Terms used In Stock Market

These are the Terms used in Stock Market

All or None Order: An order that has got to be filled completely or the trade won’t happen.

Arbitrage: The simultaneous purchase of a security on one stock exchange and therefore the sale of equivalent security on another stock exchange at prices that yield a profit.

Ask/Offer: The lowest price at which an owner is willing to sell the security.

Averaging Down: Buying more of a security at a price that’s less than the worth purchased the initial investment. The aim of averaging down is to reduce the average cost per unit of the investment.

Bear Market: A market during which stock prices are falling consistently.

Beta (Coefficient): A measurement of the relationship between the price of a stock and the movement of the whole market. It is a measure of the market risk associated with any given security in the market. A ratio of a person’s stock historical returns to the historical returns of the stock exchange. If a stock increases in value by 12% while the market increases by 10%, the stock’s beta would be 1.2

Bid: Highest price a buyer is willing to buy a stock. it’s the other of ask/offer

Black-Scholes Model: A mathematical model used to calculate the theoretical price of an option.

Blue Chip Stocks: Stocks of well-established and financially sound companies that hold a record of continuous dividend payments and other strong investment qualities

Bonds: Promissory notes issued by an organization or government to its lenders, usually with a specified amount of interest for a specified length of your time

Broker or Brokerage Firm: A registered securities firm or an investment advisor affiliated with a firm. Brokers are a link between the buyer and the seller. They do not own the securities at any point of the time but act as agents. They charge a commission for his or her service.

Bull Market: A market during which stock prices are rising consistently

Buy on margin: the method of shopping for a currency pair where a client pays cash for a part of the general value of the position. The word margin refers to the portion the investor puts up instead of the portion that’s borrowed.

Call Option: An option that gives the investor the right, but not the obligation, to buy a particular stock at a specified price within a specified time

Cash Settlement: Settlement of an option contract not by delivery of the underlying shares, but by a cash payment of the difference between the strike or exercise price and therefore the underlying settlement price.

Common Shares or Common Stock: Securities that represent part ownership in a company and general y carry voting privileges. Common shareholders could also be paid dividends, but only after preferred shareholders are paid. Common shareholders are Last in Line after creditors, debt holders and preferred shareholders to say any of a company’s assets within the event of liquidation

Day Order: An order that’s valid just for the day it’s entered. If the order remains outstanding when the market closes, it’ll be purged overnight

Delist: The removal of a security’s listing on a stock exchange. This is done when the safety not exists, the corporate is bankrupt, the public distribution of the safety has dropped to an unacceptably low level, or the corporate has done not suits the terms of its listing agreement.

Delivery: The tender and receipt of the underlying commodity or the payment or receipt of cash in the settlement of an open future contract.

Diversification: Reducing of the investment risk, by purchasing shares of different companies operating in different sectors.

Dividend: A portion of the company’s earnings paid to its shareholders on their investment. It is usually declared as a percentage of the current share price.

Dividend Stripping: When an investor invests with the idea of exiting from the fund immediately after the dividend is paid.

Dividend Yield: Total of 12-months’ dividends paid (historical or forecast) divided by the latest share price.

Rupee Cost Averaging: Investing a fixed amount in a specific security at regular set intervals over a period of time. Rupee cost averaging results in a lower average cost per share, compared with purchasing a constant number of shares at set intervals. The investor buys more shares when the price is low and buys fewer shares when the price is high.

Equities: Common and preferred stocks, which represent a share in the ownership of a company.

Equity Option: An option contract that grants the holder the right to buy or sell a specific number of shares of stock at a specified price during a specific period of time.

Equity Price: The price per share traded.

Equity Volume: The total number of shares traded on one side of the transaction.

Exchange-Traded Fund (ETF): A special type of financial trust that allows an investor to buy an entire basket of stocks through a single security, which tracks and matches the returns of a stock market index. ETFs are considered to be a special type of index mutual fund, but they are listed on an exchange and trade like a stock.

Exercise: The act of an option holder who chooses to take delivery (calls) or make delivery (puts) of the underlying interest against payment of the exercise price.

Expiration Date: The date at which an option contract expires. This means that the option can’t be exercised after that date.

Face Value: The cash denomination of the individual security. It is the amount of money that the holder of security will receive back at the time of maturity. Face value is also referred to as par value.

Futures: Contracts to buy or sell securities at a future date.

Futures Exchange: A central marketplace with established rules and regulations where buyers and sellers meet to trade futures and options on futures contracts.

Growth Stock: The shares of companies that have consistent annual earnings and sales growth.

Hedge: A transaction that reduces the risk on an existing investment position.

Hedge Fund: A fund that may employ a variety of techniques to enhance returns.

Income Stock: A security with a solid record of dividend payments and which offers a dividend yield higher than the average common stock.

Index: A statistical measure of the state of the stock market, based on the performance of stocks. Indices have their own calculation methodology and are usually measured as a percentage change in the base value over time. Examples are the Sensex and Nifty.

Index Fund: A fund that specializes in the purchase of securities that match or represent a specific index. For example, BSE 30 index is a fund that seeks to mimic the returns represented by the BSE Sensex.

Initial Public Offering (IPO): A company’s first issue of shares to the general public.

Inside Information:  Non-public information pertaining to the business affairs of a corporation that could affect the company’s share price should the information be made public.

Insider Trading: There are two types of insider trading. The first type occurs when insiders trade in the stock of their company. Insiders must report these transactions to the appropriate securities commissions. The other type of insider trading is when anyone trades securities based on material information that is not public knowledge. This type of insider trading is illegal.

Last Trading Day: The last day on which futures or options contracts may be traded.

Limit Order: An order to buy or sell stock at a specified price. The order can be executed only at the specified price or better. A limit order sets the maximum price the client is willing to pay as a buyer, and the minimum price they are willing to accept as a seller.

Liquidity: This refers to how easily securities can be bought or sold in the market. A security is liquid when there are enough units outstanding for large transactions to occur without a substantial change in price. Liquidity is one of the most important characteristics of a good market. Liquidity also refers to how easily investors can convert their securities into cash and to a corporation’s cash position, which is how much the value of the corporation’s current assets exceeds current liabilities.

Long: A term that refers to ownership of securities. For example, if you are long 100 shares of XYZ, this means that you own 100 shares of XYZ company.

Margin Account: A client account that uses the credit from the investment dealer to buy a security. A client needs to deposit a margin amount with the balance advanced by the investment dealer against collateral such as investments. The investment dealer can make a margin call, which means the client must deposit more money or by securities dealers for issues not listed on a stock exchange. Almost all bonds and debentures, as well as some stocks, are traded over-the-counter. An OTC market is also known as an unlisted market.

Par Value: A security’s nominal face value.

Penny Stock: Low-priced speculative issues of stock selling at less than Re 1 a share.

Portfolio: Holdings of securities by an individual or institution. A portfolio may include various types of securities representing different companies from different sectors.

Premium: An option contract’s price.

Price-Earnings {PIE) Ratio: A common stock’s last closing market price per share divided by the latest reported 12-month earnings per share. For example, if the last traded share price of a company is 60 and earnings over the last 12 months is 4, then the P/ E ratio of that company is 15 (60/4). This ratio shows you how many times the actual or anticipated annual earnings a stock is trading at.

Prospectus: A legal document describing securities being offered for sale to the public. It must be prepared in accordance with provincial securities commission regulations. Prospectus documents usually disclose pertinent information concerning the company’s operations, securities, management and purpose of the offering.

Put Option: A put option is a contract that gives the holder the right, but not the obligation, to sell a specified number of shares at a stated price within a fixed time period.

Rally: A brisk rise in the general price level of the market or price of a stock.

Red Herring: This is another name for the preliminary prospectus. This is the offering document printed by the issuer containing a description of the business, listing out risk factors, discussion of strategy, presentation of historical financial statements, explanation of recent financial results, management and their background s and ownership.

Securities: Transferable certificates of ownership of investment products such as notes, bonds, stocks, futures contracts and options.

Settlement: The process that follows a transaction when the seller delivers the security to the buyer and the buyer pays the seller for the security.

Settlement Date: The date when a securities buyer must pay for a purchase or a seller must deliver the securities sold. The settlement must be made on or before the third business day following the transaction date in most cases.

Short Position: An investor’s position where the number of contracts sold exceeds the number of contracts bought. The person is a net seller.

Short Selling: The selling of a security that the seller does not own (naked or uncovered short) or has borrowed (covered short). Short selling is a trading strategy. Short sellers assume the risk that they will be able to buy the stock at a lower price

Stop-loss: A client’s order to close an open position after a price reaches a certain level. It is used to minimize losses.

Stop Loss order: Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.

Technical Analysts: The study and use of price and volume charts and other technical indicators, to make trading decisions. Technical analysis attempts to use past stock price and volume information to predict future price movements.

Trailing Twelve Months (TTM): The last four reported quarters.

Yield: It is the measure of return on investments in terms of percentage. Stock yield is calculated by dividing the current price of the share by the annual dividend paid by the company for that share.

Zero-Coupon Bond: A bond that has no coupon payments. It pays only a single cash flow at maturity.

Yield to Maturity (YTM): The rate of return the investor will earn if the bond is held to maturity.

Yield Curve: A chart in which the yield level is plotted on the vertical axis and the term to maturity of debt instruments of similar creditworthiness is plotted on the horizontal axis. The yield curve is positive when long-term rates are higher than short-term rates; however, the yield curve is sometimes negative or inverted.