Stck Mrkt Terms

7/28/2019 Stck Mrkt Terms

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ADR

Registered certificate with the Securities and Exchange Commission (SEC) issued and

quoted on the US market in USD and evidencing non-US equity paper. Holders of ADRs

essentially enjoy the same ownership and membership rights as shareholders.

Alpha

Ratio which expresses risk-adjusted performance of an investment fund. If the average

return on a security or portfolio is larger than its expected return, the alpha is positive. If

the average return is smaller than expected, the alpha is negative.

Arbitrage

The simultaneous purchase and sale of identical or equivalent financial instruments or

futures in order to benefit from a discrepancy in their price relationship.

At-the-money

When the price of the underlying security is equal to the strike price, an option is at-the-

money.

Blue Chip StocksStock in a well-established, financially-sound, and stable company that has demonstrated

its ability to pay dividends in both good and bad times.

Book Building

The process of optimum price discovery in which the company decides the price of the

security by asking various investors about how much and at what price would they invest

in the companys equity.

Cost of carry

Cost of financing an asset

Derivatives


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A derivative instrument is an instrument which derives its value from the value of one or

more underlying which can be commodities, precious metals, currency, bonds, stock, stock

indices etc.

Expiration Date

The last day on which an option may be exercised. Also, the last day of trading for a futures

contract.

Green Shoe Option

The green shoe option allows a company to retain the amount of oversubscription in case

of a fresh public issue.

Kerb Deals

The sale/purchase of securities before and after the official trading hours of the stock

exchange.

Limit Order

An order placed with a broker to buy or sell shares at a specified price or better than the

specified price.

Market MakerA person who provides both buy and sell quotes for a security.

Mark-To-Market

The daily adjustment of margin accounts to reflect profits and losses.

Odd Lot

A lot of share that is less than the marketable lot is called an odd lot.

Open Interest

The cumulative number of either long or short contracts which have been initiated on an

exchange, and have not been offset.

Open Order


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An order to buy or sell a security that remains in effect until it is either canceled by the

customer or executed.

Over the Counter (OTC)

A security which is not traded on an exchange, usually due to an inability to meet listing

requirements. For such securities, brokers/dealers negotiate directly with one another

over computer networks and by phone.

Put

A put option gives the buyer the right, but not the obligation, to sell an underlying security

at a specific price for a specified time. The seller of a put option has the obligation to buy

the underlying security should the buyer choose to exercise his option to sell.

Rally

An upward movement of prices following a decline; the opposite of a reaction.

Reaction

A decline in prices following an advance. The opposite of rally.

Rights Issue

Issue of additional equity to existing shareholders of a company

Scalping

Scalping normally involves establishing and liquidating a position quickly, usually within

the same day, hour or even just a few minutes.

Stock Split

The division of a companys existing stock into more shares. In a 2-for-1 split, each

stockholder would receive an additional share for each share formerly held.

Tick

Smallest increment of price movement possible


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Earnings Per Share (EPS). Earnings, also known as net income or net profit, is the money

that is left over after a company pays all of its bills. For many investors, earnings are the

most important factor in analyzing a company. To allow for apples-to-apples comparisons,

those who look at earnings use earnings per share (EPS).

Market Capitalization.The current market value of all of a companys shares outstanding.

To calculate market value, you take the number of shares outstanding and multiply them by

the current price of each share. You can find information about shares outstanding from the

companys last quarterly report or any online quote service.

For instance, if a company has 10 million shares outstanding and trades at $13 per share,

the market capitalization is $130 million.

Market Cap.

= Shares Outstanding* Share Price

=10 million * $13 = $130 million

Price/Earnings Ratio (P/E). Earnings per share alone mean absolutely nothing. In order

to get a sense of how expensive or cheap a stock is, you have to look at those earnings

relative to the stock price. To do this, most investors employ the price/earnings (P/E) ratio.

The P/E ratio takes the stock price and divides it by the last four quarters worth of

earnings. If XYZ Corp. is currently trading at $15 a share with $1.00 of earnings per share(EPS), it would have a P/E of 15.

Relative Strength : Relative strength, also known as relative price strength, rates the

performance of a stock versus the performance of the market as a whole over a given time

period. The rating system gives a numerical grade just like the ones Mr. Spicer used to

scrawl in bright red ink on your algebra quizzes to the performance of a stock over a

given period, normally the past 12 months. Thus, relative strength is a momentumindicator.

The most popular form of relative strength ratings are those published in Investors

Business Daily, which go from 1 to 99. A relative strength of 95, for example, indicates a

wonderful stock, one that has outperformed 95% of all other U.S. stocks over the past year.

However, given that relative strength is only a mathematical relationship between the


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stocks performance and an indexs performance, many others have created their own

relative strength measures.

Revenues. Also known as sales, revenues are how much the company has sold over a given

period. Annual revenues would be the sales for a given year, whereas quarterly revenues

would be the sales for a given quarter.

Sales. Also known as revenues, sales are literally how much the company has sold over a

given period. Annual sales would be the sales for a given year, whereas quarterly sales

would be the sales for a given quarter.

Utilities. A business that provides a service essential to almost everyone is called a utility.

These businesses are almost always under some form of regulation by the government and

normally have a monopoly position in a certain region. Electric companies, natural gas

providers, and local phone companies are often referred to as utilities.

Volume. The number of shares traded on a given day is known as the volume. Many

investors look at volume over a month or a year to come up with average daily volume.

Market watchers will say a company has traded at a certain number of times the average

daily volume, giving the investor a sense of how active the stock was on a certain day

relative to previous days. When major news is announced, a stock can trade as much as 20or 30 times its average daily volume, particularly if the average daily volume is very low.

The average number of shares traded gives an investor an idea of a companys liquidity

how easy it is to buy and sell a particular stock. Highly liquid stocks trade easily in large

batches with low transaction costs. Illiquid stocks trade infrequently and large sales often

cause the price to rise or fall dramatically. Illiquid stocks on the Nasdaq also tend to carry

the largest spreads, the difference between the buying price and the selling price.

Bonus Shares

Shares allotted to the existing shareholders by capitalizing the reserves into additionalcapital. When the market expects a company to come out with a Bonus Issue, the price ofthe shares normally goes up. Following a bonus issue, though the number of total sharesincrease, the proportional ownership of shareholders does not change.


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Breakout

A technical analysis term meaning a stock price has moved above or below a previoustrading range.

Bridge/Mezzanine Funding

Financing for a company expecting to go public within 6-12 months; usually so structuredas to be repaid from proceeds of a public offering, or to establish a floor price for publicoffer.

Broad Based Fund (sub-account)

A fund which has a minimum of 20 shareholders without any single investor holding more than 10 percentof the shares and units of the fund is known as broad Based Fund.

Capitalize

When costs of items such as buildings, equipment and other items with a useful lifetime exceeding oneyear are categorized as assets to be depreciated over a number of years, rather than being expensed inthe year of purchase.

Circuit Breaker

A mechanism used to restrain the market when it gets overheated. The Exchange may relax the limit aftera cooling off period of about half an hour.

Clear Title

A title to an asset proves your legal ownerships of that asset. That asset be mortgaged, sold, rented orotherwise transferred, temporarily or permanently, to another person. This represents an encumbranceon the title. Banks are reluctant to authorize loans against assets which have encumbrances and prefer aclear title.

Common Stock

Equity or ownership in a corporation. Stockholders participate in a company's profits or losses throughdividends and changes in the stock's market value.

Derivatives

A financial contract between two or more parties based on the future value of an underlying asset.Options and similar other instruments are examples. For instance, the value of a call option on reliance(derivative) fluctuates with the price of reliance stock.

The value is totally 'derived' from the value of the underlying asset such as securities, commodities,bullion, currency, live stock, etc. it is any hybrid contract of a pre-determined fixed duration such asforward, future, option, etc. linked for the purpose of contract fulfillment to the value of a specified real orfinancial asset or to an index of securities.


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Equity per Share

Shows how much of a company's equity one share represents. If the market price is greater than theequity per share, the market believes that the company will generate extra value. Equity divided bynumber of shares at the close of the period.

Ex Bonus

A Share is described as ex dividend when the buyer is not entitled for the dividend. The seller remains thebeneficiary. The day after dividends is paid!

Ex Rights

A share is described as ex rights when the buyer is not entitled for the Rights. The seller remains thebeneficiary. Ex rights shares are cheaper than Cum Rights and offer a good 'buy' opportunity forinvestment oriented players.

Financial Futures

Legally binding agreements to buy or sell financial instruments at a future date (for example, bondsstocks, treasury bonds, foreign currency).

Front-End Load

Sales charge paid when purchasing a mutual fund.

Green Shoe

An agreement allowing the lead underwriter to buy additional shares of an IPO at the offering price afterthe IPO begins trading.

Growth Stocks

Stocks that pay low dividends, but are expected to grow. Strictly for long term investors who have a visionfor the future and are not interested in maximizing short term profits.

Hedging

A practice of taking one market position to offset potential losses in another. For example using a futuresa contract to reduce the impact of price fluctuations in a cash or physical market. Like when you may like

to cover possible loss by also backing the horse for a place. In securities trading, since there is no win orplace, you have to look for another investment avenue where the return is less but the risk is alsocorrespondingly less. A hedger takes an equal and opposite position in the futures market to the one heholds in the equity market.

Index/Indices

An index is managed and publishes either by a stock exchange or a professional financial and investmentbody. It is representative of the market sentiment. Normally the index components are the highly traded


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stocks of that exchange. Usually they represent about 80 to 85 percent of the market capitalization andtrading. Sectored indices like Industrial, banking, Utilities, etc is made up of the highly traded stocks inthat particular sector. The BSE Sensex is based on 30 stocks as is New York 's Dow average. These 30stocks, in number, are a miniscule percent of the total listed shares, but in terms of value of trade andmarket capitalization, they represent anything up to 85 per cent.

Industry Group

Companies in related businesses.

Institutional Ownership

Shares of a company owned by pension funds, mutual fund, banks, financial institutions, etc.

Leverage

Any means of increasing value and return by borrowing funds or committing less of one's own money. For

corporations, it refers to the ratio of debt (in the form of bonds and preferred stock outstanding) to equity(in the form of common stock outstanding) In the company's capital structure.

The more long-term debt there is, the greater the financial leverage. Shareholders benefit from thisfinancial leverage to the extent that the return on the borrowed money exceeds the interest costs ofborrowing it. The market value of the company rises and so do its shares. Because of this effect, financial

leverage is popularly called trading on the equity'. For individuals, leverage can involve debt, as when

an investor borrows money from his brokeron margin' and so is able to buy more stock than he

otherwise could. If the stock goes up, he repays the broker the loan amount and keeps the profit himself.By borrowing money he has achieved a higher return on his investment than if he had paid for all thestock himself. Rights, warrants, futures and option contracts also provide leverage, not through debt butby offering the prospect of a high return for little or no investment.

The downside: most individuals pledge existing stocks with their bankers or brokers for the loan, which isa percentage of the market value of the stocks pledged. Say you have pledged stocks worth Rs.100 onthe market against which you are given a loan of Rs.50 (50 per cent). Now suppose the market value ofthe pledged stocks goes down to Rs.75. The lender is immediately going to ask you to pledge morestocks (or pay cash) to bring the level up to 200 per cent of the loan.

Multiply this instance by thousands and you can imagine the margin pressure that is exerted on the

market. This is when the market falls and we have what is known as a bear' market.

Margin

An upfront payment made by the customer to take a position in the market. His exposure limit is fixedbased on the margin money brought in by him. The difference in the value of shares pledged and the loanamount sanctioned. The margin for physical shares is 50 percent (that is you can borrow only up to 50percent of the values of your pledged shares. If one wants to borrow Rs.100, then it will have to pledgeshares worth Rs.200. The margin for demat shares is35 percent. Margins are at the sole discretion of thebank and may even vary from scrip to scrip.

Mark to Market


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A notional profit or loss of a long or short position as compared to the current market price.

Minimum Number of Companies Accepted

The minimum number of companies, whose shares have to be offered as security for obtaining loans. Forexample, in case of IDBI Bank the shares to be offered as security should be of at least of two

companies. It is in your interest to pledge the shares of an number of companies when you take a loan; ifthe value of some shares drop in the market they may be offset by the other shares which have risen inprice. Banks also profitability of a number of companies.

Momentum Analysis

Usually involves looking for stocks in a strong uptrend (high relative strength), strong earnings growth,and increasing earnings forecasts. In today's market, may include relative strength only.

Net Asset Value (NAV)

Net Asset Value (NAV) is the market value of the securities held by the scheme of a Mutual Fund.NAVvaries on a day-to-day basis since the market value of securities changes regularly. The total marketvalue divided by the total number of units of the scheme on a specific date is the NAV.To simplify, if youhold a unit in a mutual fund, the NAV is the value today of your unit.

Operating Cash Flow

Surplus cash generated from a company's basic operations without regard to income tax entries such asdepreciation and amortization. Changes in levels of inventories, accounts receivable and accountspayable also affect cash flow. Also see Free Cash Flow.

Operating Earnings

Earnings without considering certain expenses such as inventory write downs, severance pay,depreciation and amortization charges, or just about anything else the company feels like excluding tomake its earnings look better. Also known as core earnings, ongoing earnings, earnings excluding specialitems or operating earnings.

Operating Income

Sales minus all expenses except income taxes and other items not relaxed to basic business.

P/E (Price/Earnings Ratio)

Shows a share's market price in proportion to its earnings. Calculated by dividing the share price by thereported or forecast annual earnings per share. For an investor this means that, if the P?E ratio is 10, theprice is equivalent to ten years earnings. The figure illustrates expectations of future company growth. Incomparisons, it is best used for companies operating in the same field. For a portfolio, the ratio is theweighted average P/E, the greater the expectations for a company's future growth in earnings.

Penny Stocks


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This term is typical to the USA stock markets. Low-priced issues, often highly speculative, selling at lessthan $1 a share. Frequently used as a term of disparagement although some penny stocks havedeveloped into investment-caliber issues. In India they are called low-Capped stocks and BSE has aseparate index for them. It is not unusual, When a bull market is raging, to find the index for these stocksoutpacing the Sensex. These stocks offer larger returns but at higher risk.

Poison Pill

Steps taken by a corporation to thwart a hostile takeover attempt. For instance, a company could issuerights to purchase shares at a substantial discount after a merger, or it might issue preferred sharesgiving holders the right to redeem their shares at a discount after a merger.

Post-Offering Shares

The number of shares that will be outstanding after an IPO.

Private Placement

The sale of securities to a small group of investors that is exempt from the elaborate requirements of apublic issue. Private placements are usually made to investment banks and financial lending institutionsfrom whom the issuing company takes or intends to take, a loan. The private placement results in thelending institute holding the company's stock collateral.

Proxy Statement

Material given to stockholders when the corporation solicits shareholder votes. In effect, the companyseeks temporary delegation of your voting rights. The proxy statement usually contains details on thecorporation's executive compensations plans.

PyramidingSo called because it is akin to building a pyramid. It involves pledging shares with a banker or broker toraise a loan to buy more shares of the same company, pushing up their prices. These shares are pledgedagain to secure a further loan to buy additional shares of the same company in a self-feeding cycle whichis called pyramiding. In a bullish market this causes the price to rise further and increase the operator'sprofit. In a bear market this causes margin calls and substantial losses. it can, more appropriately, becalled building a house of cards. The whiff of a market rumors and pyramid could collapse around you.

Redemption Fee

Fee charged when you sell a mutual fund, if you have not held the fund for the prescribed minimum time.

Rematerialisation

Process of converting the shares from electronic form to physical form.

Resistance

Historical price level at which rising prices have stopped rising and either moved sideways or reverseddirection; usually seen as a price chart pattern.


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Rights Issue

Issue of new shares to the existing shareholders at a price which is normally lower than the currentmarket price of the old shares. it is issued in a fixed ratio to those shares which are already held.

Road ShowPresentations made by underwriters and IPO company officials to institutional buyers to create interest inthe offering.

Rollover

A point where a stock price has fallen to support, or risen to resistance, and then reverses the up or downtrend convincingly.

Second Stage Capital

Capital provided to expand marketing and meet growing working capital needs of an enterprise that hascommenced production but does not have positive cash flows sufficient to take care of its growing needs.

Security Swapping

One has to pledge one's shares when availing of "loan against shares". Later on the person maywithdraw some shares and pledge new ones to replace the shares he has withdrawn. This is popularlycalled security swapping.

Split

An increase in the number of shares outstanding. This increase in the number of shares result in theproportionate decrease of share price. For example, a company declares a "3 for 1 " stock split, the priceof the stock is currently 60 a share, a shareholder with 100 shares before the split would have 300 sharesafter the split with a value of 20 a share. The shareholders equity does not change. A reverse split iswhere the total number of shares is decreased and the stock price increases proportionally. As in a splitthe total stock holders equity remains the same.

Support

Historical price level at which falling prices have stopped falling and either moved sideways or reverseddirection; usually seen as a price chart pattern.

Third Stage Capital

Capital provided to an enterprise that has an established commercial production and basic marketing set-up, typically for market expansion, acquisitions, product development etc.

Tick

The tick is the direction in which the price of stock moved on its last sale. An up-tick means the last tradewas at a higher price than the one before than the price was at a higher price than one before it and a


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down -tick means the last sale price was lower than the one before it. A zero-plus tick means thetransaction was at the same price as the one before, but still higher than the nearest preceding price. Thetick becomes especially important when large market movements trigger the implementation of certaincircuit breakers meant to stabilize the market.

Top

A technical analysis term meaning the stock price is going down from here.

Value Traded

This is the total monetary value of all trading in a security for the market day. It is calculated by multiplyingthe volume traded by the average sale price.

Yield

In stocks and bonds, the amount of money returned to investors on their investments. Also known as rate

of return. Interest and dividends paid to mutual fund shareholders as a percentage of share price (NetAsset Value). Also the effective interest rate on a bond. For instance, if a bond pays 1.00 interestsannually, and is selling for 10.00, the yield is (1.00/10.00) 10 per cent.

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Stck Mrkt Terms