Friends, We truly hope that you are enjoying the TradeTalk sessions
till now. Many of you have requested that we provide a Glossary of Terms
used in the Financial Markets so you can refer to them if a term comes
up in any of the sessions which you are not familiar with. Keeping in
view your needs, we have prepared a list of few commonly used terms in
the Stock Market. We might take up few other terms too in upcoming blogs
which require a deep understanding. So we request you to closely follow
TradeTalk in the future too.
Without wasting much of your time, we will come straight to the Glossary of terms, which is given below:
A
Averaging
The process of gradually buying shares or other securities in a
declining market (or selling in a rising market) in order to level out
the purchase (or sale) price
B
Bears
The traders in the Market who are pessimist about the current market
situation and expect share prices or any other type of investment to
fall in the near term.
Bear Market
A prolonged period of falling securities prices in a stock market.
Blue Chips
Blue Chips are shares of large, well established and financially
sound companies with an impressive records of earnings and dividends.
Bonus
A free allotment of shares made in proportion to existing shares out
of accumulated reserves. A bonus share does not constitute additional
wealth to shareholders. It merely signifies recapitalization of reserves
into equity capital.
Bull
A bull is a trader who expects a rise in price so that he can later sell at a higher price.
Bull Market
A rising market with abundance of buyers and few sellers.
Base Price
This is the price of a security at the beginning of the trading day which is used to determine the
Day Minimum/Maximum and the Operational ranges for that day.
Buyer
A trader/investor who has placed the order for the purchase of the securities
Bid and offer
Bid is the price at which a trader buys from other trader and offer
is the price at which the seller offers to sell the stock to the buyer.
The offer is higher than the bid.
Brokerage
Brokerage is the commission charged by the stock broker for the services rendered by it to the Client.
Basket Trading
Basket trading is a facility by which investors are in a position to
buy/sell all the scrips that constitutes Sensex or Nifty in the
proportion of current weights in the respective index.
Beneficial owner
The actual owner of the security, irrespective of who is holding the
security. You are the Beneficial Owner of the stocks you purchased,
irrespective of which broker holds the stocks on your behalf.
Best bid
The highest price quoted for a particular stock to be bought.
C
Correction
Temporary reversal of trend in share prices. Corrections in markets
generally come when profit booking takes place after an upward rally.
Closing Price
The trade price of a security at the end of a trading day. Based on
the closing price of the security, the base price at the beginning of
the next trading day is calculated.
Call Option
This is the right, but not the obligation, to purchase shares at a
specified price at a specified date in the future. For this privilege,
the buyer pays a premium which would be a fraction of the price of the
underlying security. Read our Blog post on Basics of Options for further
details.
Capital Gain
The amount by which an investment’s selling price exceeds its purchase price.
Capital Market
A market where debt or equity securities are traded.
Commission
A fee charged by a broker or distributor for his/her service in
facilitating a transaction. In other words, it’s called brokerage
Contract
On any securities market this is the agreement between a buyer and a seller buy or sell securities.
Contracts are generally found in the derivative segment.
D
Dividend
This is the income you receive as a shareholder from a company. A
dividend is a share in the profits earned by the company for the year.
The pay out of dividends varies from company to company.
Derivatives
An arrangement or product (such as a future, option, or warrant)
whose value derives from and is dependent on the value of an underlying
asset, such as a commodity, currency, or security.
Delivery
Delivery means you buy the stock but “hold” it overnight. In cash
segment, you have to wait for two business days after transaction to
receive the actual delivery.
Example: If you bought on Tuesday, then you get the delivery on Thursday after closing.
Day order
A day order, as the name suggests, is an order which is valid for the
day on which it is entered. If the order is not matched during the day,
at the end of the trading day the order gets cancelled automatically.
Disclosed Quantity (DQ)
A dealer can enter such an order in the system wherein only a
fraction of the order quantity is disclosed to the market. If an order
has an undisclosed quantity, then it trades in quantities of the
disclosed quantity.
Demat trading
Demat trading is trading of shares that are in the electronic form or
dematerialised shares. Dematerialisation is the process by which shares
in the physical form are cancelled and credit in the form of electronic
balances are maintained on highly secure systems at the depository.
E
Expiration Date
The last day on which an option may be exercised. Also, the last day
of trading for a futures contract. It is generally the last Thursday of a
particular month.
F
Futures
A Futures Contract is an agreement between a buyer and a seller to
buy or sell on a future date a specified amount of the financial
instrument or physical commodity at an agreed price.
H
Hedging
Making an investment to reduce the risk of adverse price movements in
an asset. Normally, a hedge consists of taking an offsetting position
in a related security, such as a futures contract.
Holder of an Option
A person who purchases an option to buy or sell.
I
Initial Margin
The funds required when a position (or a short position) is opened.
Initial Public Offering (IPO)
The act of offering the stock of a company on a public stock exchange for the first time.
M
Margin Call
A demand for additional funds because of adverse price movement.
Mark-To-Market
The daily adjustment of margin accounts to reflect profits and losses.
N
NSE
National Stock Exchange Of India ltd.
O
Open Interest
The cumulative number of either long or short contracts which have been initiated on an exchange, and have not been offset.
Open Order
An order to buy or sell a security that remains in effect until it is either cancelled by the customer or executed.
Option
A contract giving the holder the right, but not the obligation,
hence, “option,” to buy or sell a futures contract in a given commodity
at a specified price at any time between now and the expiration of the
option contract.
P
Pay-in
The day when securities and funds are given by brokers to the Clearing House.
Pay-out
The day when the Clearing House gives securities and funds to the brokers.
Put
A put option gives the buyer the right, but not the obligation, to
sell an underlying security at a specific price for a specified time.
The seller of a put option has the obligation to buy the underlying
security should the buyer choose to exercise his option to sell.
R
Rally
An upward movement of prices following a decline.
Range
The high and low prices or high and low bids and offers, recorded during a specified time.
RBI
Reserve Bank of India
Reaction
A decline in prices following an advance. The opposite of rally.
S
SEBI
Securities and Exchange Board of India. Agency which regulates the Indian Stock Market and related activities
Settlement Price
Price that is used to calculate gains and losses in futures and options market accounts.
Share
A share is the smallest unit representing the ownership in a company.
Short Selling
The selling of a security that the seller does not own, or any sale
that is completed by the delivery of a security borrowed by the seller.
Stock Exchange
An organised market for trading in listed securities.
Stock Split
The division of a company’s existing stock into more shares. In a
2-for-1 split, each stockholder would receive an additional share for
each share formerly held.
Stop Loss Order
An order placed with a broker to minimise the losses, to buy or sell when a certain price is reached
V
Volume
The number of shares or contracts traded in a security or an entire market during a given period.
W
Writer
The seller of an option contract
We will keep updating this list from time to time, so we
request you to bookmark this age and re-visit it again. Till then, we
wish you all a Very Happy Trading.