52 week low
52 Week Low is the lowest price at which a particular stock has traded in the last one year. Traders and investors look at this price to help understand the stock’s current value and to understand how the markets and price trends work.
52 week high
52 Week High is the highest price at which a particular stock has traded in the last one year. Traders and investors look at this price to help understand the stock’s current value and to understand how the the markets and price trends work!
ABC Wave Theory
Elliott Wave Theory, or ABC wave theory, is a term for three-wave counter trend price movement. Here, wave A is the first price wave that is against the trend of
the entire market. B wave is a corrective wave for wave A. Wave C shows the final price move to complete the counter trend price move.
Points to remember:
- Alphabetical labeling helps to differentiate between the degree or level of the wave. It speaks to the span of the basic pattern.
- The patterns begin with the biggest degree and work their way down to influxes of lesser degree.
- There are two sorts of waves: Impulse and Corrective. Impulse waves move toward the bigger degree wave. Corrective waves move against the bigger degree wave.
Abridged Prospectus
An Abridged Prospectus is a memorandum provided in Section 2(1) of the Companies Act, 2013. It includes all the significant features of a prospectus, specified by the Securities and Exchange Board of India (SEBI).
Points to remember:
- It sidelines with the application form of public issues.
- It is basically a brief version of the information, containing all prescribed details in a prospectus, in order to reduce the public issue of capital
Acceptance Credit
An Acceptance Credit is a documentary credit that needs provision of a term for the bill of exchange. Usually, the bill is then accepted by the bank on which it is then discounted or drawn. The beneficiary here is paid promptly at that particular discount. This is applicable only for companies and enterprises that run a line of credit in order to grow their business. Unconfirmed acceptance credit implies that the seller goes broke and that installment won’t be made. This can happen due to any number of possibilities. For example, shipment non-conveyance, reallocation by customs authority, or some other issues. Confirmed acceptance credit implies that the bank whereupon the credit has been issued, basically ensures installment as long as the terms of the letter of credit have been followed.
Points to remember:
- Confirmed acceptance credit is more costly to build up than unconfirmed acceptance credit in light of the fact that the issuing bank is viably ensuring installment.
- Banks may likewise make an acceptance credit offer. Thus, enabling an organization to issue time drafts not connected to particular shipments with a specific end goal to give a general working capital fund.
Accrued Expenses
Accrued expenses are those expenses which are listed on the income statement but are unpaid. Accrued expenses are the liabilities that the company needs to resolve at some future date. They are listed on a company’s balance sheet as the probability of being collected is high. Although they are to be paid in the future, they are listed in the balance sheet from the day the company should expect to make the payment.
Points to remember:
- They can be considered opposite of prepaid expenses.
- Accrued expenses are generally periodic, like wages, taxes etc.
- The probability of accrued expenses getting collected is high.
Example: As a company, you can release a statement of Accrued Expenses at the end of a financial year. It includes interest payments that are yet to be paid.
Accrued Interest
The accrued interest is the interest earned on a bond or loan that has not yet been paid to the lender by the borrower.
Points to remember:
- The accrued interest is accumulated on a debt since the last interest payment date.
- This amount is used for calculating, at the end of an accounting period, the amount of unpaid interest that is payable by or receivable to a business.
Example: For a 10% interest rate on a $10,000 loan, if the payment is to be received on the 15th day of the month, and the additional amount of interest receivable from the 16th to 30th day of the month, the total amount of accrued interest is (10% x (15/365)) x $10,000 = $41.10
Acid Test Ratio
The ratio of a company’s current assets to its current liabilities is known as the acid test ratio. It is a measure of the company’s ability to stay liquid during times of unexpected volatility without having to sell its product. That’s why it is called the acid-test! Can it stay liquid when things are burning? Figuratively.
Points to Remember:
- The financial strength of the company is determined by this ratio.
- Since this ratio does not take into account the illiquid assets, therefore it is more robust than the current ratio.
Adaptive Filter
Trying to predict future prices of an item, based on a dynamic weighting of the item’s prices in the past, is referred to as an adaptive filter.
Points to remember:
- Adaptive filter is a commonly used trading analysis strategy to take calls on buying or selling commodities or securities in the open market.
Add on Method
The Add on Method is an alternative method of paying interest after it is added onto the principal at maturity. In this method, the interest on the loan is calculated annually and multiplied by the number of years left for repayment.
Points to remember:
- In the Add on Method of interest calculation, the interest is calculated as a percentage of the original principal.
- The amount of interest that is added to each payment remains the same throughout the loan.
- As compared to traditional loans, add-on interest loans prove to be more costly to borrowers, but are more profitable for financial institutions as the borrower has to pay a greater amount of interest.
Example: If ABC borrowed a loan of USD 10,000 with an annual add on interest rate of 10%, no matter how much the principal amount is at the beginning of each payment period, ABC will be still paying $1,000 every year.
Add on offering
An add-on offering refers to the additional shares made available to the public by a publicly trading company. This is usually done to raise capital for already existing operations, expansion of trades or to fund new upcoming projects. It is also known as Follow-on Public Offer (FPO) in the Indian markets. The company may additionally raise money through Right Issue. A Right Issue enables an already existing publicly trading company to issue more shares on the market to raise money.
Points to remember:
- While add-on offerings do raise money, they tend to frustrate shareholders since it can reduce the stock prices and change ownership.
- Add on shares usually, benefit the company for the long term by lifting earnings and creating greater profits.
Example: The company Tesla has continuously tapped the financial markets to fund newer projects while raising billions of dollars through their multiple offerings.
Adjusted Futures Price
The adjusted futures price refers to the cash-equivalent of a futures contract that will be used to purchase an asset later on.
Points to remember:
- The adjusted futures price takes into account conversion factors as well as carrying costs.
- It is calculated as futures price X conversion factor for the particular financial asset being delivered.
Advance Decline Line
The Advance-Decline Line (AD Line) is a marker based on Net Advances, specified by the number of rising stocks minus the number of declining stocks. The Advance Decline Line measures the level of cooperation when the markets are advancing or are in a decline. An Advance Decline Line that ascents and records new highs alongside the basic list demonstrates solid support that is bullish. An Advance Decline Line that neglects to keep pace with the fundamental file and affirm new highs demonstrates narrowing investment and bearish market sentiment.
Points to remember:
- It rises when Net Advances are sure and falls when Net Advances are negative.
- The true estimate of an Advance Decline Line depends upon the starting of the stage.
Advance Payment Guarantee/Bond
This is an agreement between two parties, stating advance payments will be returned if the entity receiving these payments, does not deliver on its end of the agreement. This pertains to government bonds, non-convertible debentures (NCD) or other debt instruments. The assurance is provided by the entity accepting an advance payment to the entity making the payment. It undertakes that the advanced total will be returned if the agreement, under which the advance was made can’t be satisfied.
Points to remember:
- On the off chance that the customer agrees to making an advance payment (the initial installment) to a provider, a bond might be required to secure the payment against default.
- An advance payment security will ordinarily be an on-request security,implying that the bondsman pays the measure of cash set out in the bond instantly on request, with no preconditions being met.
Example: A contractor may get an Advance Payment Guarantee/Bond filled by the consumer.
Adverse Excursion
An Adverse Excursion refers to a trade going in a direction opposite to the one desired by the trader, after she/he has executed it. For example, a drop after buying, or a rise after shorting a stock would be an adverse excursion, specified by the amount of movement in the price. The Maximum Adverse Excursion (MAE) is the biggest such movement over the life of the exchange.
Points to remember:
- The Maximum Adverse Excursion is utilized by traders to figure out where to put in a stop loss request for the framework that they are exchanging.
- Adverse Excursion as a term is mostly known to be used in the derivatives market.
- The only thing that can prevent the adverse excursion from getting too big as a proportion of the original investment is a strict stop-loss strategy.
Example: A stock that is purchased at Rs. 500 may drop to Rs. 400, before going back to Rs. 600, then stabilising at Rs. 550. The drop to Rs. 400 is the adverse excursion, with the Maximum Adverse Excursion being Rs. 100 (i.e. 500-400).
After-Hours Trading
After-hours trading is the time frame after the market closes when a financial specialist can purchase and offer securities outside of traditional exchange hours. Pre-market trading, conversely, happens in the hours prior to the time that the market formally opens. Together, after-hours and pre-market trading duration is known as extended-hours trading.
Points to remember:
- After-hours trading happens right after the market gets closed.
- It gives you permission to react to the various news events before other investors can.
- The risks taken in after-hours trading are substantial and are also worth cautious consideration.
All or None Order
It can be defined as a buy or a sell order that needs to be executed completely or not at all. Partial execution of an order is not possible. Either the broker should fill out the order completely or not at all. It is sometimes called a duration order. Usually, an investor tells a broker how to fill the order, thus impacting its period of operation.
Points to remember:
- An all or none order is executable only when there are enough shares available to make a transaction. In case this condition is not fulfilled, the order is cancelled.
- They are similar to fill or kill orders.
- The main disadvantage of an all or none order is that a change in the price of the stock during the transaction process will impact the total cost incurred by the investor for the order.
Alpha Figure
The measure of an asset’s performance, relative to a benchmark or market index is known as Alpha Figure.
Points to Remember:
- It takes into account the active returns on an investment.
- Though it refers to the percentage measuring the performance, it is represented using a single digit number.
- It is also called an ‘abnormal rate of return’ or ‘excess return.’
Anaume Pattern
In the trading analysis, an Anaume Pattern is a depletion design (signifying “gap filling”) made out of five candles on the chart. It happens when the hole is filled in after a market cost has changed bearings. This pattern combined with an alternate pattern, demonstrates a solid potential of a bullish sentiment returning. Basically, a unique weariness design made out of five candles. The anaume happens when the hole is filled.
Points to remember:
- Seeing the hole shaped toward the start of the pattern uncovers that upon an inversion of course, the purchasers have ventured in with an extraordinary measure of energy.
- A Candlestick flag shows up, a Doji or Harami, Hammer, or some other flag that would demonstrate that the offering has ceased.
- Gaps happen in a wide range of spots and structures. Some are anything but difficult to see, some are harder to perceive.
Anchoring and Adjustment
A person starts with a first estimation (anchor) and then makes incremental adjustments in view of extra data. These adjustments are typically inadequate, giving the underlying anchor a lot of impact over future appraisals.
Points to remember:
- Costs examined in arrangements that are lower than the anchor may appear to be sensible, maybe even modest to the purchaser, regardless of whether said costs are still moderately higher than the genuine market esteem.
Example: If an investor wants to buy 1 gm of Gold. His budget is Rs. 2,700. That’s his anchor. However, if the market cost is Rs. 2,800 then he would make an adjustment of Rs. 100 and extend his budget.
Annual Earnings Change
The change in earnings for a company, between the most recent fiscal year and the preceding one is called the annual earnings change.
Points to remember:
- This change is due to fluctuations in the company’s outcome.
Example : Let’s assume that your company initially earned a total revenue of Rs. 50,000 during the previous year and earned a total revenue of Rs. 70,000 this year. Then your Annual Earnings Change would be calculated as follows :Annual Earnings Change = Rs. 70,000-50,000= Rs 20,000
Annual Fund Operating Expenses
In any given year, the expenses incurred to manage the funds by an Asset Management Company are called Annual Fund Operating Expenses. Points to Remember: The Asset Fund Operating Expenses.
Points to Remember:
- The Asset Fund Operating Expenses is a percentage of the fund’s total assets.
- These expenses generally include transaction costs and management fees.
Annual General Meeting
The AGM is a compulsory annual gathering of a company’s shareholders in order to report and present that year’s important events, discuss the company’s strategies and plans for the upcoming year/s and hold elections for their board of directors.
Points to remember:
- Only shareholders with voting rights vote on issues, and other matters of concern. They also vote to select their board of directors.
- Shareholders who do not attend the annual meet vote through proxy, online or mail.
- The company’s by-laws include the rules that govern AGMs. However, the most common discussions at an Annual General Meeting (AGM) of a company include minutes of the previous year’s meetings, financial statements, ratification of the director’s actions and election of the board of directors.
Annual Net Profit Margin
The amount of profit made by the company from their net sales, expressed as a percentage is known as Annual Net Profit Margin. It is calculated over one fiscal year.
Points to remember:
- It is expressed as a ratio of net profit to the total revenue of the company.
- Publicly traded companies release these profit margins quarterly and mention it in their annual report as well.
- Low-profit margins do not necessarily mean low profits for the company.
Annual Sales Change
The change in sales between the recent fiscal year and the preceding year, expressed as a percentage, is known as the Annual Sales Change metric.
Points to remember:
- The sales taken into consideration for calculating this parameter is on an annual basis.
- This change takes place due to fluctuations in market conditions as well as the business outcome.
Arbitrage Selling
When a person buys security from one market at a certain price, and sells it in another market at a higher price, the process is known as Arbitrage Selling.
Points to remember:
- The profit earned by such selling is due to a temporary difference between the prices of the security in different markets.
- It is also considered as riskless profit for the trader.
Example: If the price of Reliance Stock in NSE is Rs. 1000 and in BSE is Rs. 1000.10 then a trader can purchase the stock in NSE and sell it in BSE to make a profit.
Ask or Offer
It is the act of putting up securities for sale (or offering) by a seller. It is accompanied by an Ask Price.
Points to remember:
- The basis of the stock quote is formed by combining the asking price and the bid price.
- The ask quote can also contain information regarding the amount of security to be sold in addition to the price.
Ask Price
The lowest price at which the seller is willing to sell the security is known as ask price. Also commonly known as buying price.
Points to remember:
- The asking price and bid price are always quoted together.
- The ask price is typically higher than the bid price.
Ask Size
The amount of the security that is available at the Asking Price is known as the Ask Size.In other words, the number of securities being put up for sale is denoted by the Ask Size.
Asset Allocation
When funds are diversified based on risk assessment the process is termed as ‘Asset Allocation.’ The assets can be diversified into different categories like real estate, stocks, bonds, various sectors of the economy and lots more.
Points to Remember:
- It is one of the most crucial steps in portfolio management.
- This process also involves determining how much money should be put in each asset class.
Asset Allocation Fund
A fund that invests over a range of assets – such as stocks, bonds and others is called an Asset Allocation Fund. This is unlike a regular mutual fund, which may be exclusively focused on equity or debt instruments.
Points to Remember:
- A Balanced Fund is the most popular type of Asset Allocation Fund.
- It delivers a diversified portfolio to its investors.
Asset Management Company (AMC)
Registered with SEBI, an Asset Management Company is one that handles all the assets within the mutual funds it manages, accepts investments from its customers and takes related decisions on how to run and restructure its mutual funds.
Points to Remember:
- AMCs have access to larger resources. That’s why they can provide more diversification to their clients.
- Apart from mutual funds, they may manage hedge funds and pension plans as well. In return, they charge a commission or service fees to their investors.
Assets
Everything from money to securities to real estate that is owned by the company and adds to its bottom line, is known as assets. An asset could be tangible and both has bearing on the balance sheet of the company.
Points to remember:
- Assets are always mentioned on the company’s balance sheet.
- Assets increase the value of the company and provide future benefits.
- Assets can improve sales and produce cash flow if needed, in future.
At the Close or Closing Price
The price of the last traded stock at the end of the day is known as ‘At the Close.
Points to remember:
- It is important as it provides information about the momentum and the direction of the stock.
- Traders believing in sudden changes in the last few minutes of the trading day tend to place orders at this price.
At the Money
When the strike price of the option is identical to the price of the stock, the situation is termed as ‘at the money.’ An option placed in an ‘at the money.’ An option placed in an ‘at the money’ situation is called an at the money option. In such an option, the strike price matches the price of the stock.
Points to remember:
- At the money describes the relationship between the option’s strike price and the security’s price.
- This option has no intrinsic value.
- The trading activity tends to be high when options are at the money.
Example: If the strike price of the option is 10000 and the spot price is also 10000 then the relationship between them is termed as ‘At the Money’ option.
At the Open
An ‘at the open’ is a directive of selling or buying securities at the very beginning of the day when trading opens.
Points to remember:
- If the open orders are not executed at the beginning of the day, they get cancelled.
- If the closing price of the stock on the previous day tends to affect the opening price on the next day, then At the Open orders are placed.
Authorized Capital
An authorized capital or an authorized share capital is the maximum equity capital that a company is authorized to issue in order to allocate them to shareholders.
Points to remember:
- The capital that is authorized to issue is called the ‘issue share capital’ of that company.
- The authorized capital can change along with the shareholder’s consent.
- The authorized capital is usually not fully made use of by the company. This is done in order to keep some room for future issuing of additional stock in emergency situations.
Automatic Investment Plan
When a small amount of money is directly deducted from your (investor’s) bank account and invested in a mutual fund of your choice, the entire process is called an Automatic Investment Plan. It is also commonly called a Systematic Investment Plan. You can regularly purchase units of a particular fund at the market rate of the particular day of the buy. A predetermined amount will be deducted from your account at regular intervals. You can specify the interval as per your investment goals. SIPs can be daily, monthly or quarterly. A major feature that differentiates a SIP from a lump sum purchase of mutual funds is that you buy the units at different rates, i.e. the NAV (Net Asset Value) of that particular day in a SIP.
Points to Remember:
- It is one of the most popular methods of investment in mutual funds, since it allows investors to skip having to individually move funds themselves.
- Either the funds are deducted from the paycheque or can be paid from a personal bank account.
Automatic Reinvestment
Automatic reinvestment is an investment option in which the money earned from a fund’s dividends or capital gains is used again automatically to buy more units in the funds.
Points to Remember:
- Using this investment strategy, an investor can benefit from the power of compounding.
- Investors usually adopt this strategy if the fund is already making them profits.
- The gain from the funds is not distributed to the investor. Instead, it is used for buying more units of the same fund.
Autoregressive
Autoregression is the use of previous data in order to predict the future data. The prediction is done by taking the weighted sum of the previous values. Points to
Points to remember:
- In order to predict values using autoregressive models, the past values should impact future values.
- It minimizes the mean squared error.
Average Daily Volume
The average number of securities traded per day over a specific period of time is known as the average daily volume. The average trading volume can increase or decrease according to the changing views of the public regarding a security. The average trading volume influences the price of a stock.
Points to remember:
- Greater the average trading volume, greater the liquidity of a stock.
- In case of a low trading volume, the risk of price changes is high. This is because a smaller number of orders placed at varying intervals may move the price by large amounts every time they get executed.
- The average daily volume is a measure to determine the overall market liquidity of a stock.
Average P/E Ratio
P/E stands for price/earnings. The average P/E ratio is the current price (market price) of a share divided by the earning per share. The P/E ratio is expressed as a multiple of earnings. Greater the P/E ratio, greater the amount the investor is willing to shell out. In case a company goes into loss, the P/E ratio is considered to be zero or is said to fail to exist.
Points to remember:
- High P/E ratio means that the stock is expected to rise in value in future.
- A low P/E ratio doesn’t necessarily suggest loss, but might also suggest undervaluation.
- When P/E ratio is greater than average, it is believed that the stock market is overvalued.
Averaging Down
When an investor buys more securities at a lower price than the initial investment, the move is called averaging down. It is done in order to reduce the average cost per investment unit.
Points to Remember:
- Averaging down helps in reducing the net cost of investments, leaving more room for gains.
- On the contrary however, if the investment value continues to fall after averaging down, it may lead to more losses.
Example: For example, say a person buys 10 shares at Rs. 100 each (Total= Rs. 1000). Now, say the market price drops to Rs. 80 per share and he again buys 10 more shares (Total= Rs. 800). Now the average purchase price becomes (1000+800/20)= Rs. 90. This shows that the original cost price was reduced by Rs. 10.
Average True Range (ATR)
Average True Range (ATR) is a useful indicator and can be applied to stocks and indices. It is the measure of volatility of a price range. The ATR is a moving average.
Algorithmic trading
Algorithmic Trading is the process where a pre-programmed trading instruction is fed into the computer program in order to execute an automated trade. Specific instructions can be assigned for variables for example: time, price and volume of orders.
Annual report
An annual report of a company is an exhaustive report of a company’s activities that took place during the previous year. Usually, shareholders look at annual reports in order to measure a company’s financial performance and other activities.
Auction
A marketplace instrument where potential buyers bid on a particular product, assets and/or services. The person who places the highest bid purchases the item on auction. Historically, auctions were a group affair where the buyers, seller and an auctioneer would be in the same place. Potential buyers would then place their bids in a competitive setting and the auctioneer would act as the moderator or mediator between the seller and the buyer who ends up being the one who places the highest bid. In today’s digitally savvy world sellers can place their items on sale and buyers can place their bids while sitting at their desks in the office or at home. Online shopping sites such as E-Bay act as the auctioneer in this scenario where people can bid for products and purchase according to the traditional principles of auction.
Arbitrage
It is the buying and selling of securities in different markets at the same time so as to make a profit by taking an advantage of differing prices of the same asset.
Accumulation Distribution Line (ADL)
“The Accumulation Distribution Line (ADL) is an indicator that looks at supply and demand by deducing whether investors are generally buying (accumulating), or selling (distributing) a certain stock. This is identified by looking at the difference between movement in stock price and volume of the stock. The ADL is calulated with the below mentioned formula ADL = ((Close Ð Low) Ð (High Ð Close)) / (High Ð Low) * Period Volume”
Back End Load
When an investor exits or sells a mutual fund, they need to pay a certain amount of commission or fee which is called as Back End Load. This is also known as an exit load. It is not applicable to all fund houses. Usually, it is charged by a few fund houses only. However, it is a cost that is to be borne by the investor.
Points to Remember:
- The back end load is charged in order to reduce the number of withdrawals.
- The fee is a percentage of the holdings being sold by the investor.
Back Months
Back months refer to the available futures contracts for a commodity that has expiration farthest into the future.
Points to remember:
- The liquidity of a back month futures contract constantly increases, as it approaches the expiration date.
- Back month contract premiums are usually higher than those of front month contracts.
- Back month contracts are also referred to as far month contracts.
Backtesting
Backtesting is a technique to test the trading strategy on historical data which is relevant in order to ensure its viability. It is also known as “interpreting the past.”
If the results of backtesting meet the required standards, then the trading strategy can be used by the trader with actual capital to gain profit. But, if it does not meet the necessary standards, then it needs to be modified and tested again.
Points to remember:
- A backtesting procedure should reflect reality to the largest extent.
- An important parameter tested using this technique is the robustness of the trading strategy.
Balance Sheet
Balance sheet is a financial statement that represents the company’s assets and liabilities as of a specific date. The difference between these two is termed as a company’s net worth.
Points to remember:
- Balance sheet works on the following simple equation:
Assets= Liabilities + Shareholder’s Equity - The equation indicates that the company should pay for all its assets by either borrowing money i.e. liabilities or by taking it from the investors which is shown by second term on the right hand side.
Balanced Mutual Fund
A mutual fund that invests in and generates its return from a combination of equity and debt assets is known as a balanced mutual fund. It is geared primarily towards investors who are risk averse but desire high returns.
Points to Remember:
- It invests in stocks as well as bonds.
- A balanced mutual fund will have a certain percentage dedicated towards equity instruments and a certain percentage to fixed income instruments.
Basing
It is the period when a stock shows minimum downward or upward movement. In other words, the stock trades in sideways, which forms signature patterns like cup with a handle.
Points to remember:
- A basing stock indicates that it has equal amounts of supply and demand.
- If a stock has had a significant decline or advance, then basing is a common phenomenon.
Basis
Basis refers to the difference between the futures price and the current cash price of the same commodity.
Points to remember:
- In case of a futures market, basis is the cash price of the commodity traded minus its futures price.
- The change in relationship between the cash price and future price of the commodity affects the value of the futures as a hedge.
- Unless specified, the basis is generally calculated by using the price of the nearby futures contract month.
Basis of Allotment
Allotment is the process of allocating shares to shareholders, based on prior agreements, most commonly seen in an IPO. This allotment of shares is based on conditions which must be satisfied before the shares are issued.
Points To Remember:
After the closure of an issue, the bids that are received from the shareholders are put under different categories including:
- Firm allotments
- Qualified Institutional Buyers (QIBs),
- Non-Institutional Buyers (NIBs), and many more.
- After classification of the received bids, the oversubscription ratios are then calculated for the respective groups against the shares reserved for them. The bids are then aggregated amongst different buckets based on their applied shares. The calculated oversubscription ratio is then added to the applied shares.
- This process is governed by SEBI’s ICDR regulations in India.
Best Efforts Underwriting
In Best Efforts Underwriting, the underwriters try their best to sell all the securities, but they are in no way obligated to purchase them.
Points to remember:
- If demand from customers is low, it is highly possible that best efforts underwriting will be used.
- Under best efforts underwriting, if any securities are not sold, then they are returned to the issuer directly.
Beta (Coefficient)
Any market risk associated with any kind of security is measured in terms of Beta. Also known as beta coefficient, it is the ratio of historical returns of an individual stock to the historical returns of the market.
Points to remember:
- Calculation of Beta is done using regression analysis.
- It is mostly used in CAPM (Capital Asset Pricing Model) to calculate the expected returns of the asset.
Example: If the stock’s value increased by 10% and the market rose by 8%, then the value of beta is 10/8= 1.25.
Block Trade
Block trade, as the name suggests, is an exchange of a fixed number of securities at an agreed price between two parties. The number of securities to be traded is significantly larger than ordinary trade deals. In a block trade, a single purchase or sale of a stock involves 10,000 or more shares. In a nutshell, block trade is done with an intent of investing.
Points to remember:
- If in case, the block trade is conducted in an open market, traders need to be careful with the trading as it might cause major fluctuations in terms of volume, and can also impact the market value of the bonds or shares that are being purchased.
- The block trades are generally conducted with the help of an intermediary known as a Block House.
- Block trades are known to be more difficult compared to others as it exposes the broker/dealer to more risk.
Bluechip Fund
A mutual fund that invests in blue chip stocks (a large established company with a proven track record of returns), is called as Bluechip fund.
Points to Remember:
- Bluechip stocks are known to operate profitably even in adverse market conditions, which adds to the stability and performance of a bluechip fund.
- An investor investing in these stocks can track the performance by monitoring the Bluechip Index.
Board of Trade Clearing Corporation
Also known as Clearing Corporation, the Board of Trade Clearing Corporation acts as a guarantor for all the trades cleared and settles all the trades made at the Chicago Board of Trading. It also ensures that at the end of the day, all the losses are collected and gains are credited.
Points to Remember:
- The corporation ensures that all the trades take place in a smooth manner. In other words, they become the buyer to every seller and seller to every buyer.
- It is an independent organization, efficiently handling complex transactions like futures contracts.
Book Building
Book building is a price discovery method in which the company issuing the shares doesn’t fix a specified price of the shares issued. Instead, it provides an indicative price range or a band. This means that the knowledge of the price of the issued shares is unknown in advance.
Points to remember:
- In a book building process, the demand of the shares is identified every day while the book is built.
- The book is filled with prices that investors indicate to pay per share.
- After the book is closed, the price is determined by a Book Running Lead Manager by analyzing the book’s values.
- This process is governed by SEBI’s ICDR regulations in India.
Book-Entry Securities
The electronically recorded securities that contain the creditor’s name, tax identification number and the amount are called book-entry securities.
Points to remember:
- No paper certificates are issued for the proof of ownership. Since the records are maintained digitally, they are easy to maintain, move around and transfer ownership for.
- They are also known as uncertified securities or paperless securities.
- In the Indian context, book-entry refers to dematerialized or “demat” mode of storing securities.
Book Running Lead Manager (BRLM)
Book Running Lead Manager (BRLM) plays an important role in the complete procedure of an Initial Public Offering (IPO). It is necessary to appoint a solid BRLM for a successful IPO.
Not only do they follow up in creating marketing strategies for the company’s IPO, but also manage and determine the pricing, compliance and success of the issue. Points to remember:
- An important responsibility of the BRLM is creating a book (during the book building process filled with potential investors and the prices they are willing to pay for the public shares). This helps in determining the price of the shares in the IPO.
- The BRLM also functions as the centre point of all information related to the IPO process.
Book to Bill Ratio
Within a certain time period, the book to bill ratio is the ratio of new orders of the company to the shipments. It is widely used in semiconductor industry.
Points to remember:
- If this ratio is greater than 1, it shows sales growth.
- Shrinking sales are shown by book to bill ratio less than 1.
Booked Orders
Orders that do not trade upon entry immediately are known as booked orders.
Points to remember:
- They are also known as outstanding orders.
Bottom Line
A company’s net after-tax profits are known as the bottom line. It gets its interesting name for the simple reason that it is mentioned at the bottom of the income statement!
Points to remember:
- Profits = Revenue generated – Expenses
- That number generated from the above formula is mentioned at the bottom of the income statement. Two ways to increase the bottom line of a business are by growing the revenue or by cutting costs.
Bought Out Deal
A bought out deal is a process in which a company offers securities or shares to the public, through a sponsor. The sponsor can be a bank, any financial institution or even an individual. This method can be opted for only by private companies, as per SEBI rules.
Points to remember:
- Terms of this method are agreed upon by the company and the sponsors.
- This method involves three parties: the company’s promoters, the sponsors and the co-sponsors.
- A bought out deal helps the company in saving time as well as the costs involved in a public issue.
Bounce
When a stock hits support (a price on the chart where it faces resistance to further dips) and then moves up sharply, the phenomenon is known as ‘Bounce’. It may hit the support in the form of a trend line, a moving average or combination of these.
Points to remember:
- Not all supports are strong enough to create bounce. Bounces which fail to ensure a sustained rise are called a dead cat bounce.
Box Spread
When an investor locks an arbitrage profitable position that involves no risk, then it is known as box spread.
Points to remember:
- It provides minimum amount of risk.
- A box spread occurs when there is a dual option position that involves identical expiry dates of bull and bear spread.
Bullion
Bullion is a common word for gold and silver, the jewels being 99.5% pure and in the form of bars or ingots. To create bullion, gold should be first extracted from the earth in the form of ore (a combination of gold and mineralised rock), after being discovered by mining companies. It is extracted with the use of chemicals or extreme heat. The resulting pure bullion is also called “parted bullion.” Bullion that contains more than one type of metal is called “unparted bullion.”
Bullion is a legal tender owned by Central banks held in reserves, they own 20% of the mined gold. It is also used by institutional investors to get an edge over the results of inflation on their portfolios. Gold is also held as reserves, a bullion that the bank utilises to repay international debts.
Points to remember:
- Bullion is a legal tender owned by Central banks held in reserves.
- It is also used by institutional investors to get an edge over the results of inflation on their portfolios.
Bureau of Indian Standards (BIS)
The Bureau of Indian Standards acts as hallmarking agency that certifies gold on the basis of Indian standards. Gold is tested and assessed at BIS centres and then certified as authentic metal to the Indian standard of fineness and purity.
Points to remember:
- The BIS is National Standard Body of India that marks quality certification of gold and silver. It provides a certificate of assurance that a piece of jewellery is in accordance with the standards set by BIS.
- The certification has five components:
- BIS Standard mark
- Purity grade
- Mark of hallmarking centre
- Year of marketing
- Jewellers identification mark
Butterfly Spread
A butterfly spread combines bull and bear spreads in order to form a neutral options strategy.
Points to remember:
- A butterfly spread makes use of four options contracts that have the same expiry but three different strike prices.
- This creates a range of prices from which the profit can be earned.
- Puts and Calls can be used for a butterfly spread.
- They come with limited risk.
Buy and Hold
When a stock or security is acquired for long term regardless of market fluctuations, the act is known as ‘Buy and Hold’.
Points to remember:
- Such investors are not concerned about the short term price of the stock.
- It is a passive investment strategy.
Buying forward
Buying forward is the purchase of commodities or securities at a specified price for delivery at a future date. When the price of the security or demand of a currency is expected to increase, buying forward helps an investor to gain benefit of future profits by buying at that point in time at a lesser price, and selling it when price increases.
Points to remember:
- The opposite of buying forward is selling forward.
- If an investor assumes that there would be a potential drop in the price or demand of the security or currency, selling forward can be applied/implemented/executed by the investor. This will save the investor from incurring a loss as he/she would be selling it at that moment when price drops.
Example:
For example, if a share is priced at Rs. 100 and it is expected to rise to Rs. 150, and if the investor buys this share at Rs. 100 and the prices jump to Rs. 160 in the future, he can sell it at Rs. 160 making a profit of Rs. 60.
Broker
A broker is a person/organization who helps people purchases and sells goods and/or assets.
Bracket order
A bracket order is a way in which a trader can limit her/his loss. A trader can “bracket” an order and set two orders on the opposite ends i.e. she/he can place a sell limit order on both the high-side and the low-side.
BSE
The Bombay Stock Exchange was started in 1875. It was called the “Native Share and Stock Brokers’ Association” back then. It has about 6,000 companies and has developed India’s capital markets.
Brokerage
Brokerage is the amount that a broker charges for purchasing and selling goods and assets for others.
Balanced fund
Balanced Funds are usually set up for those investors who look for a blend of safety, sizeable income and modest capital appreciation. The amount in these kinds of funds should remain balanced i.e. between a certain range of predetermined miniumum and maximum amount.
Call Option
An option that gives the buyer the right to, but not the obligation to, buy underlying futures contracts at the strike price before the expiry is called a Call Option.
Points to remember:
- They are mainly used for speculation, tax management and profit generation.
- It gives the buyer the right to buy or call in an asset within a specified time.
Cancellation
The company issuing shares can cancel the offering for another form of financing, when an IPO process faces difficulties in getting investors to raise the required capital for it.
Points to remember:
- A cancelled deal can indicate a failure of an IPO.
Example:Scotts Garments’ IPO withdrew its IPO in 2013 amid sluggish investor sentiments as the company received bids for only 27 per cent of the 1.05-crore shares on offer
Capital
To an economist, capital refers to machinery, inventory and factories required to produce products. But, for an investor, capital can refer to their handheld cash and the financial assets which they have invested in market securities, home, or any other fixed assets.
Raising capital or capital investment in projects is a commonly heard term. The type of capital that is involved defines how a capital good is maintained or is returned to its pre-production state.
Points to remember
- There are multiple types of capitals – such as financial capital, natural capital, social capital, instructional capital, and human capital.
- As an investor you would be more interested in financial capital.
Capital Gain or Loss
The profit or loss that results through the sale of certain assets is classified as a capital gain or loss. It encompasses stocks and other investments – like investment property.
The capital loss or gain could be both long-term or short-term. Capital gain is of two types – realized and unrealized. The gain on an investment that was sold for some profit, is the realized capital gain. Unrealised capital gain refers to the gain on an investment that is not sold but is to be transacted later.
Points to remember
- When the value of a capital asset, like an investment, decreases compared to its cost of acquisition, it is called capital loss. When the value increases, it is referred as capital gain.
- Equity funds and shares are long-term capital assets when they’re held for more than a year.
Example: If an individual purchases the stock of XYZ Company at Rs.100 per share and the price rises to Rs. 120. Then, the capital gain for the investor is Rs. 20.
Capital Growth
A rise in the market value of a mutual fund’s securities is known as the capital growth of the mutual fund. This is reflected in its net asset value (NAV) per share. This usually is a long-term objective for many mutual fund schemes.
This growth is measured through the difference between the present market value of an investment or asset and the purchase price or the value of the investment or the asset at the time when it was acquired.
Points to remember
- Companies which have stocks that tend to have the best capital growth usually don’t pay dividends.
- This type of growth is not taxed until and unless the investment or the asset is sold.
- The objectives of capital growth investments can be classified into high or moderate growth.
Capped Style Option
An option which has an established profit cap is known as a capped style option. These are also known as Protected Options.
Points to remember:
- A capped style option protects the writer from losing any amount greater than the predetermined amount.
- Capped style options are easier to exercise.
- They do not need the type of movement a standard option needs in order to get decent profits.
- This tool is mostly popular among hedge funds and implemented by hedge fund managers.
Carrying Charge
Also known as the cost of carrying, it is the cost of storing a physical commodity over a definite period of time. These include insurance, storage costs and interest charges if any.
Points to remember:
- These are incorporated in the forward contracts or the price of commodity futures.
- Carrying charges act as a deterrent to investors who want to invest in physical commodities.
Cash Commodity
Cash commodity is an actual commodity – like soybean, corn, silver which is bought or sold by a person, in contrast to digital commodities like shares.
Points to remember:
- In futures trading, cash commodities are delivered for payments.
- The hedgers in the market are typically interested in buying the physical commodities or cash commodities or cash crops.
Cash Contract
A cash contract is an agreement for immediate or future delivery of the commodity.
Points to remember:
- A cash contract has a direct connection between the seller and the buyer.
- It can be drawn up for any amount for which both the parties agree.
- Cash contracts also convey important information regarding the market conditions.
Cheapest to deliver
Cheapest to deliver is a method used to determine the cash debt instrument that will produce the maximum profit against a futures contract.
Points to remember:
- It is important for a short position because there is often a disparity between the market price and the conversion factor.
- The cheapest to deliver is calculated using the following formula-
CTD = Current Bond Price – Settlement Price x Conversion Factor
Clearinghouse
A clearinghouse is an agency responsible for reporting the trading data, settling trading accounts, regulating delivery and clearing trades.
Points to remember:
- A clearinghouse is a third party, in all the futures and options contracts.
- It adds stability and increases the efficiency of the financial markets.
Co Manager
A co-manager is an underwriter in a stock offering, but not a part of the Lead Managers. They deal with a particular niche of investors in an IPO process and expand with more research on the company’s stocks.
Points to remember:
- The co managers function in tandem with BRLM to cover different and broader bases.
- They also add additional research and distribution potentials to the offering process.
Commodity Actuals
Commodity Actuals are a physical commodity that highlight a futures contract or traded in the physical market.
Points to remember:
- It is traded in a physical market or the futures market.
- It is a homogeneous commodity.
Commodity Exchange
Commodity exchange is a legal body that regulates and imposes rules and procedures for the trading standardized commodity contracts and related investment products. It also refers to the physical centre where trading takes place.
Modern commodity markets started with agricultural products being traded. It was done in the 19th century. Chicago was considered to be the main hub for commodity exchange. Modern commodity market involves trading in investment vehicles.
Points to remember:
- They are often used by investors from the producers of goods and commodities.
- It is also used by investment speculators.
Commodity spread/straddles
The commodity-product spread is the difference between the price of a raw material commodity and price of a finished product created from that commodity. A common commodity-product spread is the “crack spread”.
Trading on the fluctuations in the commodity-product spread is a sought-after trade in the futures Futures market. This can be very advantageous for firms that transform raw materials to goods and products. These firms can purchase futures and sell product futures, edging risk and aiding to circumference in the gross profits.
Points to remember:
- Commodity spread trading is derived from hedging strategies.
- It is used lessen the risk involved in trading.
- Price for the commodity is secured with the assistance of futures.
Commodity Trading Adviser
A commodity trading advisor is a firm or an individual that advises others on buying and selling of the options and some foreign exchange contracts.
Points to remember:
- The role of CTA is limited to providing advice related to trading in commodities.
- Being a commodity trading advisor requires registration with the National Futures Association.
Custodian
A bank or company that holds the mutual funds’ assets in order to reduce risk is known as a custodian.
Points to remember:
- A custodian holds the securities in either physical or electronic form.
- Though they hold securities and other assets, they play no role in portfolio management.
Currency trading
Trading in international currencies is a global market where about $1.9 trillion is circulated in a day. It is one of the largest financial markets in the whole world. MNCs, banks, other financial institutions purchase and sell large volumes of currencies in order to cater to the international trade demands. Regular traders also invest and trade in the currency market so that they can capitalize on minor fluctuations in foreign exchange rates. Currency traders also predict and speculate so as to trade on anticipated fluctuations in the currency market.
Cover order
In a marketplace, an order placed with a Stop Loss Order is called as Cover Order. In a cover order both the buy/sell orders are placed with a mandatory Stop Loss Order over a specified price range. A Stop Loss Order is non-cancellable.
Contract note
It is the official legal record of a transaction that is carried out on a stock exchange through a stock broker. The trader gets the contract note at the end of the day if she/he has either purchased or sold shares through that particular broker.
Commodity
Raw materials and bulk goods such as metals, livestock, oil, grains, cotton, cocoa, sugar etc which are used to manufacture consumer products that can be easily used by the average consumer, are defined as commodities. This term also includes financial products such as currency or stock and bond indexes.
Circuit Breaker
A Circuit Breaker or a collar is a measure that is set in order to stop panic selling after either a security or an index has fallen drastically by a particular amount. A circuit breaker is an instrument used to let investors and traders to understand if a particular fall in a security or a market index is a dire situation or not. It helps control the situation when markets are volatile and there is a tendency for investors to make decisions based on the emotion of panic.
Charting
Market variables such as stock prices, market averages, commodity prices, trading volume, interest rates etc. are mathematically plotted on a graph in order to spot trends and also predict future values of these variables. Technical Analysts rely heavily on charting because they believe that all factors are factored into the stock price. Technical Analysis is based on the art of charting because analysts can then evaluate short-term trends, keep sight of the traded volume, volatility of a particular stock or the market as a whole and make decisions based on the values visible in these charting tools.
Cash Market
Cash Market is a public marketplace where transactions of financial instruments such as securities or commodities are immediately settled. Cash Market is the opposite of a futures market wherein the delivery (i.e. completion of a transaction) is made at a predetermined date in the future.
Debt Fund
A debt fund is a type of mutual fund wherein the invested amount is distributed across securities that are likely to yield you a fixed income.
Points to Remember:
- Debt funds offer a minimum amount of risk and a roughly fixed amount of returns.
- They are also known as fixed income fund or credit fund.
Examples: Debt funds also include instruments such as: Gilt funds, Monthly Income Plans (MIPs), Short Term Plans (STP), Liquid Funds, Fixed Maturity Plans (FMPs) etc.
Delivery date
The day in the month that commodities on a futures contract have to be delivered is called the Delivery date.
Every forward and futures contract contains a delivery date on which the corresponding commodity should be delivered to the holder of the contract provided he/she has the contract upto the date of maturity.
Points to remember:
- A future contract is generally referred by its delivery month.
- The exchange market that deals with the futures contract should put forward the specified period during which the delivery can be made.
- For a few of the futures contract, the delivery period is the whole month, for some of it, it is a specific date.
Example: If a contract specifies the delivery date to be March 2019, then the futures contract will have to be delivered within the specified month of March.
Delivery Notice
It is a notice of a clearing member’s intention to deliver a stated quantity of a commodity in settlement of a short futures option.
The holder in a futures contract with a short position writes a notice informing the clearing house of his/her intention and particular about delivering a commodity for settlement. The delivery notice is significant in the cases of both short and long positions in a futures contract.
Points to remember:
- The notice is a clear written contract.
- It describes the specifics about the commodities, and the delivery.
Delivery Points
Delivery points are the locations where the commodities will be delivered to the buyer. It can be a warehouse where commodities are stored or an exchange facilitated delivery point.
Points to remember:
- The location you choose for the delivery will affect the net delivery cost.
- The difference in the price due to change of delivery points occur as a result of transporting the commodities from source to delivery point.
Differential Pricing
When a specific category is offered shares at a price different than the other categories, the act is called as differential pricing.
According to the DIP (Disclosure and Investor Protection) guidelines, if the firm allotment category has a price greater than the net offer to the public, only then the differential pricing policy is applicable.
Points to remember:
- A company can issue shares at differential pricing to only two categories, namely the retail investors and the employees.
- For retail individual investors, a maximum of 10% discount on the price offered to other categories is allowed.
- For employees, a maximum of 10% discount on the floor price can be offered.
Direct Public Offerings
When securities are offered direct to the public, without any aid from an investment banking firm, the company is said to be doing a Direct Public Offering (DPO).
The companies must have a complete set of financial statements and a disclosure statement in order to complete DPO.
Points to remember:
- DPO offers the company a chance to build the capital money from its own community and not only the wealthy investors.
- As DPO have an exemption from the federal registration requirements, they are not required to be registered with Securities and Exchange Commission (SEC).
Example: Spotify had opted for the DPO route in 2017, so public investors could have access to its shares.
Dividend Plan
The earnings from a mutual fund are available in different ways. One of them is a dividend plan. In a dividend plan, the investor receives a fixed dividend (or payout from his holdings) from time to time. The dividend is not reinvested back into his holdings, unlike in a growth fund.
Points to remember:
- The investor receives dividends in his account, which are not taxed at the receiving end.
- But a Dividend Distribution Tax is levied on the mutual fund schemes before the dividends are paid out to the investors.
- A dividend plan allows investors to engage in ‘dividend stripping’ – which involves exiting the fund at a loss (on paper) after the dividend has been received, since a dividend is deducted from the Net Asset Value (NAV) of a fund.
Dividend Stripping
Dividend stripping is when the investment is made with the thought of exiting the fund as soon as the dividend is received.
Dividend stripping is usually a strategy used by investors for reducing their tax burden. The investor invests in securities just before the record date and exits immediately after the dividend is received. The dividend received is tax free.
Points to remember:
- Dividend stripping is usually a strategy used in mutual funds.
- Many-a-times, the investors might incur loss due to such sale-off of shares. In such cases, they book for a capital loss which is then used for claiming tax breaks.
Draft Offer Document
As the name suggests, it is the draft of the offer document for an IPO (Initial Public Offering). It is the first ever document submitted by the company to SEBI (Securities and Exchange Board of India) for approval.
Points to remember:
- This document are to be filed with SEBI (Securities and Exchange Board of India) at least before 21 days of filing it with ROC/SE.
- SEBI takes approximately 30 days to process draft offer document.
- The changes specified by SEBI in the draft should be done by the issuer before filing it with ROC/SE.
- The draft document is available for review by the public for 21 days prior to filing it with SEBI on the website of SEBI.
Discount brokers
Discount brokers are those brokerage firms who charge a reduced fee/commission for helping investors purchase and sell on the stock markets. Such discount brokers like Hensex utilize the best of technology to provide a sophisticated trading experience. Additionally, unlike traditional brokers wherein they get extra commission for recommending certain stocks, discount brokers have no hidden agenda in helping you choose the right investment option for you. They don’t provide any investment advice or tips.
Derivatives Market
Derivatives market is the financial market for derivatives which are a group of products including futures and options whose value is derived from and/or is dependent on the value of a different underlying asset such as commodities, currency, securities etc. whose value is independent and only dependent on market forces.
Derivative
A derivative is not a stand-alone financial product. Its value is dependent or it derives its value from another variable asset.
Depository participant
A Depository Participant is an agent or representative of a depository. A depository can be literally translated as a place where valuables are stored for safety purposes. However, in the financial world, a depository can also refer to an institution that holds and also enables owners to exchange their securities and shares. When investing or trading on the stock exchange, your broker becomes the Depository Participant.
Demat Account
Shares and securities are held in a special account called “Demat” which basically means that these shares and securities are held electronically in a “dematerialized” account. This account is a replacement of the investors having to hold share certificates in physical format i.e. printed copies. Investors and traders can open demat account when registering with the investment broker like Hensex.
Debentures
A debenture is a debt instrument which is an insecure instrument i.e. it is not backed by a physical assets or collateral. Debentures are secure only because of the issuer’s creditworthiness and reputation. Usually, large corporations and governments are the ones who use debentures as a type of bond to raise capital.
Derivatives Trading
Derivatives are those instruments that are dependent on another security for its value. There are several underlying assets based on which traders can purchase and sell in the derivatives market. For example, the underlying assets include stocks, bonds, interest rates, market indexes, currencies and commodities.
Delivery trading
Delivery is the final step of finalization of a purchase or sale of a financial investment instrument. Just like the purchase and sale of any other product in a marketplace, delivery happens when the transaction is complete and you bring the purchased goods home or get them delivered. Delivery trading is more common when purchasing or selling a stock, commodity or when trading in currency markets.
Demat
Demat is short for “dematerialization” (DEMAT). It is the move from physical certificates to an electronic version of keeping a record of all the shares an investor owns. With the advent of the digital age, actual stock certificates are ceasing to be in existence and will not be circulated anymore. Instead, electronic records of the stock certificates will be kept digitally.
Equilibrium Price
Equilibrium is the state when the supply and demand of the market balance one another. As a result, prices remain stable. The equilibrium price is the market price where the…
Equity Options
The options on shares which belong to an individual’s common stock are said to be equity options. These options are known to be the most common type of equity derivative.
Points to remember:
- These options provide rights, but not the obligation to purchase or sell stocks, at a particularly set price within a specified span of time.
- The option expires after reaching maturity.
Exit Load
Whenever an investor makes an exit from a mutual fund within a duration as set by the mutual fund scheme, they may need to pay a charge known as the exit load.
Most mutual fund schemes charge a fee while entering or leaving a scheme known as load. The one levied while leaving is called exit load. This fee is collected with the aim of discouraging investors from leaving a scheme. In other words, it is done to avoid withdrawals.
Points to remember:
- The exit is levied to discourage investors from changing schemes often.
- It is calculated as a percentage of the Net Asset Value (NAV) when the investor is selling off the schemes.
- Exit load is not applicable in case of merger of funds.
Example: Suppose, you are selling 500 units of an equity scheme that you had purchased four months ago. The scheme could charge you 1 percent for an exit load if you redeem the units you hold before one year.
Let us assume the NAV is Rs. 100. You will get Rs. 99 per unit [Rs 100 – Rs 1 (1 per cent of 100)] on redemption. The total amount that you’ll get will be Rs. 49,500 (Rs 99 X 500 units). That means you have paid an exit load of Rs. 500 (Rs 1 per unit).
External Risk Factors
The external factors that affect the share performance of the company, (which need to be mentioned in the offer document when going public), are called external risk factors. These factors are generally not under the control of the company.
Points to remember:
- External risk factors include market risks, changes in economic macro-variables and government regulation risks.
- The external risk factors have an impact on the initial public offering valuation.
Equity Trading
Equity Trading is the purchasing and selling of company stock shares. In publicly traded companies or IPOs, shares are bought and sold through stock exchanges such as the BSE or NSE in India or through NYSE or LSE internationally.
Equity
When speaking of the financial markets, equity is a stock or any other security that is owned by a person. Equity is the share of the stakeholder in a company’s profits and debts.
Filing
It the copy of a prospectus with the documents which is submitted to the Registrar of Companies (ROC).
Points to remember:
- Filing is a mandatory step which needs to be completed by every company before going public.
- All the documents needed as per the state business laws needs to be submitted during the filing process.
Firm Allotment
A part of the total money the company raises in the market is fixed for the promoters to avoid dilution of their stakes. This is termed as Firm Allotment.
Points to remember:
- According to DIP guidelines, only a certain percentage of shares can be kept under ‘Firm Allotment.’
- These shares are offered at a different price than the net price offered to the public, normally higher than the latter one!
Flipping
The process of buying the IPO at the offering price and selling it off as soon as trading starts in the open market is termed as flipping. It is a way of earning quick profit!
Points to remember:
- It is not an easy process and discouraged by brokers as companies need long-term investors.
- No laws prohibit flipping but you may be blacklisted by your broker for future offerings!
Follow on Public Offering (FPO)
If an already listed company issues fresh securities to the public or makes an offer for sale, then it is known as Follow on Public Offering (FPO). In such a scenario, an offer for sale is allowed only if the company satisfies the continuous listing obligations.
Points to remember:
- An FPO is a popular method to raise additional capital for the company from the market.
- Shareholders usually react negatively to FPOs because it leads to dilution of existing shares.
- FPOs prove to be beneficial for investment banks as they are able to charge a trading fee from the company getting listed.
Forward Price
The fixed price at which a specified amount of a commodity is to be delivered on a fixed date in the future.
The price is fixed by the long buyer and the short seller who have agreed to pay at a date specified in the future. At the beginning of a forward contract, the forward price makes the value of the contract at that time, zero.
Forwards Market Commission (FMC)
Forward Market Commission is the Regulatory Authority in India for commodity futures trading.
FMC is headquartered in Mumbai. Just like SEBI regulates Stock market, FMC regulates commodities futures market. They provide advices to Central Government in matters relating to the recognition or withdrawal of recognition from any association. Now, FMC and SEBI fall under the same regulatory body.
Points to remember:
- They also provide advices to central government in matters relating to problem emanating out of the administration of Forward Contracts (Regulation) Act 1952.
- They have the right to exercise the powers assigned to them under the act to take actions whenever necessary.
They also provide suggestions to improve the functioning of forward markets.
Full Membership (CBOT)
A CBOT full membership is the membership of Chicago Board of Trading that provides the individuals with the right to trade in all the futures and options listed under it.
Points to remember:
- A full membership is one of the five levels of membership associated with CBOT.
- Each level of membership has a colour cadge associated with it. A full membership comes with a yellow badge.
- You need to apply for this membership and if approved, you get 30 days to acquire it.
FUTEXAGRI
Futexagri is an equal- weighted index of commodities traded on NCDEX based in the price of near month future contract.
Weighted index is found out by assigning weights to the prices of near month futures contract. National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. Futexagri is traded on NCDEX.
Futures Commission Merchant
A person or firm involved in accepting and handling the buying and selling of futures contracts is known as futures commission merchant.
Points to remember:
- A futures commission merchant is responsible for collecting the margin money from the customers.
- Every futures commission merchant should be registered with CFTC (Commodity Trading Futures Commission).
Futures Exchange
A Futures exchange refers to the market place where the exchange of futures contracts, futures and options, and other such future trading takes place.
Points to remember:
- The exchange allows buyers and sellers deal with equities and commodities with price certainty at a specific time in the future.
- Contracts in the exchange have standardized sizes, pricing information, bids, termination and expiration dates.
Examples:
- Bombay Stock Exchange (BSE).
- Indian Energy Exchange (IEX).
- Metropolitan Stock Exchange (MSEI) (Formerly known as MCX-SX).
- Multi Commodity Exchange (MCX).
- National Commodity and Derivatives Exchange (NCDEX).
- National Spot Exchange.
- National Stock Exchange of India (NSE).
Futures Contract
A futures contract is a legal agreement based on future exchanges, that is, buying and selling of a financial instrument in both equity and commodity at a fixed price in the future at a specified time.
Points to remember:
- There are two categories of people dealing with Futures contracts: Hedgers and Speculators.
- Futures contracts can either call for physical deliveries of the commodity or are settled with cash.
- A Futures contract is usually chosen to avoid extreme changes in price levels in the market whilst gaining risk free returns.
Example: Let us assume that you are interested in purchasing stock X which is priced at Rs. 100 today. You enter a futures contract to buy Stock X at a later date that is two days from now. Thus, you enter into a promissory agreement with the exchange to pay Rs. 100 two days from now. Now, even if the market price of Stock X increases to Rs. 150 or Rs. 200 on the day of the payment–you still pay the previously promised Rs. 100–irrespective of the market price of Stock X at that moment.
Futures
Futures are contracts for assets such as commodities or shares bought at predetermined prices. However, the final delivery and actual payment for futures contracts is done later. That’s why in finance such contracts are termed as “futures.”
Futures trading
People can trade in the futures exchange or futures market where people can trade futures contracts which are contracts to purchase a certain volume of a particular commodity or securities or other financial instruments at a particular price that was predetermined. The delivery of this particular futures contract takes place at a predetermined time in the future.
Gilt Fund
Gilt funds are a kind of security with minimal risk involved and are issued by India’s central government.
Gilt funds originated from the British investment model. In most cases, they are debt securities issued by the government, but sometimes they might be issued by companies.
Points to remember:
- Gilt funds came into being with the objective to minimise risk.
- They are considered by many to be the ideal investment option for the newbies, since they are not only safe but also offer better returns than a typical savings account.
- The returns from such debt funds rise whenever equity funds decline.
Example: The Henderson U.K. Gilt Fund is an investment managing company which invests in U.K. government gilt securities.
GIM Membership (CBOT)
GIM stands for Government Instrument Market. The CBOT, or the Chicago Board of Trade, provides for a membership to merchants.
Points to remember:
- The GIM membership provides merchants with the opportunity to trade amongst all future contracts that have been listed in the GIM category.
Global Fund
Global funds are a kind of mutual fund which invest in stocks throughout the world. Being a global fund, it filters the most apt and best investment plans from a larger pool of securities offered worldwide.
Points to remember:
- A global fund helps investors create a diverse portfolio.
- The return accrued is generally high.
- Global funds involve risk and hence are considered suitable for investors with knowledge and experience.
GLOBEX
GLOBEX® is a global after-hours electronic trading system. It provides a platform for derivatives, futures and commodity contracts.
Points to remember:
- Globex operates at all times and is not constrained by any time zones.
- It has declined exchanges like the CBOT and focuses on different vehicles to match and execute trades.
Go Public
When a privately held company offers shares to the public for the first time through Initial Public Offering (IPO), the act of becoming an IPO is called ‘going public.’
Points to remember:
- Going Public allows even small companies to operate without the help of any credit.
- It is a way of generating money without having to repay the investors, but of course, this is not how it should be perceived as by the owners of the company.
- Going public requires companies to meet certain conditions depending on their country. For example, in India – a company must be generating a profit for at least 3 years before going public.
Green Shoe
Technically known as an over-allotment option, a green shoe is a part of underwriting agreement, through which the issuer can distribute additional shares. The additional amount is typically 15%.
The Green Shoe Manufacturing Company was the first one to use this concept, and this is where the name comes from!
Points to remember:
- A Green Shoe option can be used only if the public demand for shares increases more than expected.
- It is the only way that is permitted by SEBI to stabilize the prices after the offering price is decided, by the underwriter.
Gross Domestic Product (GDP)
Gross domestic product is the best way to measure a country’s economy. GDP is the total value of everything produced by all the people and companies in the country.
GDP is applicable to citizens or foreign-owned companies. If they are in India, the government includes it as a part of their production to their GDP.
The calculation of GDP is down as follows:
Personal Consumption Expenditures plus Business Investment plus Government Spending plus (Exports minus Imports).
Now that you know what the components are, it’s easy to calculate a country’s gross domestic product using this standard formula: C + I + G + (X-M).
Points to remember:
- There are many different ways to measure a country’s GDP:
- Nominal GDP: This measures the increase in prices.
- Real GDP: This compares the economic output of base year with the current year. It also accounts for the consequences on inflation.
Gross National Product (GNP)
Gross national product (GNP) is a reckoned figure of total value of all the final products and services transpired over a given period, by the means of production owned by a country’s residents and businesses, notwithstanding location of production. GNP generally is calculated to measure the total value of the output produced by a country’s resident in monetary terms. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services.
Points to remember:
- Though GDP is popularly followed to measure a country’s economic activity, GNP is also used because; the difference between the GDP and GNP will show the extent of a country’s participation in international trade.
- The real GNP takes nominal GNP measured in current year prices and sets off for any changes in price level for goods and services included in the calculation of GNP.
- Calculating both GNP and GDP can show varying in terms of total output.
Growth Plan
A growth plan is a variant of mutual fund schemes. As the name suggests, it is a kind of mutual fund with the objective of long term capital growth.
The growth option helps in increasing the Net Asset Value of the fund and the investor is able to receive a high capital gain. Generally, firms that offer such plans do not charge any commission at the reinvestment stage. So dividend plans offer an investor to reinvest their money for compounding, without incurring any brokerage fee.
Points to remember:
- The investor does not receive any dividends.
- This is because when opting for growth plan, you give the right to the company to reinvest all the dividends you receive.
- Dividend plans can stabilize stock prices as they create a push towards long term investment.
Example: HDFC TOP 200 FUND – Growth, Sundaram Rural India Fund – Growth are some examples of funds which offer Growth plans.
Gamma
Gamma is the rate of change of delta of an option, in response to changes in the prices of an underlying asset. It gives us a significant evaluation of convexity of a future contract’s value, with respect to the underlying assets.
Points to remember:
- A positive gamma depicts an affirmative convexity of trading position.
- In order to preserve a hedge over a wide price range, a delta hedge plan involves reducing gamma. However, a major outcome of reducing it is that, alpha too, is reduced.
Example: Let us assume that a call option on an underlying stock has a delta of 0.4. If the value of that stock goes up by $1, the option’s value increases by $0.40, inevitably changing its delta to 0.53. The 0.13 difference in deltas is measured as an estimated gamma value.
Hard Underwriting
When an underwriter buys his/her commitment at the earliest stage, then it is known as hard underwriting.
Points to remember:
- If the shares are not bought by investors then the underwriter is expected to subscribe to the funds and bring in the amount.
- The lead underwriter promises a fixed amount to the issuer, irrespective of whether he can sell it to the investors or not.
Hedge Fund
A hedge fund is a kind of fund that pools the capital of investors and then invests them in a variety of schemes. Retail investors cannot invest in hedge funds.
The goal is to generate higher returns which can be achieved due to the investment of high amount of pooled capital in different securities. Hedge funds are much more flexible than mutual funds or any other investment funds. Apart from this, there are fewer regulations, which is why they are not available to the general public.
Points to remember:
- Hedge funds are accessible only to accredited investors.
- Their aim is to achieve positive returns irrespective of the fact whether the market is rising or falling.
- Unlike mutual funds, whose investment is limited to stocks and bonds, hedge funds can invest anywhere.
Example: Ambit Corporate Finance Pvt. Ltd. is one of the major hedge funds in India.
Holding Company
A Holding Company is the company that has the voting control over another company, because it owns the necessary amount of shares of that particular company.
Points to remember:
- A holding company is the actual owner of the organisation.
- This company can take the final call on all decisions.
Holding Period
The time for which an investor holds on to a security is known as the holding period. The period during which an investment is attributable to a particular investor is the holding period. In the long term it is the time period between the purchase and sale of a security.
Points to remember:
- A holding period helps to determine the taxing procedure of a capital gain or loss.
- A long term holding period is a period greater than one year.
Example: If you sell a stock of RELIANCE is sold after a year then the time for which it is held in your demat account is known as holding period.
Holdings
An investor might have a vast portfolio–the contents of which are known as holdings.
All securities are typically ranked according to the ratio of the portfolio they occupy. This arrangement and information makes it easier for the investors to identify the driving point of the fund.
Points to remember:
- The larger the holding, greater is its impact on the portfolio.
- The more the number and type of holdings, greater the diversity of the portfolio.
Examples: Scrips and Mutual Funds in your demat account are called as holdings.
ICAR
Indian Council for Agricultural Research, is an autonomous body that coordinates agricultural education and research in India. It is the hub of agricultural research institutes in the world, presided over by the Union Minister of Agriculture. Some of the institutions in the network include:
- The Central Agroforestry Research Institute (Jhansi)
- Central Institute of Fisheries Technology (Cochin)
- Central Institute of Freshwater Aquaculture (Bhubaneswar) and
- Central Institute of Research on Cotton Technology (Mumbai)
Points to remember:
- ICAR is the one of the world’s largest networks consisting of various agricultural research and educational institutes.
- It consists of 64 different institutions and 4 deemed universities.
- ICAR is headquartered in New Delhi.
IFFCO
Indian Farmers Fertiliser Cooperative Limited is a large scale fertiliser cooperative federation based in India. The IFFCO is responsible for the production and sale of tonnes of fertiliser material, every year. The IFFCO has 40,000 member cooperatives and is registered as a Multistate Cooperative Society. Its subsidiary companies include IFFCO Tokio General Insurance, a joint venture between IFFCO, Tokio Marine, and Nichido Fire Group.
Points to remember:
- IFFCO is an Indian fertiliser cooperative federation that produces and sells fertilizers.
- It has an overall capacity utilization of 53 per cent for phosphate fertiliser and 98 percent for nitrogenous fertiliser.
- IFFCO has joint ventures with various companies including Indian Potash limited and the Oman-India fertiliser company.
Indices
The performance of the stock market can be estimated by taking into account the performance of stocks, bonds and other financial instruments contained within the marketplace. These statistical tools that are employed to measure the state of the economy are called averages and indices.
With the help of these market indices and averages, the change in a particular basket of goods can be measured over a specific period of time. An average is the common mathematical average – the sum of values of all securities divided by number of securities. For calculating the index, a base value and date is chosen and the change in basket of securities is calculated.
Points to remember:
- There are various methods to calculate averages and indices.
Example: The Sensex is an index of the top 30 companies on the Bombay Stock Exchange.
Initial Public Offer (IPO) Aftermarket
When a private company stock is offered to the public for the first time, the offer is said to be an Initial Public offering (IPO).
Initial Public Offers are usually issued by those companies seeking to raise capital or wanting to get access to funds in order to expand their operations.
When a company’s stock is listed in the stock exchange and available for the public to buy and sell stocks, at that point in time that company’s stock is considered to be available in the secondary market.
Points to remember:
- The issuer in IPO obtains the assistance of an underwriting firm, that will help in the determination of what type of security is to be issued.
- The firm also helps find out the offering price and the amount of shares which are to be issued or the company is trying to bring in to the market.
- IPO permits a company to attract more talent as it offers stock options.
ISIN
International Securities Identification Numbering (ISIN) system, uniquely identifies a security. The ISIN is an international standard formed by the International Organization for Standardization (ISO), for the purpose of numbering specific securities.
The ISIN number is administered by the corresponding National Numbering Agency present in the respective country. A typical ISIN code consists of 12 alphanumeric characters. The first two are assigned by the country of origin and by the head office of the issuing company respectively. The 9 characters between the first and the last, are utilized for unique identification of the security. The last digit acts as a check digit to prevent errors and ensure authenticity of the code.
Points to remember:
- The ISIN code is a 12 digit (alphanumeric) numbering system for unique representation of securities such as stocks and bonds.
- It is issued by the National Numbering Agency, present in each respective country.
- It is structured in a way that it includes the country code where the headquarters of the issuing company are present, the specific security identification number, and a check digit.
Example
Apple, Inc.: ISIN US0378331005. Here, the country code is US for the United States, the identification number CUSIP is 037833100 and the check digit is 5.
Reliance :
INE002A01018
Issue Price
The price at which new security is issued and is to be distributed among a set of people prior to the new issue trading is called the Issue Price.
Points to remember:
- It is often referred as offering price.
Issuer
The entity that issues or distributes securities is known as the Issuer. The issuer could be anyone, a company, government or municipality.
The issuers are legally responsible for all kinds of obligations of the issue and also for reporting the condition of the financials, material developments and any other kind of operational activities according to the requirements of the regulations of their jurisdiction.
Points to remember:
- The issuer will work according to the availability of securities such as preferred and common stocks, notes, debentures, bonds, derivatives and bills.
- The writers of options are usually known to be the issuers or options as they also sell the securities on a market.
- SEBI regulates all the companies that issue shares and debts that are listed on the market.
Intraday Trading
Intraday Trading is the system of trading where one has to square-off the trade within the same day i.e. a trader has to buy and sell or sell and buy the same day prior to market close. The transaction has to be completed and settled before market close of that particular day. Intraday Trading is also known as Day Trading.
Joint Applications
An application can be filled in two ways: as a single entity or joint parties. The applications registered under the joint names consists of names–more than one. The payments made under the joint applications are made in favor of the first applicant.
Points to remember:
- At times an individual is not applicable to qualify for availing the credit on their own merits.
- In this case, a person might prefer filling in as a joint applicant which might increase the chances of the application being accepted.
Lead Underwriter
A Lead Underwriter is in charge of organizing the distribution of member participation shares, syndicate and making stabilized transactions. The name of the lead underwriter is mentioned on the left side of the prospectus cover. The person majorly works with various other investment banks in order to establish an underwriter syndicate, and will also create the force for initial sales of the shares. These shares are further sold to the retail clients and institutions.
Points to remember:
- This can bring a bigger payday if the market reflects higher demand regarding the shares.
- Generally, the issuer of stocks will permit the lead underwriter to make an over-allotment of shares only if the demand is high. It can also bring more benefits in terms of money to the underwriting firm.
- The lead underwriter also has access to financials of the company and conditions of the current market, to achieve the initial number and value of the shares which are to be sold.
Listing
Listing majorly indicates the shares of a company that is on the stock list. It should be a company that has officially been traded on a stock exchange. On a general basis, in many countries, the issuing company applies for a listing, but in some other countries, a company can be listed by an exchange, because the stock has already been traded through informal channels.
Points to remember:
- Every stock defines its own rules and listing requirements.
- Due to the process being time-consuming and costly, the listing is not considered much favourable for SMEs (Small & Medium Enterprises).
Listing Date
The date when a newly recorded security is up for sale is called the effective sale. In other words, it the date on which the shares will be traded for the first time on an exchange.
Points to remember:
- After registering with SEC, a company can get their effective date within the next 30 days. This is the time taken by SEC for reviewing the Form S-1 submitted by the company.
- A day before the effective date, the lead underwriter and company decide the number of shares to be sold and the prices at which it will be sold.
Lock-In
In case of IPOs, the lock-in period refers to the duration wherein those with prior information about the impending IPO or the offer document are not allowed to bid or subscribe or take advantage of their position with the organization. This freeze on shares is a way so that a certain number of shares still remain under the ownership of promoters of the company.
Limit order
A limit order is an order where the trader defines the price at which the order should be executed. The opposite of a limit order is a market order.
Minimum Subscription
Minimum subscription refers to the minimum number of shares that a company needs to get out of the entire issue by the date of closure. Currently, every company is required to raise 90% of the issues amount. Else, the company is required to refund the complete amount that has been received. The mentioned 90% has to be the cheques which are not cleared.
Points to remember:
- The infrastructure companies that have a public issue, for them 90% of minimum subscription is not compulsory and is to be given by an alternative source through which the fund will be available to the company.
- A legal precedent for Minimum Subscription was created under the Companies Act of 1956. It states that the company is allowed to offer only a certain amount of shares to the public, for which the company can actually pay.
MSCCGMF
Maharashtra State Co-operative Cotton Growers Marketing Federation is one of the world’s largest suppliers of cotton. It produces over 3.5 million bales of cotton, and has exports exceeding USD 400 million. It provides support to over millions of cotton farmers in India. It’s headquartered in Nagpur, the third-largest city of Maharashtra.
Points to remember
- The MSCCGMF is cooperative federation of cotton growers, and is one of the largest suppliers of cotton in the world.
- It is a state controlled body chaired by Usha Shinde, the first woman chairperson of this federation.
- They have produced around 39,641 quintals of cotton hitherto.
MSP
Minimum Support Prices (MSP), is an initiative of the Government of India to protect producers against any steep fall in prices of agricultural products.
The minimum support prices are announced for certain crops at the beginning of the sowing season, based on recommendations given by the Commission for Agricultural Costs and Prices (CACP). The prices are fixed, and are put in place for insuring farmers against any excessive fall in the prices of produce during bumper production years.
Points to remember
- The minimum support price is the minimum, fixed and guaranteed price below which the prices of the commodities cannot fall.
- MSP ensures that farmers get adequate income for their produce from the government.
MSP is calculated by considering various factors such as production cost, demand and supply, market trends, and changes in input prices.
Example:
- The minimum support price for Barley was Rs. 1325 per quintal for the year 2016-2017.
- The minimum support price fixed by the Government of India for various commodities over the years (2010-2017) can be viewed here.
Mutual Funds Distributor
Any firm or an individual who facilitates buying and selling of units within a mutual fund between an AMC (Asset Management Company) and interested investors, is categorised as a mutual funds distributor. A distributor is basically an agent supplying goods to a retailer. The mutual fund distributor receives payment in advance for each investor they bring in. A distributor who is licensed by AMFI to provide market advice can advise investors regarding the mutual fund schemes they pick.
Points to remember:
- A distributor may be able to sell limited goods of a company or a range of products according to the agreement they have signed.
Example: Hensex is a mutual funds distributor but does not provide advise on the types of mutual fund schemes you should invest in. It is a broker who gives you an easy-to-use platform to invest in the funds that suit your financial goals.
Market order
A market order is an order where the trade will be executed at the current prevailing market price. The opposite of a market order is a limit order.
NABARD
National Bank for Agriculture and Rural Development (NABARD) in India is a financial institution which deals with matters pertaining to policy, planning and operations in the fields of agriculture and economic development in rural areas. It is involved in many developmental activities such as working on the betterment of tribal communities’ livelihood, promotion of cotton industries and working on increasing crop productivity.
Points to remember
- NABARD looks after the development of various rural industries such as the cottage industry.
- It is responsible for conducting activities for agricultural research and rural development.
- NABARD also takes care of rural finance in collaboration with the Government of India, Reserve Bank of India, and other national policy-making bodies.
NAFED
National Agricultural Cooperative Marketing Federation of India limited was established with the aim of promoting cooperative marketing of agricultural produce, for the benefit of farmers. Further objectives include organising, processing and storage of the agricultural, horticultural and forest produce, distribution of agricultural machinery, and to provide technical advice to its members, partners and associates.
Points to remember:
- NAFED is a cooperative marketing federation that was set up for the benefit of farmers and agricultural societies in India.
- In addition to promotion of agricultural marketing, NAFED distributes the farmers’ produce and offers technical advice.
- NAFED also undertakes grading, packing and standardization of agricultural produce and other articles.
National Securities Depository Limited (NSDL)
National Securities Depository Limited is an Indian central securities depository, based in Mumbai. It was the first electronic securities depository in India that was established on November 8, 1996. NSDL was established with national coverage that was based on a suggestion given by a national institute which was responsible for the economic development of India.
Points to remember:
- National Securities Depository Limited is majorly promoted by Industrial Development Bank of India, Administrator of Specified Undertaking of Unit Trust of India, and National Stock Exchange of India Limited.
- National Securities Depository Limited stays as intermediary among the registrar and the company for the dematerialization of the shares.
NBOT
National Board of Trade; an Indore based national multi-commodity exchange.
Being a major futures market for edible oils, NBOT is making attempts to become a national commodity exchange; thereafter qualifying the body to stand at par with other national exchanges such as MCX, NCDEX, NMCE and ICEX. Currently, the National Board of Trade is a public, non-governmental company with an authorized share capital of over 10 crores. It was earlier known as Soyabean Board of Trade.
Points to remember:
- NBOT or the National Board of Trade is a commodity exchange located at Indore.
- NBOT is India’s only soya commodity exchange, and is taking steps to start futures trade in palm oil.
- It is also making efforts to start futures in other commodities such as chickpeas, gram, and cotton seeds.
NCDEX
National Commodity and Derivatives Exchange of India (NCDEX) is a demutualised online commodity exchange that is promoted by various bodies such as ICICI Bank, Canara Bank, NABARD, IFFCO, CRISIL, and NSE. It provides futures trading in different commodities, such as Mustard seed, Soy Bean, and Cotton seed oilcake.
Points to remember:
- The National Commodity and Derivatives Exchange of India is an exchange that deals with commodities such as wheat, turmeric, sugar, jeera, maize, Cotton seed Oilcake and Mustard seed.
- Its shareholder consortium includes various bodies such as National Stock Exchange of India (NSE) and Life Insurance Corporation of India (LIC).
- NCDEX has offices in Mumbai, Delhi, Ahmedabad, Jaipur, Hyderabad, Indore and Kolkata.
Net Offer
The capital that is issued after allotting it to the promoters, which would majorly be raised from the public is known as Net offer.
New Issue
New Issue refers to a security that is issued, registered, and sold in a market for the first time. It doesn’t necessarily refer to the newly issued stocks, although the initial public offerings are one of the most commonly known new issues. Both debt and equity are the types of securities which can be newly issued. New issues are also known as primary shares or new offerings.
Points to remember:
- Subsequent new issues might tend to come after the initial public offerings, but only one IPO can be there.
- The new issue of stocks is recorded on the balance sheet of the company as paid-in capital.
- The widely recognized kind of new issue is known as an initial public offering. This is the very first sale of the shares of a company.
NSE
NSE is the abbriviation for the National Stock exchange of India. The NSE is a leading stock exchange in India established in 1952 located in Mumbai.
Nifty
The S&P CNX Nifty or what is also commonly known as NSE Nifty or Nifty fifty is an Indian stock index. This is basically an average of 50 indian stocks. The stocks on nifty keep changing regularly depending on liquidity, availibity & volume traded on the stocks
Ask or Offer
It is the act of putting up securities for sale (or offering) by a seller. It is accompanied by an Ask Price.
Points to remember:
- The basis of the stock quote is formed by combining the asking price and the bid price.
- The ask quote can also contain information regarding the amount of security to be sold in addition to the price.
Offer Date
The date on which the securities are first made available to the public is known as the offer date.
Points to remember:
- The offer date is decided under the underwriting process.
- These dates can also be advertised for all the types of securities along with the stocks and managed funds, which are the two most common form of securities.
Offer Document
The prospectus that consists information regarding the public issue or offer for sale and in case of a rights issue, it is the letter of offer, which is filed with Stock Exchange and Registrar of Companies is known as Offer Document. This document covers every relevant information that helps an investor make his/her decision on investment.
Points to remember:
- An offer document is a written document issued by a company for the shareholders of another company that explains why it wishes to purchase shares in their company and describes all the details related to its offers.
Options
Options are versatile securities which are financial derivatives. Options are a contract between the one who holds the security and the one who writes up the contract. It is a contract that is not an obligation but just affords a buyer the right to call (buy) or sell (put) a particular security or a financial asset for a predetermined price on a particular day or at least in between a certain period of time.
Share Market
A share market is a marketplace where shares of publicly listed companies are issued and traded through stock exchanges or in over-the-counter markets.
Transfer of Shares
Transfer of shares is when the title of a share is transferred from one person to another. The company whose shares are being transferred from one person to another should be made aware before the transfer of the title of shares is pronounced as legal. Once the company’s register reflects the change in the of the legal title, only then is the transfer is in effect and complete.
Traditional Broker
A brokerage firm or a traditional broker is an institute which enables the purchasing and selling of securities in the financial marketplace between a buyer and seller. A traditional broker takes a commission for making it possible for the buyer and seller to conduct a successful transaction.
Trading Strategies
A trading strategy is a plan that is put into action in order to get profits by either trading in the direction of the market or against the market. Trading strategies that are researched upon and chalked out in detail help in achieving profits because they are consistent, objective, easily quantifiable and verifiable based on pre-existing data.
Trading platforms
A trading platform in terms of finance is a computer software through which you as an investor or a trader can open, close and manage your positions in the market. You can use trading platforms like Hensex Web and Hensex Mobile App to keep tabs on the securities that you are interested in. Also, you can maintain your trading portfolio on easy-to-use trading platforms like the Hensex Web and Hensex Mobile.
Top losers
A security that loses value during the course of a single trading day is called a loser. A loser is a secutiry with a high price at the open or at the start of a trading day versus its price at the end of the trading day. When the stock market indexes slump down across the board, it is likely that there will be more losers than gainers in the market.
Top gainers
A security that gains price or increases in price during the course of a single trading day is called a gainer. A gainer is a security that has a higher price at the close of the market rather than its price at the open. When the stock market indexes go up, it is likely that there will be more gainers than losers in the market.
Trading indicators
Trading indicators or Market Indicators are a group of technical indicators that traders use in order to predict the direction that financial indexes might take. Most technical analysis indicators are useful in anticipating changes in prices, spotting trends in the stock markets or of any particular traded asset. Price patterns can also be predicted with the help of these trading indicators.
Trading Account
Just like a traditional bank account holds your salary and savings, a trading account holds cash and securities that is usually held at a financial institute such as a broker. A trading account with an online discount broker like Hensex offers the trader a way to use their own trading strategies and place trades independently to make profits. Moreover, with the low brokerage cost,
Wealth Management
Wealth management is the practice of using personal investment ideas, professional financial advise and accounting and tax services, retirement planning and asset planning in order to build up one’s net worth.