STOCK MARKET TERMINOLOGY
Account Day or Settlement-DateDay set aside for settlement of account, i.e., transactions between members of a stock exchange, when delivery and payment issues are squared.
Account Statement
A statement to his client from the broker featuring all transactions.
Active Market
Characterized by frequent and large volume of trading of a particular share or shares in general.
Active Shares
Shares in which there are frequent and day-to-day dealings. They are also liquid which implies they are easy to buy or sell.
A-D Index or Advance-Decline Index
A useful tool for detecting bullish or bearish trend in the stock market in which one divides the number of traded shares which have risen in price by those which have fallen.
Ad Hoc Margin
When a member of a stock exchange has an unusually large outstanding position the exchange collects this margin from him.
Allotment Letter
A communication letter sent by the compnay or its agent stating the number of securities and the value in reponse to the investor's application.
American Depository receipts (ADR)
Certificates issued by a U.S. Depositary Bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation.
All or None
(AoN)
This is one of the Special Terms conditions. A buy/sell order with this condition should be matched either with an exactly opposite order or none at all.
Allotment Letter
Letter sent to a successful applicant for shares and debentures conferring ownership of a number of shares and debentures.
Alpha
The amount by which a security’s return differs from the normal return for its level of risk.
Annualized Basis
These returns are computed when the available returns are for less than a year but are converted into a notional annual value for comparison purposes.
Application Money
The amount an investor is asked to pay with the application for new issues.
Appropriations
A term featuring on the balance sheet of a company showing how the net profits, i.e., after tax and after provision for investment allowance reserve have been made, are deployed in distribution of dividends on preference shares and equity shares, transfer to general reserves, and balance carried forward.
Arbitrage
Profiting from differences in price of the same security/currency traded on two or more markets. An arbitrageur makes money by buying in the lower market and immediately thereafter selling in the higher market, or vice versa, thereby making a profit.
Ask Price
The price at which a market maker is prepared to sell.
Assets
Anything owned by a company that has a market value.
At a premium
At a price higher than that printed on the share certificate, i.e., above par. The difference between the face value and the price at which a share is now being issued is called the premium.
At Par
A price equal to the face value of a share, i.e., if the face value of a share is Rs 10 or Rs 100 it is being issued or selling at Rs 10 or Rs 100.
Auction
A mechanism utilised by the Exchange to fulfill its obligation to a counterparty member when a member fails to deliver good securities or make the payments. Through auction the Exchange arranges to buy good securities and deliver them to the buyer or arranges to realise the cash and pay it to the seller.
Auction Market
The buy/sell auction for a Capital Market security is managed through the auction market. As opposed to the Normal market where trade matching is an on-going process, the trade matching process for auction starts after the auction period is over.
Authorised Share Capital
The maximum number of shares that a company may issue, stated in the memorandum and articles of association of the company.
Averaging
Buying a share at different times, in different quantities, and at different prices, so that an advantageous average price is obtained.
Averaging In/Averaging Out
Buying or selling at different prices in order to build up, or liquidate, a substantial holding over a long period.
Backwardation
Term for the fees and interest due on short sales of shares with delayed delivery, or, The payment made by the seller to a buyer for the loan of securities for which the seller wishes to defer the delivery.
Bad Delivery
Delivery of a share certificate, together with transfer deed, which does not meet requirements of title of transfer from seller to buyer is called the Bad Delivery.
Badla
Stocks are divided into 'A', 'B1', 'B2' and 'Z' group on the Bombay Stock Exchange (BSE). The most liquid and heavily in-demand shares comprise the 'A' group (150 on the last count). Under this system, the buyer and seller have the option to carry forward their trades to the next settlement without effecting delivery of shares sold or making payment for shares bought. Simply put, badla is the price payable by the buyer to carry over his speculative purchases to the next settlement. The system helps traders to carry-forward long positions without taking deliveries of stocks purchased. This helps build large volumes on the exchanges and imparts liquidity to stocks.
Bar Charts
A tool of technical analysis, these have vertical bars representing each day's price movement. Each bar covers the distance between the day's highest price to the day's lowest price, with an X to mark the closing price.
Basis Point
0.01%. Foe example, if the yield has gone up by 200 basis points it means it has gone up by 2 %.
Bear
A stock market operator who expects share prices to fall and keeps selling to pick up the shares later a lower price for actual delivery, causing selling pressure and lowering the prices further.
Bear Cycle
An extended period when share prices generally keep falling and the stock market indices keep going down.
Bear Market
Prolonged period of falling share prices.
Beating the Market
Getting a higher return on investments is higher than the market average.
Below Par
A price lower than the face value of a share. A share of face value of Rs 10 trading at Rs eight is said to be below par.
Beta Coefficient or Beta Factor
A relative measure of the sensitivity of an asset’s return to changes in the return of the market portfolio.
Bid Price
It is the price at which a buyer is prepared to buy shares.
Blue Chips
Stocks of well known, renowed companies with a track record of dividend payment and capital appreciation over a period of time.
Book Closures
Before a company declares a dividend or issues bonus or rights share, during the book closure period, transfer of shares is registered. Only those shareholders whose names appear on the register after the book closure are eligible to receive dividends and bonus shares and entitlement to rights shares.
Booking Profit
Making profit by selling a share which has gone above its purchase price.
Book Value
It is determined by dividing the net worth of the company (common stock plus retained earnings) by the number of shares outstanding.
Bottom Line
The net profit or loss figures in an analysis of a company's performance.
Bottom Out
When shares have hit their lowest and are slowly on their path of recovery, they have bottomed out.
Bottom up approach
It is the stock picking strategy whereby the investor looks at the companies with attractive future growth potential and then moves on to consider the industry and the economy factors affecting those stocks.
Bourse
Stock exchange.
Broker
A member of the stock exchange who is licensed to buy or sell shares on his own or on his client's behalf. He charges a commission brokerage on the deals.
Bull
A stock market operator who believes that share prices are going to rise, and keeps buying to sell later at a profit.
Bull Market
Prolonged rise in the price of shares, sustained by buying pressure.
Bull Run
Continued uptrend of sharemarket.
Business Cycle
A period of time during which the general economic activity expands and contracts with effects on inflation, productivity and employment. Thus one recovery and one recession complete a business cycle.
Business Risk
It is the inherent potential of declines in earnings and slowdown in growth in any business or industry.
Buy and Hold Strategy
Accumulating shares of a company over the years for long-term growth benefits and favourable capital gains tax on profits. It is a strategy adopted by the investor whereby he holds on to the investment having full faith in the long term investment strategy ignoring the short term fluctuations.
Buy and Sell Strategy
Active share trading strategy in which shares are bought at dips and sold at peaks. Since the lowest dips and highest peaks are seldom identified, it amounts to buying low and selling high, not holding on to a share or shares for long.
Buy Back
Corporates buying back its own shares or bonds from the share/bondholders
Buy Order
An order to the stockbroker to buy a share or shares.
Buyer's Market
Another name for the Bear Market with an excess of supply of shares over demand, and consequent low prices.
Call
A notice for payment of an installment or the entire unpaid sum of a partly paid share.
Call Option
The right with the registered holder to buy a fixed number of shares at a particular price within a fixed period, in exchange for a premium.
Capital
Contributions made towards the investment in equity and preference shares of the organisation.
Capitalisation
The debt and/or equity mix that funds a firms assets.
Capital Appreciation
Increase in the capital value of shares as their price increases over a period.
Capital Expenditure
Expenditure on acquiring fixed, rather than liquid assets.
Capital Gains
Profit arising out of the sale or transfer of an asset with the cost adjusted for any improvement or depreciation in the asset.
Capital Gearing
The ratio of fixed interest loan and preference shares to the ordinary share capital of a company.
Capital Loss
Loss incurred when investments are sold at a price lower than their purchase price.
Capital Market
Markets where the capital funds-debt and equity are traded. Included are private placement sources of debt and equity as well as organized markets and exchanges.
Capital Reserves
These are undistributable reserves, arising out of profits on the revaluation of capital assets and share premia.
Capital Structure
The capital of a company consists of issued and subscribed equity shares, redeemable preference shares, and secured and unsecured loans. Its structure refers to the mix of debt to equity used.
Carry Forward Trading
The act of postponement of the delivery of or payment for the purchase of securities from one Settlement to another on payment of Contango charges in which the buyer pays interest on borrowed funds (known as ‘Vyaj Badla’) or in which the short seller pays a charge for borrowing securities (known as ‘Undha Badla’).
Cartel
A group of Individuals or businesses that work together to influence the prices.
Cash Basis
Method of accounting in which income and expenditure are entered only when cash is received or paid out.
Cash Dividend
A dividend paid in cash to a company's shareholders.
Cash Flow
In investments, it represents earnings before depreciation amortization and non-cash charges.
Cash Markets
Also called the Spot Market, these are markets that involve the immediate delivery of a security or an instrument.
CB or Cum-Bonus
Shares with bonus entitlement. Buyers of such shares receive the bonus shares distributed by a company on registration of their shares before the Record Date.
CD or Cum-Dividend
With dividend. The buyer of a share at CD price is entitled to the dividend declared if he buys the share before the closure of the company's books, after which the price becomes ex-dividend or XD.
Chalu Upla
Unofficial deal; deal not made on the floor of the stock exchange in the regular manner.
Circuit Breaker
A system to curb excessive speculation in the stock market in which the trading is temporarily suspended when the stock price are volatile and tend to breach the price band.
Clean Balance Sheet
A balance sheet with no debt items, showing that the company hasn't any outstandings.
Clearing
It refers to a process by which all transactions between members are settled.
Clearing House
Each stock exchange has a clearing house attached to it to effect delivery and settle contracts between members.
Closely Held Company
A company whose equity shares are held by a small number of shareholders.
Closing Price
Price at which the last transaction of a particular share was concluded in the stock exchange.
Collateral
An asset pledged against a loan.
Commission
The broker's fee for purchasing or selling securities or property as an agent.
Compounding
When you earn interest, dividends, or capital gains on both your original investment and on the reinvested earnings of your investment.
Contango
In the carry forward transaction the interest which the buyer pays on the borrowed fund.
Contingent Liabilities
Liabilities which a company may have to settle in the event of an unfavorable outcome of a particular event.
Contract Note
Given by the stockbroker to the buyer of the shares, signifying the contract between them to buy/sell the shares at stated price.
Consumer Price Index
A cost-of-living index which is representative of the good and services purchased by the consumers.
Contract Note
A note sent by a broker to his client stating that he has bought or sold a certain number of shares. The unique contract number that it carries validates the transaction done.
Cornering Shares or Cornering the Market
Buying a particular share in a very large quantity so that there is a dearth of shares in the market, and the share price can be manipulated.
Cost of Living Index
A collection of goods and services, and their associated prices, designed to reflect changes over the time in the cost of making normal consumption expenditures.
Cost Averaging
Method of accumulating assets by investing a fixed amount in securities at different intervals. The investor buys more assets when the price is low so as to decrease its overall average cost
Counterparty Risk
The risk in a contract that the other party may fail to honour their commitments.
Cross Holdings
Companies under the same group of promoters holding shares in one another's companies; a common practice in the corporate world.
Cum-Dividend or CD
The buyer of a CD share is eligible to receive the dividend for the preceding year.
Cum-Rights or CR
The buyer of a cum-rights share is entitled to subscribe to the forthcoming rights issue announced by the company. The date up to which a share can be bought cum-rights is announced by the company.
Current Yield
Dividend or interest received calculated as a percentage of a share's or debenture's current market price.
Cyclical Shares
Stocks that tend to rise and fall in consonance with the economic conditions, e.g., housing.
Daily Margin
An amount, to be decided by the stock exchange, to be deposited by a member, on a daily basis, for the purchase or sale of securities. The amount is to be deposited at the stock exchange.
Day Order
It is an order which is valid for the day on which it was entered. If the order is not matched during the day, the order gets cancelled automatically.
Debt-Equity Ratio
The total long-term debt divided by shareholders' equity.
Delisting
Striking off a company's name from the stock exchange so that the company's shares are not traded.
Dematerialization (Demat)
It is a process by which shares in the physical/paper form are cancelled and credit in the form of electronic balance is maintained at the Depository through a DP (Depository Participant).
Depression
Economic condition characterised by falling prices, reduced purchasing power, rising unemployment, excess supply over demand and a general decrease in economic activity.
Derivative
A financial security, such as an option, or future, whose value is derived in part from the value and characteristics of another security, the underlying security.
Dilution of Equity
Decrease in the ownership value of a share as a result of increasing the number of shareholders.
Disinvestment
Reduction of the capital employed by selling off assets or by neglecting to replace used up assets, usually signifying a restriction of the operations of a company.
Diversifiable Risk
Risk unique to a firm or industry, which is not systematically related to the stock market in general.
Diversification
An investor spreading his risk of investment by distributing it among different investment avenue so that the loss suffered on one investment can be offset by gains accrued on the other so as to avoid entire wipe out of the net worth even if one investment has performs poorly on the return front
Dividend Payout Ratio
Percentage of the earnings paid to shareholders in cash.
Dividend Stripping
Paying of dividends to shareholders from funds obtained by sale of assets. Such dividends do not come out of net profits, but from accumulated reserves.
Dividend Yield
Dividend per share divided by its market price, multiplied by 100.
Dow Jones Industrial Average (DJIA)
Price-weighted average of 30 actively traded blue-chip stocks, traditionally of industrial companies
Dow Rule
Point and figure technique which is buy when the rise in price exceeds the most recent high and sell when the fall in price goes below the most recent low.
Dow Theory
It holds that there is no primary trend in the stock market, unless the movements of industrial, transportation, and utility shares substantially follow the same trend.
Dual Listing
The listing of a share in more than one stock exchange increasing the volume and liquidity.
Earning Per Share
The net income of the firm divided by the number of common stock shares outstanding.
Economic Growth Rate
Annual percentage of change in the gross national product. This is adjusted for inflation to arrive at the real economic growth rate.
Efficient Market
A market for securities in which every security’s price equals its investment value at all times, implying that a set of information is fully and immediately reflected in the market prices.
Efficient Portfolio
A portfolio which ensures maximum return for an accepted level of risk or a minimum level of risk for an expected return.
Either-or-Order
This gives the broker a choice, either to buy, or to sell, not both. The execution of either will cancel the other.
Equities
Ordinary shares of publicly held companies, conferring a share of ownership of the company on the holder who shares the company's profits but whose liability for its losses is limited to the sum of his holding.
Ex-Dividend Date
A publicly announced date on or after which a buyer will not be entitled to the dividend declared on a share. The share price is usually a shade lower on the ex-dividend date.
Face Value
The nominal value printed on the face of the share,debenture or bond.Also known as "Par Value".
Financial Ratios
Ratios of values obtained from a firm's financial statements used to study the firm's health and the price of its shares.
Financial Structure
Distinguished from capital structure of a company which includes only long-term debt and equity, the financial structure of a company is revealed on the right-hand liabilities side of a company's balance sheet, which includes all the items which finance the assets on left-hand side of the balance sheet
Forward Trading
It refers to the trading where contracts traded today are settled at some future date at prices decided today.
Free Market Economy or Market Economy
An economic system in which the government does not interfere in any way with business activity. There are no price controls, no permits, no kickbacks, no trading restrictions or foreign exchange control.
Free Reserves
Accumulated retained profit of a company available for distribution among shareholders. These reserves do not include Capital redemption reserve, or asset revaluation reserve.
Fundamental Analysis
This valuation of stocks based on fundamental factors, such as company earnings, growth prospects, and so forth, to determine a company's underlying worth and potential for growth
Futures Contract
A contractual agreement to buy or sell a specified quantity of a commodity, currency or shares at a particular price on a fixed date in the future.
GDR (Global Depository Receipt)
It is an instrument issued abroad, listed and traded on foreign stock markets. A GDR is convertible into shares, which are listed and traded on the domestic exchange, the dividend being paid in the domestic currency.
Going Long
Buying a share; opposite of Going short where the operation is that of selling.
Going Short
Selling a share that the seller does not actually possess, but hopes to pick up when the price has gone further down, and so make a profit.
Good Delivery
A share certificate together with its transfer deed which meets all the requirements of title transfer from seller to buyer is called the good delivery.
Good-Till-Cancelled Order (GTC)
A client's order to buy or sell shares, usually at a specified price, which remains valid till executed.
Greenshoe
A provision in an agreement with the underwriters of an issue which states that in the event of exceptional investor interest the issuer will authorize additional shares or bonds for distribution.
Grey Market
Unofficial premium market, in which new, not-yet-listed shares are bought and sold.
Gross Domestic Product (GDP)
The value of all the goods and services produced by a country in one year.
Gross National Product (GNP)
The total value in money of all finished goods and services produced in an economy in one full year, and all net property income from abroad.
Growth Shares
The shares of the companies which are growing rapidly in terms of turnover and profits. Such companies show high P/Es
Hedging
Strategy used to offset investment risk.
Holding Period
The period for which an investor has been in possession of a share; important for the computation of CAPITAL GAINS tax.
Holding Period Return (HPR)
The rate of return for the period of holding of a share.
Hot Money
Money which is transferred at short notice from one international financial center another for fear of exchange rate fluctuations, or in response to changes in rates of interest.
Illiquid Investments
Those shares, debentures, etc., which cannot be readily converted into cash.
Income shares
The shares of the companies which have low P/Es but yield good dividend nad follow a policy of high dividend payout
Index
A measurement of the trend of share prices. It is not just an average of share prices, but weighted to reflect the number of shares outstanding for an individual scrip.
Index Futures
A new mode of stock market investment in which, instead of buying individual shares one buys so many units of a recognised index.
Inflation
The rate of change in a price index over a certain period of time. Equivalently,the percentage change in the purchasing power of a unit of currency over a certain period of time.
Insider Trading
Trading in a company’s shares by a connected person having non-public, price-sensitive information.
Institutional Investor
Organisations that trade large volume of securities, e.g., mutual funds, banks, pension funds, etc.
Instrument
A legal document of contractual obligation.
In the Black
Showing a profit.
In the Red
Showing a loss.
Intangible Assets
Unseen and non-physical assets of a company which are of value to it and also perhaps a cash value e.g. trademarks, copyright, goodwill, patents, etc.
Interim Dividend
An advance instalment of the dividend finally declared.
Inventory Turnover
Annual sales divided by the average cost of inventory gives the ratio of inventory turnover.
IPO
Initial Public Offering; The first offering of shares of a company to the public in the primary market.
Issue Price
It is the price at which new issues are offered to the public, at par, or at a premium.
Issued Capital
The amount of authorised capital issued by a company. A part of the authorised capital may be withheld for subsequent.
Joint Venture
Collaboration, but not partnership, between two complementary companies, sometimes one Indian and the other foreign, to make better use of each other's technology or services.
Jobber
Members of a stock exchange who stand ready to buy and sell shares in which they specialise.
Kerb Trading
Unofficial trading after the normal trading hours of the stock exchange.
Lead manager
When new issues are floated, there may be a number of Underwriters; the one among them who has the primary responsibility of managing the affairs of the syndicate and the issue is the lead manager.
Leverage
A company's long-term debt in relation to equity in its CAPITAL STRUCTURE. The larger the long-term debt, the higher the leverage.
Leverage ratio
The total assets divided by the equity. It indicates the amount of assets the company employs on a unit of equity.
Leveraged company
A company with borrowed funds in its capital structure. If the debt component is more than a third of the capitalisation, it is called a highly leveraged company.
Limit order
The client gives the stockbroker a price limit above which he cannot buy or below which he cannot sell.
Limit price
Price given in a limit order.
Limited liability
A privilege enjoyed by the shareholders of a limited company. If the company goes bankrupt and does not have enough assets to meet its obligations, the shareholders cannot be asked to pay any more. Their liability ends when they have paid for their shares.
Line charts
As distinguished from bar charts, which show everyday price movements, line charts simply connect successive days' closing prices.
Liquidity
It is the state of having cash, or possessing assets which can be quickly converted into cash.
Lot
A fixed minimum number in which shares are bought and sold. Trading lots can comprise 5, 10, 50 or 100 shares depending on the face value of shares.
M1
A measure of money supply which includes all coins and notes in circulation + Demand Deposits with Banks + Demand portion of Savings Deposits with Banks + Other Deposits with RBI (deposits of DFIs etc.). Also called "Narrow Money"
M2
A measure of money supply, including M1, plus Post Office Savings Deposits.
M3
A measure of money supply, including those covered by M1, plus Time Deposits with the Banks. Also called "Broad Money"
M4
Rupee measure of money supply covering all M3, plus All Post Office Deposits.
Market capitalisation
The total market value, at the current stock exchange list price, of the total number of equity shares issued by a company.
Market forces
The forces of demand and supply which determine price in a free market.
Market lot
A fixed minimum number, in which or in multiples of which, shares are bought and sold in the stock exchange. In demat scrips the market lot is one share.
Market risk
This is inherent in the market, depending on how the economy and a particular segment of industry is behaving.
Market timing
The decision when to buy or sell a share or when to switch from one share to another.
Merger
An amicable getting together of two or more companies to form one unit for increased overall efficiency.
Moving average
An average of share prices for specified periods - one week, a fortnight, a month, a year or years - and showing trends of price movements, rather than daily fluctuations. For example, a weekly moving average will take a week's prices till yesterday, and for tomorrow's average it will drop the earliest day and include today instead.
NASDAQ
Short for National Association of Securities Dealers Automated Quotation system. A computerised system that provides up-to-the-minute price quotations on about 5,000 of the more actively traded over-the-counter stocks.
Negotiability
The transferability of a document which, on changing hands, transfers the benefit attached to the document, conferring legal ownership. The document can be simply delivered or endorsed. A currency note is negotiable through simple delivery, whereas a crossed cheque & Co or a bill of exchange is negotiable through endorsement.
Negotiable instrument
An instrument contractual document which is readily transferable, e.g., a bank cheque, a share certificate.
Net block
Value of a company's fixed assets after depreciation. Also called net fixed assets.
Net book value
The value of an asset as it appears on the books of a company as at the date of the last balance sheet, after depreciation has been applied. It is not the market value of the asset.
Net profit
The final profit of a company, after all deductions for interest, depreciation and taxation have been made. It is the black bottom line.
Net worth
Net worth is taken to represent shareholders funds, i.e., equity share capital plus reserves.
Net yield
Profit made on an investment after deduction of all expenses and capital gains tax or income tax, if any.
No delivery period
Whenever a book closure or record date is announced by a company, the exchange sets a no-delivery period for that security. During this period trading is permitted but the trades are settled only after the no-delivery period is over.
Odd lot
A lot of shares other than the market lot.
Offer document
Letter sent by a company making a takeover bid to the members of target company offering to buy their shares at a certain price. It gives details of the offer and reasons for accepting the offer.
Open outcry
A feature of the exchange where traders shout out their buy or sell offers. When these match, the traders have entered into a contract which is recorded.
Operating ratios
These measure a company's operating efficiency by comparing various income and expenditure figures from the balance sheet and profit and loss account.
Opportunity cost
Where there are alternative investment possibilities, a company must compare the benefit derived from choice A with the possible benefit from choice B.
Options
An options confers the right to buy or sell a specific quantity or a number of a particular asset at a specific price at or before some date in the future. It confers on the buyer the right but not the obligation to honour the contract. The obligation rests only with the seller or the writer of the contract. If the buyer chooses not to exercise his option, the maximum loss he suffers is the premium he has paid to the writer of the contract.
Ordinary share
Equity share with full voting rights and entitlement to dividends, rights and bonus issues.
Other income
Income other than from a company's normal activities.
Overcapitalisation
Having more capital than a company needs for business. If it a leveraged company, it will have an unnecessarily high interest burden; also, its profits, by way of dividends, will be thinly spread among the shareholders.
Over the counter trading
Trading in those stocks which are not listed on the stock exchange.
Oversubscribed issue
When there are more shares applied for than are to be issued. In such cases a minimum number of shares, say, 100 shares, is allotted to lucky applicants whose names may come up in the drawing of lots
Overvalued shares
Shares which have caught the investors' fancy, and who, therefore, are willing to pay a price for them which is not justified by their EPS earning per share or P/E ratio.
Paid up capital
Capital acquired by selling shares to investors, as distinguished from capital accumulated from earnings or from secured or unsecured loans.
Pay-in day
Pay-in day is the designated day on which the securities or funds are delivered/paid in by the members to the clearing house.
Pay-out day
Pay-out day is the designated day on which securities and funds are delivered /paid out to the members by the clearing house.
Payout ratio
This is dividend per share divided by earnings per share multiplied by 100. If the payout ratio is 40%, it means that 40% of the company's profits after tax have been distributed as dividend and 60% transferred to reserves.
P/E ratio or price-earnings ratio
Market price per share divided by the firm's earnings per share. A measure of how the market currently values the firm's earnings growth and risk prospects.
Price band
The daily/weekly price limits within which the price is allowed to rise/fall.
Price-to-book ratio
Market price per share divided by book value (tangible assets less all liabilities) per share. A measure of stock valuation relative to net assets. A high ratio might imply an overvalued situation; a low ratio might indicate an overlooked stock.
Price rigging
When a person(s) acting in concert with each other collude to artificially increase or decrease the price of the security.
Point and figure chart
A technical analysis graph that records the ups and downs of individual share prices, disregarding the element of time. Every time a share price moves up an X is put on the graph above the previous point. Every time the share price moves down a 0 is placed one square down in the next column. This chart helps one study the trend of movement - up or down - of a share price for a period of time.
Portfolio
Combined holding of all the financial assets such as shares, debentures, government bonds, Unit Trust of India certificates, bullion and other financial assets.
Premium issue
The issue of shares at a price above the face value of a share. The sum charged above the face value is the premium.
Price/book ratio
Compares a stock's market value to the value of total assets less total liabilities (book). Determined by dividing current price by common stockholders' equity per share (book value), adjusted for stock splits. Also called market-to-book.
Primary market
A market for new issues of shares, debentures, and bonds, where investors apply directly to the issuer for allotment any pay application money to the issuer's account. Distinguished from the secondary market, where investors buy listed shares on the stock exchange through brokers.
Private placement
Shares can be sold to institutional investors on a private placement basis. When they are offered to a favoured few, they are usually restricted shares, and cannot be sold in the marketplace for some specified time.
Profit and loss account
A statement of account of the profit and loss of a business during the accounting period. It summarises the income, costs and expenses of the company over the period, and together with the balance sheet, constitutes a company's financial statement.
Profit after tax or PAT
This is arrived at by deducting expenditure cost of materials, manufacturing expenses, overheads, interest, and depreciation from income net sales plus other income and providing for taxation and investment allowance reserve on the amount.
Profit before tax or sales ratio
Profit before tax divided by net sales and the sum multiplied by a hundred. This is a useful indicator of how efficiently the company is being run.
Prospectus
Formal written offer to sell securities that sets forth the plans of the business enterprise that an investor needs to make a decision.
Quick assets
These are liquid or near-liquid assets, such as cash, money in bank, gold, etc. In financial statement analyses these mean current assets minus inventory.
Quick ratio
Defined as current assets minus inventories divided by current liabilities. A measure of the liquidity of a company, showing whether the company could meet its obligations from the current assets. Also known as the acid test ratio.
Quoted shares
The shares of a company which are officially registered, listed and traded
Rally
Noticeable rise in the price of a share, or a noticeable rise in the share market index, after a period of stagnancy or a declining trend.
Random walk
The hypothesis that share prices wander in a random fashion, because the investors, in a perfectly competitive market, have taken account of all the facts about a share in determining its price. Further changes are therefore caused randomly and no systematic prediction can be made.
Rate of return
The dividend received divided by the price of the share, multiplied by a hundred. The total return on an investment is the sum of dividend received and the appreciation in the price of one's shares.
Ratio analysis
A study of figures in a company's financial statements helps an analyst to arrive at some important ratios, such as quick ratio, debt-to-equity ratio, P/E ratio, and many others. These are then studied in relation to one another and conclusions drawn on the company's health.
Real interest rate
Current interest rate less the rate of inflation.
Real rate of return
Return on an investment adjusted for inflation.
Recapitalisation
Changing a company's capital structure, by bringing in fresh capital, either by creating new shares through issues, or by long-term borrowing, or converting debentures into shares which will pay dividends only when the company is able to.
Recession
Fall in the country's economic activity, for at least two consecutive quarters, as shown in a lowering of the GDP. Not as serious as depression.
Record date
Record date is the date on which the beneficial ownership of an investor is entered into the registers of the members. Such a member is entitled to get all the corporate benefits.
Registrar or transfer agent
It is the institution that maintains a record of all the investors/unit holders of a company/. Normally this institution also mails the notices regarding the holding of the annual meetings and the distribution of dividends to the unit holders. It also supplies the annual statement to the investors representing the account position.
Reserves
Sums set aside from a company's profits and surplus. Can be used to allot bonus shares, but asset revaluation reserves, also called revaluation reserves, cannot be thus used. Debenture redemption reserves and preference shares redemption reserves are used for those specific purposes.
Retained earnings
This part of a company's earnings which is not distributed as dividends, but held back and accumulated for the company's growth or contingency use. Also called undistributed profit or earned surplus or reserves.
Return on capital
Earned profit divided by capital employed, multiplied by 100 to get the percentage.
Return on equity (ROE)
Net income after all expenses and taxes divided by stockholders' equity (book value). An indication of how well the firm used reinvested earnings to generate additional earnings.
Reversal
Sustained fall of share prices from a peak or a high.
Rigging
Manipulation of share prices so as to attract naive investors to buy or sell shares.
Rights issue
Issue of shares at par or at a premium by an existing company to its shareholders in a certain proportion and additional shares, if available to their holdings, as a matter of their right to receive preferential treatment.
Risk
The possibility of loss, inherent in any investment, which one would do well to give suitable weight to while comparing alternative investment prospects.
Rule of 72
A most useful formula for calculating the number of years an investment will take at a compound rate of interest to double. Divide 72 by the compound rate of interest and you get the period of time. Or again, if you know the period of time it takes an investment to double, divide 72 by the number of years and you will get the compound interest rate.
Secondary market
Place where already issued and outstanding shares are bought and sold. Distinguished from the primary market in which the issuer sells shares directly to the investor.
Scrip
Share certificate. Another name for share or stock.
Securities
Financial documents which give the owner specific rights of ownership; these include equity and preference shares, debentures, treasury bills, government bonds, units of mutual fund and any other marketable documents.
Security analysis
A component of the investment process that involves determining the prospective future benefits of a security, the conditions under which such benefits will be received and the likelihood of such conditions occurring. Security analyst
A specialist employed by a brokerage firm, financial journal, bank or investment body to conduct research on investment by analysing the working and finance of individual companies or companies of an industrial group, and make recommendations. The analyst studies the sales and earnings growth, capital structure, P/E ratio, dividend payouts, return on investment, and movement of share prices, combining fundamental and technical analyses.
Seller's market
Characterised by a shortage of shares in the market in relation to their demand and consequent high prices, indicating a BULL MARKET; the opposite of buyer's market.
Selling short
Sale of shares, which one doesn't possess. See badla also.
Settlement
Scrip-wise netting of trades by a broker after a trading period is over.
Settlement date
Day set aside for settlement of account, i.e., transactions between members of a stock exchange, when delivery and payment issues are squared.
Settlement guarantee
It is the guarantee provided by the clearing corporation for settlement of all trades even if a party defaults to deliver security or pay cash.
Share
A share is one unit of ownership of a company.
Share certificate
Documentary evidence of the ownership of a block of shares.
Shareholder
A person or a legal entity who owns equity or preference shares of a company. The proof of his ownership is the share certificate, which he may hold in multiple numbers, each certificate comprising a certain quantity of shares.
Share premium
An amount in excess of the face value of a share charged by a company on its share issue.
Short covering
A short seller usually borrows shares from others for his operation; when he actually buys them to replace what he had borrowed at the time of short sale, he is covering his short position or short covering.
Short position
Shares which a person has sold short, by delivering borrowed certificates, but which he has not yet covered by actually buying shares to repay the loan, as on a particular date.
Speculator
A person, who anticipates price changes and through frequent buying and selling aims to make profits.
Spot trading
Trading by delivery of shares and payment for the same on the date of purchase or on the next day.
Stag
Flash in-and-out speculator who is in the market to make a quick buck. He does not buy shares for long or medium-term investment. Also, one who applies for a new issue, intending to sell at once, what is allotted to him, at a premium.
Stagflation
Slow economic growth plus high unemployment stagnation, accompanies by a rise in prices inflation.
Stock exchange
A marketplace where shares change hands for a consideration.
Stock splits
The process of splitting shares that have a high face value into shares of lower face value. The reverse of combining number of shares of low face value into one share of high face value is called "Consolidation"
Systematic risk
A part of the security's risk that is common to all the securities and cannot be eliminated through diversification; also known as " market risk".
Tangible assets
As distinguished from intangible assets like goodwill, trademark, or patent, these have a physical existence, like cash in hand or bank, gold, real estate, machinery, etc.
Technical analysis
A method of prediction of share price movements based on a study of historic price graphs or charts.
Technical correction
A fall of short duration in the share prices in a rising market; may be caused by a large number of investors booking profit because prices have reached the support level. The support level may, however, be penetrated, and a new emerge.
Technical rally
A short rise in share prices in a declining market; may be caused by investors buying at the current low prices, or prices having reached the support level. As the term suggests, the rally is short-lived, and prices start falling again.
Top down approach
The investment philosophy which involves the EIS analysis. Here the fund manager first looks at the economy, industry and then filters down to the company that are likely to benefit from those favourable economic and industrial trends.
Total yield
What an investor gets from his investment, i.e., dividends or interest and total capital gains through appreciation of the holding by way of rights and bonus issues, as also a rise in the market price. Total earnings plus market appreciation divided by the total cost.
Transfer deed
A transfer deed is a form that is used for effecting transfer of shares or bonds/debentures and is valid for a specific period. It should be sent to the company along with the share certificate for effecting the transfer duly signed and stamped and complete in all respects.
Transmission
Transmission is a lawful process by which the ownership of the securities is transferred to the legal heir(s) of the deceased.
Turnaround
A change for the better in a company's performance. Turnaround situations in companies offer opportunities to investors who can pick up the shares when their price is still low.
Undervalued shares
Shares selling below their book value or the price earning ratio which analysts believe they deserve.
Underwriter
A banker or a financial institution which agrees to buy up the unsubscribe portion of a new issue, should such a thing happen, and sells it later to investors at a premium.
Unloading
Selling shares off when prices are falling to avoid further loss. Bulls, when they get tired waiting for the price to rise, tend to unload when the market is falling, causing prices to fall further.
Unsystematic risk
As distinct from systematic risk, it is risk peculiarly attached to an industry or a company and different from the macroeconomic factors which effect the whole of the economy.
Value investing
It is that philosophy of investment where the investment is made in those stocks that have been beaten down in value and ruling at a price to earning ratio lower than the P/E of the their peer stocks. These stocks are expected to rebounce back with the improvements in the sentiments.
Vertical line charting
Technical analysts' charting of a share's price movement by using a vertical line to represent the high and the low, with a horizontal bar across the point where the day's trading has closed. There is line for each day or each week or each month depending on the breadth of analysis. The chart gives an idea, not only of the trend or price movements, but also the range of fluctuation of the share's price.
Volatile shares
Shares which are subject to sharp fluctuations in price, showing a considerable difference between their highest and lowest recorded prices. Volatility is measure by the formula: highest price minus lowest price, divided by the lowest price, then multiplied by 100.
Volume
Refers to the total volume of shares traded on a particular day and over a period.
Warrant
A security with the market price of its own that can be converted into a specific share at a predetermined price and date.
Weak market
A market in which there are more sellers than buyers, resulting in a decline in prices.
Write-off
Charging an item of assets to expense or loss.
Written down value
Value of an asset, after depreciation has been charged. Also called net book value
XB ex-bonus
The price of a share without the benefit of the bonus declared.
XD ex-dividend
The price of a share without the benefit of the declared dividend.
XR ex-rights
The buyer of a share is not entitled to subscribe to the rights issue announced by the company.
Yield
Percentage return as dividend from a particular share. Current yield is calculated as dividend per share divided by the market price of the shares, multiplied by 100.
