Wednesday, August 6, 2008

A 2 Z Terminology

One of my regular readers Mr. Adi told me finish off with this A 2 Z terminology in a stretch. So I am resuming and posting important terminology till Z.

But before that MY OPINION about today’s market.

As I mentioned in my yesterday’s post, market started with 300+ taking que from US and Asian markets. But market was choppy in last one hour trade. In last one hour it almost lost 300 points due to profit booking in banking stocks. Initially it was 5% up but while closing it was .2%. Reliance Industry, BHEL, ICICI, L&T, RCOM were very active stocks today.

Now A2 Z

Quote Driven Trading

This is a trading system where a market maker offers two-way quotes for each security. A buy quote and a sell quote are provided by the market maker. Thus the price at which a trade will be executed is known at the time of placing the order.

Rights Issues

The issues of new shares to existing shareholders in a fixed ratio to those already held at a price which is generally below the market price of the old shares.These are the relatively rare occasions in a company's life when it will create new shares, the proceeds of which will go directly into its bank account, instead of giving a profit (or a loss) to an existing shareholder. The issue of additional equity shares to the existing shareholders on a pre-emptive basis. Typically, the subscription price of a rights issue is significantly below the market price of the old shares.

Real Return
The rate return earned on an investment after adjusting for the rate of inflation.

Rolling Settlement
This is the system by which shares are bought, sold and paid for. Rolling Settlements is a mechanism of settling trades. in Rolling Settlements, trades done on a single day are settled separately from the trades of other day on Trade day + 5 days. As such netting of trades is done only for the day and not for multiple days. As such, in Rolling Settlement, settlement is carried out on a daily basis.

Real Interest Rate

Current interest rate less the rate of inflation.

Repos

Short- term money market instrument; transaction where one party agrees to sell a security to another party for cash. The seller agrees to repurchase the security later.

Short Position

A position in which a person's interest in a particular series of options is as a net seller (writer) meaning that the number of contracts sold exceeds the number of contracts bought. It is similar in case of futures contracts.

Short Sale

A Short sale occurs when a person believing that the prices of shares will fall, sells shares that he does not own with the intention of purchasing the shares at lower price at the time delivery has to be made. This is also known as forward sale.

Slump

The bottom of a trade cycle when prices and employment are at their lowest, reflected in the downward movement of share prices, Recovery from a slump is often slow.

Spot

Spot purchase or sale implies that the deal is for immediate cash and the shares are to be delivered immediately.

Stag

A stag is an investor or speculator who subscribes to a new issue with the intention of selling them soon after allotment to realise a quick profit.

Strike Price

also called exercise price. The price for which the underlying stock index or other asset may be purchased (in the case of a call) or sold (in the case of a put) by the option buyer (holder) upon exercise of the option contract.

Secondary Market
The market in existing securities provided by the Stock Exchange.The secondary market, by providing a method of buying and selling securities, overcomes the basic mis-match between the needs of
savers/investors who provide new money and the requirements of capital raisers/borrowers.

Settlement
The payment of cash for securities and, conversely, the delivery of securities against payment - the conclusion of a securities transaction by delivery. Settlement is the payment or receipt of an outstanding due at the end of the settlement period.

Stop Loss

The dealer can enter a regular lot or a special term order with a 'trigger' price. Such orders are called Stop Loss orders. The stop loss orders are not taken for matching unless the trigger price is either reached or if it is surpassed by the last traded price for the security. Once the market price reaches or surpasses the trigger price, the 'stop loss' attribute is removed and the order is taken up for regular matching process.

Settlement guarantee

Settlement guarantee is the guarantee provided by the clearing corporation for settlement of all trades. This implies that the trade will be settled even if one of the parties to the trade viz; the buyer or the seller defaults. This prevents a cascading effect in the market due to the default of one party. The clearing corporation has set up a settlement guarantee fund through contributions from the members which is used for this purpose.

Splitting/Consolidation

The process of splitting shares that have a high face value into shares of a lower face value is known as splitting. For e.g: A share with a face value of Rs 100/- may be split into ten shares of Rs 10/- each. The reverse process of combining shares that have a low face value into one share of higher value is known as consolidation.

Spot trading

A market in which securities are traded for immediate delivery, as distinct from a forward market. Spot in this context means ‘immediately effective’, so that spot price is the price for immediate delivery. The actual delivery of securities takes place either on the same day of the contract or on the next day. Trading by delivery of shares and payment for the same on the date of purchase or on the next day.

Settlement Period

For administrative convenience, the stock exchange divides the year into a number of settlement periods each of generally one week duration. The first and the last day trading of each settlement period are fixed in advance and so are settlement days for delivery and payment.

share swap

An arrangement by which shares of one company are swapped for another in a specified ratio

stock option

An option given to a person to buy stock at a predetermined price at a future date

Screen Based Trading

Screen based trading uses modern telecommunications and computer technology to combine information transmission with trading in financial assets. Trading members are connected to the Exchange from their workstations to the central computer located at the Exchange via satellite using VSATs (Very Small Aperture Terminals). Buy and sell orders from the brokers reach the central computer located at NSE and are matched by the computer.

Solicitor

A Solicitor is the auction participant who is on the opposite side of the Initiator's order. If the Initiator is a buyer then the solicitor will enter sell orders for the same security.

Stock split

Splits are about as exciting as getting change for a Rs100 note. Depending upon the split ratio one share of a company is split into the decided number. This is done by reducing the face value of the scrip. Stock splits are expected to improve liquidity in a stock.

Trader Workstation

A dealer can participate in the Capital Market only from the trader workstation, where the trading functions are available.

Trading Member

It refers to a member of the BSE/NSE who is authorized to place orders in the Capital Market System. The term Broker or Brokerage house is also used to convey the same meaning.

Volatility

The rate by which the price of a security fluctuates in changing market conditions.

Volume of Trading

The total number of shares which change hands in a particular company's securities. It is the sum of either purchases or sales which necessarily equal. This information is useful in explaining and interpreting fluctuations in share prices.

Yield
Yield is the annual return you receive from holding a stock, share or unit trust - it is expressed as a percentage of its price.In the case of shares, the yield is calculated by expressing the dividend as a percentage of the cost of the investment. To calculate a yield on a share, take the dividend paid (this will be net of the basic rate of tax), add back the tax to get the gross yield and then divide by the share price and multiply by 100

Yield Curve
A graph depicting yield vis-a-vis maturity. If short-term rates are lower than long-term rates, it is a positive yield curve, if short-term rates are higher, it is a negative or inverted yield curve. If there is isn't much difference, it is a flat yield curve.

Yield To Maturity (YTM)
The yield earned by a bond if held to maturity.

1 comment:

Unknown said...

yes naveen if you can please finsh off A 2 Z terminology...there are some serious issues to discuss