to sell the stock to the investor. The offer is higher than the bid.
Basket Trading Basket trading is a facility by which investors are in a position to buy/sell all 30 scrips of Sensex in the proportion of current weights in the Sensex, in one go. Generally FII trade this kind of thing in market
Beta It is a standard measure of risk for an individual stock. It is the sensitivity of the movement of the past share price of a stock to the movement of the market as a whole. The beta of the market is taken as 1. A benchmark index (the Sensex, for instance) is taken as the proxy for the market. Stocks with betas greater than 1 tend to amplify the movement of the market. If a stock has a beta of 1.20, it means that if the market has moved by 1%, the stock price would have moved by an extra 1.2%.
Bad delivery: When physical share certificates along with transfer deeds are delivered in the market there are certain details to be filled in the transfer deed. Any improper execution of these details result in a bad delivery. A bad delivery may pertain to the transfer deed or the share certificate, and maybe because of the transfer deed being torn, mutilated, overwritten, defaced etc.
Breakout: When the price of a stock surpasses its initial high (resistance level) or falls below the initial low (support level), it is termed as break out in technical analysis.
Book runner: Institution that arranges and manages the book building process for the new public issue.
Buy on margin: To buy shares with money borrowed from the stockbroker, who maintains a margin account for the customer.
Contract Note A note issued by a broker to his constituent setting out the number of securities bought or sold in the market along with the rate, time and date of contract.
Clearing House: Each Exchange maintains a clearing house to act as the central agency for effecting delivery and settlement of contracts between all members. The days on which members pay or receive the amounts due to them are called pay-in or pay-out days respectively
Commercial Paper: Debt instruments issued by corporations to meet their short-term financing needs. Such instruments are unsecured and have maturities ranging from 15 to 365 days.
Circuit breaker: When a stock price increases or decreases by a certain percentage in a single day it hits the circuit breaker. Once the stock hits the circuit breaker, trading in the stock above (or below) that price is not allowed for that particular day.
Credit rating agency Credit rating agency means a body corporate which is engaged in, or proposes to be engaged in, the business of rating of securities offered by way of public or rights issue. In India CARE, ICRA is credit rating agencies.
Day Trading: Day trading is the buying and selling of stocks during the trading day by individuals known as day traders on their own account. The aim is to make a profit on the day and have no open positions at the close of the trading session, the day.
Dalal Street: Street on which The Stock Exchange, Mumbai is situated. Used synonymous for The Stock Exchange, Mumbai.
Depth of Market The number of shares of a security that can be bought or sold at the best bid or offer price.
Debenture A loan raised by a company, paying a fixed rate of interest and which is secured on the assets of the company. Debentures are fixed interest securities in return for long-term loans, they tend to be dated for redemption between ten and forty years ahead of the date of issue.
Derivatives Instruments derived from securities or physical markets. The most common types of derivatives that ordinary investors are likely to come across are futures, options, warrants and convertible bonds
Disclosed Quantity (DQ): A dealer can enter such an order in the system wherein only a fraction of the order quantity is disclosed to the market. If an order has an undisclosed quantity, then it trades in quantities of the
disclosed quantity
Dividend yield: Annual dividend paid on a share of a company divided by current share price of that company.
Ex-bonus: The share is described as ex-bonus when a potential purchaser is not entitled to receive the current bonus, the right to which remains with the seller.
Ex-rights: The share is described as ex-rights when a potential purchaser is not entitled to receive the current rights, the right of which remains with the seller.
Exchange traded funds (ETF) A security that tracks an index but has the flexibility of trading like a stock.
Earnings Per Share (EPS): It is the most important measure of how well (or otherwise) the board of directors are doing for the shareholders. This measure expresses how much the company is earning for every share held. The calculation is ‘pre-tax profit dividend by the number of shares in issue’. Earnings per share is more important than the overall reported profit figure. The reason is that EPS provides a more pure measure of profitability.
Hedge An asset, liability or financial commitment that protects against adverse changes in the value of or cash flows from another investment or liability.
Implied Volatility: The value of the price or rate volatility variable that would equate current option price and fair value. Alternatively, the value of the volatility variable that buyers and sellers appear to accept when the market price of an option is determined. Implied volatility is calculated by using the market price of an option as the fair value in an option model and calculating (by iteration) the volatility level consistent with that option price.
Initial margin: The initial amount which customers have to put in before taking up a futures contract to guarantee the transaction.
LIBOR – London Interbank Offer Rate Often used as a basis for pricing Euro-loans. LIBOR represents the interest rate at which first class banks in London are prepared to offer dollar deposits to other first class banks. There are a number of similar rates like HIBOR (Hong Kong Interbank Offer Rate); SIBOR (Singapore Interbank Offer Rate); TIBOR (Toronto Interbank Offer Rate).
Manipulation of financial markets: Activities whose objective is to alter prices in financial markets through the use of techniques that result in unnatural market prices, often through the use of wash sales or reporting of fictional or apparent market prices.
Market capitalization: The market value of a company, calculated by multiplying the number of shares issued and outstanding by their current market price.
Mark to market margin (MTM): Collected in cash for all Futures contracts and adjusted against the available Liquid Net worth for option positions. In the case of Futures Contracts MTM may be considered as Mark to Market Settlement.
Price discovery: A general term for the process by which financial markets attain an equilibrium price, especially in the primary market. Usually refers to the incorporation of information into the price. In Indian Market between 9:00 Am to 9:08 Am price discovery of market and individual share will be there.
Record Date: A date on which the records of a company are closed for the purpose of determining the stockholders to whom dividends, proxies rights etc., are to be sent.
Short Covering: Buying of stocks by a seller to complete his previous commitments.
Short position: In futures, the short has sold the commodity or security for future delivery; in options, the short has sold the call or the put and is obligated to take a futures position if he or she is assigned for exercise.
Split Sub-division of a share of large denomination into shares of smaller denominations. Also means subdivision of holdings.
Value at Risk (VAR): VAR is the maximum loss over a target horizon such that there is a low, pre-specified probability that the actual loss will be larger.
Zero Coupon Bond: A bond that pays no interest while the investor holds it. It is sold originally at a substantial discount from its eventual maturity value, paying the investor its full face value when it comes due, with the difference between what he paid initially and what he finally collected representing the interest he would have received over the years it was held.