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). Quite simply it means you try to buy something cheap in one place, to make a profit selling it somewhere else.Given the speed at which the financial markets now operate, in practice the simultaneous purchase of foreign exchange, securities, commodities or any other financial instrument in one market and the sale in another at a higher price.
American Depository Receipt (ADR)
A stock representing a specified number of shares in a foreign corporation. ADR's are bought and sold in the American markets just like regular stocks. An ADR is issued by a U.S. Bank, consisting of a bundle of shares of a foreign corporation that are being held in custody overseas. The foreign entity must provide financial information to the sponsor bank. ADR's are listed on either the NYSE, AMEX, or NASDAQ.
American Depository Share (ADS)
A share issued under deposit agreement that represents an underlying security in the issuer's home country. The term ADR and ADS are thought to be the same, they sort of are. ADS is the actual share trading while ADR represents a bundle of ADSs.
Averaging
The process of gradually buying more and more securities in a declining market (or selling in a rising market) in order to level out the purchase (or sale) price.
Bears
These stock market animals are pessimists, they expect share prices or any other type of investment to fall. In a 'bear market' the general sentiment is that prices are going to go lower and majority of dealers will sell as quickly as possible for fear of holding shares which diminish in value.Bears, like 'bulls' drive the market.
Basis Point (BP)
The smallest measure used in quoting yields on fixed income securities. One basis point is one percent of one percent, or 0.01%.
Bond
A debt security, issued by a company or government agency is called a bond. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a specified maturity date; the issuer usually pays the bondholder periodic interest payments over the period of the loan.
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.
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.
Bull
A bull is one who expects a rise in price so that he can later sell at a higher price.
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.
Buyer
The trading member who has placed the order for the purchase of the securities
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.
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.
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 1.2%.
Bid
This is the highest price at which an investor is willing to buy a stock . Practically speaking, this is the available price at which an investor can sell shares.
Buy limit order
An order of buying a security with a condition that order will not be executed above the specific mentioned price.
Buy on close
An order of buying a stock, but only at the end of the trading day. Security will be bought in the closing price range.
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.
Best ask
The lowest price at which a stock is quoted to be sold.
Best bid
The highest price quoted for a particular stock to be bought.
Bid/Ask spread
The difference between the ask price and bid price.
Correction
Temporary reversal of trend in share prices. This could be a reaction (a decrease following a consistent rise in prices) or a rally (an increase following a consistent fall in prices).
Carry forward trading
Trading where the settlement of trades is postponed on the stock exchange until a future settlement period involving payment of interest on the account. It refers to the trading in which the settlement is postponed to the next account period on payment of contango charges (known as ‘vyaj badla’) in which the buyer pays interest on borrowed funds or the backwardation charges (a.k.a ‘unda badla’) in which the short seller pays a charge for borrowing securities.
Call Option
This is the right, but not the obligation, to purchase shares at a specified price at a specified date in the future. For this privilege, the buyer pays a premium which would be a fraction of the price of the underlying security. You are gambling that the share price will rise above the option price. If this happens you can buy the shares and sell them immediately for a profit.If the share price does not rise above your option price, you do not exercise the option and it expires - all you have lost is the initial payment made to purchase the option.
Capitalization
The total value of the company in the stockmarket.This value is arrived at by multiplying the number of shares in issue by the company's share price. This market capitalization obviously fluctuates as the share price moves up and down.
Convertible
Any security is described as convertible when it carries the right or option for the holder to at some stage convert it in for another form of security at a fixed price. Convertibles are often bonds or loan stock (but sometimes preference shares) which carry the right to be converted into ordinary shares at some date in the future at a previously specified price.
Corporate Bonds
A corporate bond is by a public company. When you invest in a corporate bond, you are lending money to the company. In return you will receive interest at a fixed rate and the promise that your capital will be repaid at a certain date in the future. The guarantee that our capital will be returned is only as good as the company you are lending money to.
Correction
A correction is a term to describe a downward movement in share prices. In other words, a shake out or even a crash or mini-cash. Stockbrokers and fund managers like the term correction, perhaps because they believe if they use the term crash or 'heavy fall', it'll cause panic. Whatever you decide to call a downward jolt in share prices, if you lose money, it may be described as a correction, but you'll feel pretty sick all the same!
Cum-bonus
The share is described as cum-bonus when a potential purchaser is entitled to receive the current bonus.
Cum-rights
The share is described as cum-rights when a potential purchaser is entitled to receive the current rights.
Carry Over Margin
The amount to be paid by operators to the stock exchange to carry over their transactions from one settlement period to another.
Capital Asset Pricing Model (CAPM)
A model describing the relationship between risk and expected return, and serves as a model for the pricing of risky securities. CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. If this expected return does not meet or beat required return then the investment should not be undertaken.
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.
Custodial fees
The fees charged by the custodian for keeping the securities.
Cumulative preference share
Preference shares whose dividends will get accumulated, if the issuer does not make timely dividend payments.
Convertible preference shares
Preference shares that can be converted into equity shares at the option of the holder.
Commercial Paper (CP)
CPs are negotiable, short-term, unsecured, promissory notes with fixed maturities, issued by well rated companies generally sold on discount basis.
Dividend
This is the income you receive as a shareholder from a company. When you buy an ordinary share in a company, you become a shareholder (an owner of the business) and to that extent you will have certain entitlements including the right to receive dividend payments as set by the board of directors and approved by the shareholders (sometimes called members.)A dividend is a cut of the profits earned by the business for the year. This pay-out is not guaranteed and where it exists at all, the amount you'll receive will vary from company to company and year to year.
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.
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. They may be secured by a floating charge on the company's assets or they may be tied to specific, named assets.Debenture interest has to be paid by a company whether it makes a profit or not - if the debenture holders do not get paid they can legally force the company into liquidation to realise their claims on the company's assets.
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.
Beyond this, the range of derivatives possible is only limited by the imagination of investment banks.
Delivery
A transaction may be for "spot delivery" (delivery and payment on the same or next day) "hand-delivery" (delivery and payment on the date stipulated by the exchange, normally within two weeks of the contract date), special delivery (delivery and payment beyond fourteen days limit subject to the exact date being specified at the time of contract and authorized by the exchange) or "clearing" (clearance and settlement through the clearing house).
Demat trading
Demat trading is trading of shares that are in the electronic form or dematerialized shares. Dematerialisation is the process by which shares in the physical form are canceled and credit in the form of electronic balances are maintained on highly secure systems at the depository.
Delivery price
The price fixed by the clearing house at which deliveries on futures are to take place. In practice, at this price contracts are settled by payment or receipt of the difference.
will continue........
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