Glossary

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!

For example you’re checking the history of a stock on 01-01-2023. Then its 52 week high will be the highest price it closed at between 01-01-2022 and 01-01-2023. 52 week highs are used as technical indicators by traders.

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.

For example, if you check a stock’s history on 01-01-2023. Then the 52 week low will be the stock’s lowest closing price between 01-01-2022 and 01-01-2023. 52 week lows are used as technical indicators by traders.

Definition

An Abandoned Baby Pattern is a type of candlestick pattern that signals the reversal of a bullish or bearish trend. It is made up of three candles, each of which varies based on the trend.

Bullish Abandoned Baby Pattern

Bearish Abandoned Baby Pattern

Abc Wave Theory

Abc Wave Theory or Elliot Wave Theory is used to determine the direction of the stock market by identifying recurring waves or patterns over the long term. The theory is named after Ralph Nelson Elliott.

5 Motive or Impulse Waves are formed if the movement is in the direction of the trend. 3 Corrective Waves are formed if the movement is against the direction of the trend.

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Definition

An abridged prospectus is a short version of a company prospectus. As per SEBI norms, a company looking to offer equity or debt to investors must file a prospectus.

This document contains crucial details that can help investors make investment decisions. But a regular prospectus is lengthy.

That’s why Section 2(1) of the Companies Act of 2013 came into effect. It directed companies to publish an abridged or shorter version of their prospectus.

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Definition

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.

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Definition

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.

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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.

Definition

An accrued interest is the interest incurred in the current accounting period but the actual interest is due to be paid or received in the next accounting period.

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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

Definition

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

In simple terms, A/D tells you whether a stock is facing buying or selling pressure. A rising A/D depicts an upward trend while a falling A/D depicts a downward trend.

Definition

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.

An Acid Test Ratio shows whether a company has enough liquid short-term assets to deal with current liabilities.
The higher the Acid Test Ratio the better a company’s ability to deal with debt.
Acid Test Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current liabilities

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Definition

The adjusted closing price amends a stock's closing price to reflect that stock's value after accounting for any corporate actions. It is often used when examining historical returns or doing a detailed analysis of past performance.

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Definition

An adjusted futures price shows the cost of purchasing, financing, and delivering the underlying assets of a futures contract.
The adjusted futures price refers to the cash-equivalent of a futures contract that will be used to purchase an asset later on.
The adjusted futures price is calculated by multiplying the price of the underlying asset by the number of units to be delivered (known as the conversion factor).

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Definition

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.

An Advance/Decline Line can help you plot the daily difference between the number of advancing and declining stocks. As a result, the Advance/Decline Line is a technical indicator used to gauge market sentiment, price trends, and trend reversals.

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Definition

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.

An Advance Payment Guarantee or Advance Payment Guarantee Bond is a contract issued by a third party willing to take responsibility for fulling the terms of an agreement or payments owed by one party to another.

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Example:

A contractor may get an Advance Payment Guarantee/Bond filled by the consumer.

Definition

After-hours trading is the timeframe 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.

After hours trading means buying and selling securities after the end of regular market hours. In India, the stock market is open for regular trade from 9.15 AM to 3.30 PM.

After hours trading is allowed from 3.30 PM to 4 PM. Around the world, stocks are known to suffer from a lack of liquidity during after hours trading.

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Definition

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.

Algorithmic trading or algo trading means buying and selling securities using computer algorithms that follow a set of predefined rules to execute trades.

In algo trading, predefined rules can be set to act on triggers like stock price, volume, time, and others.

Definition

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.

An all or none order is an instruction to execute the entire order or none of it. For example, you place an order for 1000 shares with a contingency that it should be an all or none order.

If so, then the order will be not executed if 999 shares are available. The order will only go through if 1000 shares are available. Otherwise, the order will be canceled.

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Definition

The measure of an asset’s performance, relative to a benchmark or market index is known as Alpha Figure.

An Alpha indicates the measure by which a stock or portfolio has managed to outperform a benchmark like an index of shares.

A positive Alpha means that the security or portfolio is beating the market while a negative Alpha means that it is lagging.

Alpha can also be used to measure the competence of a fund manager and their strategies.

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Definition

An American option, aka an American-style option, is a version of an options contract that allows holders to exercise the option rights at any time before and including the day of expiration. It contrasts with another type of option, called the European option, that only allows execution on the day of expiration.

An American-style option allows investors to capture profit as soon as the stock price moves favorably, and to take advantage of dividend announcements as well.

An American Option allows the contract holder to exercise the right any time before or on the expiry date. American style options contracts are not available in India.

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Definition

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.

An Anaume Pattern can be seen when a gap is filled after a change in the direction of a security or market’s price.

Anaume Patterns are gap-filling patterns that can signal the reversal of a bearish trend, which is nothing but a potential onset of a bullish trend, when used in conjunction with other patterns.

Anaume Patterns are also known as exception exhaustion patterns.

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Definition

Anchoring is a bias that drives people to make decisions that are based on (anchored to) pre-existing notions, ideas, and suggestions that may or may not be true.

Adjustments around anchoring are common as it becomes a starting point for many when it comes to decision-making.

For example, someone is anchored to a financial model or strategy. They may choose to use the anchor in situations where it may not fit and as a result, may end up getting an unfavorable outcome.

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.

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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.

Definition

The change in earnings for a company, between the most recent fiscal year and the preceding one is called the annual earnings change.

An Annual Earnings Change is the difference between a company’s earnings from the present and previous fiscal year. The formula for annual earnings change is:

Current Fiscal Year Earnings - Previous Fiscal Year Earnings

Say for example a liquid nitrogen manufacturing company earned Rs. 50 crores in the current fiscal year and Rs. 29 crores in the previous fiscal year. Their annual earnings change will be:

Rs. 50 crores - Rs. 29 crores = Rs. 21 crores.

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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

Definition

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.

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Definition

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.

A Net Profit Margin is the ratio of a company’s net profits to revenues. The formula to calculate Net Profit Margin is:

Net Profit Margin = Net Profit* / Revenue * 100

*Net profit = Revenue - Cost of goods - Operating Cost - Other Expenses - Interest - Taxes

Net Profit Margin is expressed as a percentage, which means that you can compare the financial health of multiple companies.

A company can use its Net Profit Margin to understand whether its strategies and business models are effective.

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Definition

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.

An annual report is an exhaustive written account of a company’s finances, activities, and other relevant information for the fiscal year.

Publicly traded companies are required to publish annual reports so that existing and potential shareholders have full transparency into the company’s finances and overall health.

Definition

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.

Arbitrage is a strategy where a security is bought in one market and sold in another market to generate profits due to the difference in price. This difference is known to be minor.

Say for example a share trades at Rs. 1000 on NSE and Rs. 1002 on BSE. The share can be arbitraged by buying it on BSE and selling it on BSE for a profit of Rs. 2.

Definition

It is the act of putting up securities for sale (or offering) by a seller. It is accompanied by an Ask Price.

The ask or offer price is the price at which an investor is willing to sell a security like stocks, bonds, currencies, ETFs, and others.

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Definition

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.

The ask size is the number of units of a security that an investor is willing to sell at the ask or offer price.

Definition

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.

Asset allocation is a strategy or method in which an investor decides how much money they should allocate to an investment based on their risk profile, financial goals, and other factors to maximize returns and minimize risk.

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Definition

An asset is anything that has economic value and is owned by an individual, company, or group. Assets are bought to generate returns in the future.

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 Intangible and both has bearing on the balance sheet of the company.

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Definition: Assets

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent.

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Definition: Liability

A liability is something a person or company owes, usually a sum of money. Liabilities are settled over time through the transfer of economic benefits including money, goods, or services.

Recorded on the right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrued expenses.

Liabilities can be contrasted with assets. Liabilities refer to things that you owe or have borrowed; assets are things that you own or are owed.

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Definition

The price of the last traded stock at the end of the day is known as ‘At the Close.'

At the close or closing price is the last traded price of securities like stocks, ETFs, and others at the end of regular market hours.

For example, if a stock hit Rs. 4,500 at 3.30 PM (market close), then that is its price at the close also known as the closing price.

Unlike Adjusted Closing Price, at the close or closing price does not take into account price changes due to corporate actions.

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Definition

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’ situation is called an at the money option. In such an option, the strike price matches the price of the stock.

At The Money is a scenario in which the strike price of an options contract is the same as the market price of its underlying security.

Exercising an option At The Money can lead to a loss as the premium paid for the contract won’t be recovered.

That said, At The Money is known to be a positive indicator as it indicates the option may soon have intrinsic value.

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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.

Definition

An ‘at the open’ is a directive of selling or buying securities at the very beginning of the day when trading opens

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Definition

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.

Or in other words, authorized capital denotes all the shares across all the categories that a company could issue if it wanted to raise money.

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Definition

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.

An autoregressive model uses one or more past values to forecast the current value of an asset.

The model assumes that past values can have an impact on the current value but the number of past values it takes into account can vary.

For example, an AR(1) model will use one preceding value, an AR(2) model will use two preceding values, and so on.

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Definition

The average number of securities traded per day over a specific period of time is known as the average daily volume.

The Average Daily Trading Volume (ADTV) is a technical indicator that indicates the number of shares that were bought and sold on average across one or more trading days.

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.

A high ADTV means that more investors are interested in a stock while a low ADTV implies that a stock isn’t on the radar of many investors. The formula for Average Daily Trading Volume (ADTV) is:

ADTV x days = Total trading volume of stock across x days / x days

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Definition

The Average True Range (ATR) is a technical indicator used to measure market volatility, typically using the average of true ranges from 14 periods that can be daily, weekly, monthly, or even intraday values.

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.

The formula for ATR is:

ATR = Previous ATR (n - 1) + True Rangen / n

n= number of periods
True Range = The greater/highest of these:

Definition

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.

Averaging down means buying more shares when the price drops, thereby bringing down your overall average cost of investing. For example:

Day 1 (Normal price)

Day 2 (Lower price)

Averaging Down

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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.

Definition

“Back months” is used to refer to futures contracts that have a delivery date that’s due far into the future. Back months is generally known to be a popular term in commodity trading.

In simple terms, Back months refer to the available futures contracts for a commodity that has expiration farthest into the future.

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Definition

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.”

Backtesting means simulating trading strategies and models using historical data to understand whether they are effective.

In many ways, backtesting is considered to be an important part of crafting trading strategies that work.

If backtesting leads to positive results, then the trading strategy or model may be viable.

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.

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Definition

A balance sheet is a financial statement that reveals a company’s assets, liabilities, and shareholders’ equity. It can help current and potential investors understand the financial health of a company.

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.

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Definition

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.

Basing happens when a security trades sideways after prolonged periods of falling prices.

As a result, the security forms a “base” or flat pattern which means there is little to no upward or downward movement and a decline in volatility.

This may go on for a relatively long time but is crucial as basing is an indicator of any meaningful reversal that may happen.

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Definition

Basis trading means futures trading strategies that use the difference between the spot price and the futures contract price of a stock or commodity.

The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:

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Definition

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 that must be satisfied before the shares are issued.

The basis of allotment is the criteria to allocate shares to investors, most commonly during IPOs. Criteria or basis for allotment lays out the following information:

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Definition

A bear market is a period of continuous decline in the stock or commodity market.

Typically, investors believe that a bear market has arrived when a stock, commodity, or entire index fall by 20% or more from its most recent highs.

The onset of a bear market is generally in tandem with poor economic conditions.

Definition

A benchmark is a standard used by investors to compare the performance of a stock, commodity, or other securities.

Stock indices like Nifty 50, Sensex, Nifty Bank, and others are often used as benchmarks to evaluate the performance of one or more stocks.

The onset of a bear market is generally in tandem with poor economic conditions

Definition

A best efforts underwriting or offering means the underwriter will do their best to market the securities for the issuer (company, supplier, etc) to investors. The underwriter will not buy all the securities from the issuer, only those the underwriter’s clients want to purchase.

In Best Efforts Underwriting, the underwriters try their best to sell all the securities, but they are in no way obligated to purchase them.

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Definition

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.

Beta coefficient is used to measure the volatility of stocks in relation to changes in the market. Basically, Beta helps investors understand the risks associated with a stock compared to the market.

The formula to calculate the Beta coefficient is:
Beta (β) = Covariance (Ri, Rm) / Variance (Rm)

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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.

Definition

Definition

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.

A block trade is a substantially large buy or sell order for a stock, commodity, or other security. Block trades are typically done by institutional investors like hedge funds, mutual funds, and others to mask the true size of the transaction

Shares change hands between companies after the price of the security is privately negotiated. Most block trades are routed through investment banks and executed outside the conventional market.

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Definition

Blue chip stocks are shares of iconic companies in India that have been leaders of their respective industries for years, if not decades, and have a stellar yet consistent business track record.

Example:

Definition

Established in 1875, Bombay Stock Exchange or simply BSE is a place where stockbrokers and traders can buy and sell securities like stocks, bonds, ETFs, and more. 5000+ securities are listed on BSE, which is the oldest stock exchange in India and Asia.

Definition

A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

Definition

Bonds are fixed income securities issued in exchange for a loan, generally by governments and corporations. A bond will generate a fixed interest rate on top of the principal across a fixed time period. A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

Definition

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.

Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

Book building is typically done by an underwriter (like an investment bank) who will invite institutional investors like hedge funds, mutual funds, and others to submit bids for the financial instrument.

These bids act as a range that the underwriter can use to fix a price that satisfies the company issuing the security and market participants.

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Definition

The electronically recorded securities that contain the creditor’s name, tax identification number and the amount are called book-entry securities.

Book entry securities are financial instruments like stocks, bonds, ETFs, and others whose ownership is recorded and tracked electronically. Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

Book entries have made ownership certificates obsolete as they track who owns what electronically.

The trades are settled by the depository like NSDL or CSDL which sends the buyer a statement confirming ownership.

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Definition

A book running lead manager is the head or lead of the underwriting process when new shares or securities are issued for their client, most commonly during an IPO.

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.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

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Definition

Book to Bill ratio is the value you get by dividing the total worth of new orders received by the total worth of orders sold. The formula to calculate Book to Bill ratio is:

Book to Bill ratio: Total worth of new orders received / Total worth of orders billed

Book to Bill ratio helps companies understand the demand and supply for their goods or services. A Book to Bill ratio of more than 1 means that there’s more demand and less supply.

Whereas, a Book to Bill ratio of less than 1 means that there’s less demand and more supply. Using these indicators, the company can work on increasing or limiting production.

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.

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Definition

Book value of an asset is what you get by subtracting its accumulated depreciation from the original cost of the asset.

That’s why book value is referred to as the Net Asset Value (NAV) in the UK.

For a company, the book value is its total assets subtracted by liabilities, intangible assets and/or goodwill.

Definition

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!

Bottom line in finance is used to refer to a company’s crucial metrics like earnings, profits, net profits, earnings per share (EPS), and others.

Any move or action that can impact a company’s profit or net profit in a positive or negative direction is also referred to as the bottom line.

“Bottom line” is called such because the crucial metrics of a company are generally found at the bottom of a financial statement.

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Definition

Bottom-up investing is a stock picking strategy that uses analysis of individual companies and shares for decision-making instead of focusing on the broader economy, market, or industry.

Definition

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.

If the issue size of the bought-out deal is large enough, the investment bank may team up with others to fulfil the purchase.

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Definition

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

Bounce trading refers to buying a position in security when its price falls to a particular support level with the anticipation that it will “bounce” back to a certain price level. Technical analysis is the bedrock of bounce trading but various patterns and strategies can be used to achieve the desired goal.

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Definition

When an investor locks an arbitrage profitable position that involves no risk, then it is known as box spread.

The goal of a box spread is to create an arbitrage strategy that can generate profits due to the price differential between the two spreads.

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Definition

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.

Definition

A broker is a person/organization who helps people purchases and sells goods and/or assets.

A broker is an intermediary between a securities exchange and investors. Only registered entities can place trades on a securities exchange. These members can be individuals or firms known as stockbrokers.

That’s why investors must go through a broker when they want to trade or invest in stocks, ETFs, futures, options, and others.

Definition

Brokerage is the amount that a broker charges for purchasing and selling goods and assets for others.

Brokerage is the fee that an investor or trader must pay to a brokerage in exchange for its services. Brokerage varies from platform to platform. But, broadly speaking, brokerage on intraday, futures, and options trading is known to be higher than equity delivery (investing).

Definition

Bombay Stock Exchange or BSE is a stock exchange that allows companies to issue new securities through IPOs or FPOs and enables traders & investors to buy and sell securities like shares and ETFs. Established in 1875 under a banyan tree in Mumbai, BSE is the oldest stock exchange in India and Asia.

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.

Definition

Bull market is a positive trend in the stock market where price of shares increase by 20% or more after falling by 20%. Investors may say they’re bullish or expect a bull market to arrive when they believe that there will be prolonged periods of increase in the stock market.

Definition

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.

Bullion is used to refer to gold, silver, and other non-ferrous metals that have been designed to have high purity. These metals are generally molded into bars, coins, and other valuable items.

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Definition

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.

Bureau Of Indian Standards (BIS) is responsible for standardizing and certifying goods and services from third parties so that the end consumer knows that the products are safe and reliable.

BIS was established in 1986 and was rebranded from the Indian Standards Institution (ISI) to BIS during the year to adapt to the changing product landscape of India.

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Definition

A butterfly spread is an options strategy that combines bull and bear spreads to generate a small chunk of profit. To achieve this, a butterfly strategy consists of four positions in four options contracts that have the same expiration but different strike prices.

A butterfly spread combines bull and bear spreads in order to form a neutral options strategy.

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Definition

When a stock or security is acquired for long term regardless of market fluctuations, the act is known as ‘Buy and Hold’.

Buy and hold is a long term investment strategy that is designed to help investors ride out market volatility by buying and holding fundamentally solid businesses that have the potential to grow over decades.

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Definition

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.

A call option is a type of derivative contract that gives the right but not the obligation to buy an underlying asset like shares, commodities, currencies, and others at a pre-agreed price and date.

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Definition

The main body of the candle will be green if the closing price is higher than the opening price and red if the closing price is lower than the opening price.

Long green candles mean more investors and traders want to buy a stock. Long red candles mean more investors and traders want to exit a stock.

Definition

CANSLIM is an acronym for a seven-step strategy to pick growth stocks by combining fundamental and technical analysis. Here’s the full form of CANSLIM:

Definition

Capital Asset Pricing Model or CAPM is used to determine the expected return one can earn on an asset by evaluating the associated risks and how markets price the asset.

Definition

Capital expenditure or CapEx is the amount of money a company spends on maintaining, upgrading, or buying new assets like machinery, equipment, property, and others.

Definition

A capital gain is a profit that an investor or trader earns by selling an asset while a capital loss is the money a trader or investor loses after selling an asset. Capital gains are taxed while capital losses can be used to offset gains.

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:

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.

Definition

A capital gain is a profit an investor or trader earns by selling shares, commodities, futures, options, currencies, and other assets. More literally, a profit is a gain on the capital that’s invested - hence the term capital gains.

Say someone buys a share for Rs. 1000 and sells it for Rs. 1100. The capital gains will be Rs. 100 in this case. The taxation of capital gains varies based on the asset type and the duration after which it was sold.

Definition

Capital gains exemption is the tax break that a government offers on profits earned by selling assets. Generally, an investor must pay a tax on the short-term capital gains or long-term capital gains earned.

But in certain cases, the government allows investors to offset taxes. For example, if an investor sells property and reinvests the entire amount back again into another property, they can avail of capital gains exemption.

Definition

Capital gains are profits, which means they can be taxed. The rate of taxation is based on the type of asset (debt/equity) and holding period. Here is the list of ways capital gains are taxed in India:

Definition

Capital growth is the profits an investment generates on the principal amount. Since the capital grows on earning profits, the term capital growth is also used to describe the overall corpus of an individual (principal + profits).

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.

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Definition

Capital is the total amount of money that a trader can use to buy and sell securities. There are variations of the term, the most common one is “starting capital”. This is the amount of money a trader starts their journey with.

Definition

An option which has an established profit cap is known as a capped style option. These are also known as Protected Options.

A capped style option is designed to limit the amount of profit that an options trader can earn. Since this style of option limits or puts a cap on the profit, it is known as a capped style option.

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Definition

The capture ratio is used to measure the performance of an asset during market highs and lows by comparing it to a benchmark.

Here’s how to calculate the up market capture ratio:

Returns during market highs / Benchmark returns * 100

Here’s how to calculate the down market capture ratio:

Returns during market lows / Benchmark returns * 100

Definition

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.

Carrying charge or cost of carry is the money involved in the upkeep or general holding of an asset or financial instrument. Examples of carrying charges include maintenance costs, insurance, and others.

A carrying charge can increase the cost of owning an asset. At times, the cost of carry may exceed the potential returns, in which case an investor must evaluate whether the asset is worth keeping.

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Definition

Definition

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.

A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.

Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.

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Definition

A cash contract is an agreement for immediate or future delivery of the commodity.

A cash contract is an agreement between two parties in which the delivery of goods is involved at a predetermined price and date. Typically, bulk buyers like big companies enter into cash contracts on the spot price of a commodity.

These companies aren’t in the business of speculation. As a result, the delivery of goods is always involved in cash contracts, unlike futures where the contract can be settled with cash without taking delivery.

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Definition

A Cash Conversion Cycle (CCC) tells you how many days it will take to convert a company’s inventory or resources into cash. The formula for Cash Conversion Cycle is:

Definition

Cash flow is an important metric in finance because it helps calculate metrics like liquidity, cash conversion ratio, and others along with giving a broad overview of a company’s financial health.

Definition

A cash flow statement is used to present the amount of money that has been earned and spent by a business over a specific period of time. There are three sections or parts to a cash flow statement:

Definition

A cash market is a place where assets, goods, and services are bought and sold on the spot. That’s why it is also known as the “spot 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.

A stock market exchange like NSE or BSE is an example of a cash market as trades are settled on the spot at the spot price. Derivatives like futures are not a part of the cash market are trades are settled in the future.

Definition

A cash ratio measures a company’s ability to fulfill short-term debt obligations using only its cash and cash equivalents, which are known to have high liquidity. The formula for calculating cash ratio is:

Cash Ratio: Cash + Cash Equivalents / Current Liabilities

Definition

Cash Reserve Ratio (CRR) is the amount of liquid cash a bank has to deposit with the Reserve Bank of India (RBI), calculated as a percentage of the total deposit of the bank. The latest Cash Reserve Ratio in India is 4.5%.

These two pointers become extremely important during high inflation as the RBI can hike interest rates with the assurance of having collateral from banks.

Definition

Cheapest to deliver (CTD) refers to the cheapest or lowest priced security in a futures contract that a seller can deliver to a buyer who holds a long position. Here’s the formula to calculate the cheapest security that can be delivered:

Cheapest to deliver is a method used to determine the cash debt instrument that will produce the maximum profit against a futures contract.

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Definition

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.

A circuit breaker or market curb is a measure that exchanges use to put a stop to all trading activities across an index or entire market. This regulatory measure is put in place to curb panic selling, especially when markets are in free fall.

That’s why circuit breakers are also known as trading curbs and are put in place when an index or market reaches a specific level. These are the current circuit breaker limits on NSE:

Definition

A commodity refers to physical goods and raw materials like aluminium, cotton, copper, sugar, steel, zinc, and others. Commodities are an essential part of the day-to-day life of individuals, companies, and industries.

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.

Definition

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.

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Definition

A commodity futures is a contract between two parties to buy or sell an underlying commodity like gold, silver, corn, and others are a pre-determined price and date.

A commodity futures contract is an obligation that’s entered into not just by retail traders but also companies who want to lock in a favorable price. This is the place to understand all about futures contracts in trading.

Definition

A commodity option is a contract that gives the buyer or seller the right but not the obligation to execute a trade for a commodity like copper, cotton, zinc, and others at a pre-agreed price and date. Commodity options are derivative contracts that require a trader to pay a premium in order to secure the “option”.

Definition

A commodity spread straddle or simply a commodity straddle is an options trading strategy where a trader will buy call and put options with the same strike price and expiration date.

The goal of a commodity straddle is to create a neutral strategy that wins in the event that the underlying security’s price rises or falls. That said, the profits must be higher than the total premium paid for the options.

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.

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Definition

A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:

Definition

A debenture is a debt instrument that a company uses to take out a loan in exchange for a fixed interest rate. Debentures can either be used to refer to bonds or documents created in exchange for a medium to long-term loan.

Definition

Comparable Company Analysis (CCA) is a method used to evaluate a company’s value by comparing its essential metrics like EBIT, EBITA, and more with other companies.

The underlying assumption of CCA or “Comps” is that publicly traded companies from the same sector or industry will have similar metrics that are comparable.

Definition

Compounded Annual Growth Rate shows how much returns on average an investment can generate over a year, given the data for a period of time (say 5+ years).

CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:

CAGR = [(Ending value/Beginning Value)^(1/N)]-1

Definition

A consolidated financial statement is a record of all the assets, liabilities, income, expenses, and other financial data of a company and its subsidiaries.

Definition

The Consumer Price Index (CPI) measures how costly goods and services have become over time. It is calculated by measuring the weighted average of the percentage change in the price of a basket of goods and services.

If the CPI increases, it means that inflation is on the rise. In India, the CPI replaced Whosale Price Index (WPI) as the primary measure of inflation in 2013.

Definition

A contingent liability is shown on a balance sheet for an event that may or may not happen in the future. The potential liability arising out of such an uncertain event is recorded as a contingency in both GAAP and IFRS accounting standards.

Definition

A contract note is a compilation of all the trades and transactions made through a stockbroker on a stock exchange. It is a legal record that all recognized stockbrokers must send to traders and investors at the end of each trading day.

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.

Definition

A convertible arbitrage is a trading strategy that involves buying convertible securities - most commonly bonds and preferred stock - and a short option on the common stock of the same company.

Because of this combination of purchases, a convertible arbitrage strategy is known as a neutral strategy designed to profit from the supposed inefficiencies that lie in the pricing of convertible securities.

Definition

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:

Definition

A convertible debenture is a long term debt instrument that can be converted into equity on maturity. Convertible debentures are generally unsecured loans that small to mid-size companies take on in exchange for an interest rate.

Definition

A Cost Inflation Index or CII is used to calculate a financial security’s price after adjusting for inflation.

Definition

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.

A debenture is a legal certificate that a company issues in exchange for a long-term unsecured loan. A debt instrument like a debenture is issued by companies who want to fund their business without diluting existing shares.

The components of a debenture are as follows:

Debenetures can also be issued by small-size companies who may not be creditworthy enough to secure a loan from traditional lenders. Hence, the unsecured aspect of the loan may help achieve their objective.

Definition

The debt to equity ratio is a measure of a company’s financial health that’s calculated by dividing liabilities from shareholder equity.

Debt to equity ratio: Total liabilities / Shareholder equity

A high debt to equity ratio means that a company is taking on more debt to run its business. A low debt to equity ratio means that a company is operating at low debt.

That’s why investors calculate the D/E ratio to understand a company’s ability to operate without debt. Generally, D/E is used for comparative analysis within sectors, not across industries because the ideal debt ratio may vary.

Definition

A defensive stock refers to the shares of iconic companies that generate stable and consistent returns and dividends, regardless of the market conditions.

Defensive stocks are rare because companies that have defense against every market condition are rare.

While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.

Definition

The term deferred tax in a financial statement is used to refer to future tax payments in the case of temporary differences, a situation where an asset or liability on the balance sheet is realised but is taxable in the future.

Common examples of deferred tax include line items such as employee bonus or PF contributions, depreciation of fixed assets, net losses, and others.

Definition

A deferred tax asset is an item on a company’s financial statement that can be used to get tax relief, generally in the event of overpaying taxes or net losses that are carried forward.

Companies tend to deduct these overpayments or losses for accounting purposes and to reduce their overall taxable income. Common examples of deferred tax assets include:

Definition

A deferred tax liability is line item on a company’s balance sheet that refers to taxes that owed but due in the future. Common examples of deferred tax liabilities include:

Definition

The day in the month that commodities on a futures contract have to be delivered is called the Delivery date.

The delivery date of a cash or derivative contract refers to the final day and time on which the underlying asset should be delivered to the contract holder to fulfil the terms and obligations of the contract.

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:

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.

Definition

A delivery notice is produced by the seller of a commodity futures contract. It is proof of confirmation of the sellers intention to physically deliver the underlying commodity to the buyer at the pre-agreed date.

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.

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Definition

Delivery trading refers to buying a stock or ETF and holding it for more than one day. In such a scenario, the buyer take delivery of the asset instead of squaring off their position in the same trading session. Delivery trading is applicable for short term and long term trades and can last overnight to a decade or more.

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.

Definition

A Dematerialized or Demat account is used to store shares and ETFs in the electronic format. It is linked to a bank account and is necessary for trading or investing that involves delivery, that is, where the asset is held overnight.

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 Money Krishna Financial Services.

Definition

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.

A depository participant is a financial institution that acts as a bridge between a depositories like NSDL/CDSL and investors. Moreover, a depository participant is responsible for holding shares in the Dematerialized format in a Demat account.

At the same time, a depository participant gives traders and investors access to an online trading account that can be used to buy and sell securities. The right depository participant will also ensure that your securities are safe.

Definition

A derivative is a financial contract that is designed to derive its value from a single or group of underlying assets, generally between two parties or more. It contains a pre-agreed date of delivery and price.

A derivative is not a stand-alone financial product. Its value is dependent or it derives its value from another variable asset.

The most common examples of a derivative contract are:

A derivative can be bought and sold on an exchange or over the counter. Since derivatives derive value from underlying assets, their price is known to fluctuate when the underlying asset gains or loses value.

Definition

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.

The derivatives market is a place where financial contracts like futures, options, forwards, and swaps are traded. It is a complex market that is a subset of the stock market, commodity market, currency market, and others depending on the underlying asset that’s a part of the derivative contract.

Definition

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.

Derivatives trading means buying and selling derivatives contracts like futures, options, swaps, and forwards either on an exchange or over the counter.

Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.

The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.

Definition

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.

Differential pricing is a strategy that involves setting different prices for the same product or service based on the type of customer or tming.

For example, a zoo ticket may cost Rs. 10 for domestic visitors and Rs. 100 for international visitors. Or, when buying a product gets costlier as and when the last date for the sale approaches.

That’s why differential pricing is also known as discriminatory pricing and variable pricing.

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Definition

Differential Voting Rights or DVRs are special types of shares that carry more or less voting rights, depending on the issuing company. For example, a DVR share that carries less than usual voting rights may generate relatively high dividends.

A publicly traded company that wants to issue DVR shares must go through a postal ballot. There are other caveats as well. But broadly speaking, a company must have a healthy finanical track record if they want to issue DVR shares.

Definition

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). In the process, the company becomes publicly traded.

The companies must have a complete set of financial statements and a disclosure statement in order to complete DPO.

The cost of a DPO is known to be relatively low compared to an IPO.

Furthermore, the issuer of the DPO has control over the issue price while the paperwork and effort involved is also comparatively low. That said, the company must go through proper regulatory procedures during the process.

Points to remember:

Example:

Spotify had opted for the DPO route in 2017, so public investors could have access to its shares.

Definition

Discount brokers are platforms that offer essential stock trading and investment services rather than a full stack of services that may or may not be useful for everyone.

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 Money Krishna Financial Services 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.

Discount brokers are discount brokers because their service is priced competitively, meaning the cost of trading and investing may be significantly low than a fullservice broker.

Definition

Discounted cash flow is a method of valuing a company in the present based on future cash flows. An investment may be profitable in the present if the discounted cash flow is above the current cost of investing.

The formula to calculate discounted cash flows is:

DCF = Cash Flow Year 1 / (1+r1)^1 + Cash Flow Year 2 / (1+r2)^2 + Cash Flow Year N / (1+r)^n

Definition

Diversification is the act of investing in more than one asset class, sector, industry, or country to mitigate risk. It is an investment strategy designed to reduce risk by pairing a volatile asset class like equities with a fixed income asset class like fixed deposits. Or, by investing in equities in one country and complementing it by investing a portfolio in stocks from another country.

Definition

The Dividend Payout Ratio refers to dividends paid to shareholders as a percentage of the net income or Earnings Per Share (EPS) of a company. The formula to calculate dividend payout ratio is:

DPR = Dividend / Net income

or

DPR = Dividend / Earnings Per Share

A higher dividend payout ratio means that a company is redistributing a chunk of its profits to shareholders, which generally implies that the company is well-established.

Definition

Dividend per share indicates the amount of dividends paid as a ratio of the number of shares outstanding. Or, dividend per share could also refer to the product of earnings per share and dividend payout ratio.

Thus, the formula to calculate dividend per share is:

DPS: Total dividend amount / Number of shares outstanding

or

DPS: Earnings Per Share x Dividend Payout Ratio

An investor can determine how much dividends they stand to earn for each share they own by calculating dividends per share.

Definition

A Dividend Reinvestment Plan is a feature where an investor can reinvest the dividends they earn to buy additional shares or units of a mutual fund, either fractional or whole.

Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.

Definition

Dividend stocks are shares of companies that redistribute their profits to shareholders in the form of dividends. Such companies are typically industry or sector leaders with stellar reputations and track records.

How much dividend a company offers can be calculated with the dividend yield ratio or dividend per share.

Investors prefer to buy dividend stocks because they can either reinvest the dividends to buy more shares or earn passive income. Examples of dividend stocks in India include:

Definition

Dividend stripping is a strategy of buying a company’s stock days before it announces a dividend and then selling the same stock at a lower price once the current holder is entitled to get the dividend previously announced.

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.

The resulting loss in capital gains is generally offset by the profits from dividends. Dividend stripping was once non-taxable, which made the strategy lucrative for smart investors. However, dividends in India are now subject to tax.

Points to remember:

Definition

A dividend yield is a ratio of dividends paid per share by the latest share price, expressed as a percentage. It is used to understand how much dividends a company pays per share outstanding. The formula to calculate dividend yields is:

Dividend Yield: Dividend Per Share / Current Shar Price

A high dividend yield indicates a company’s willingness to redistribute more profits to shareholders, while a low dividend yield signals the opposite.

Definition

A Doji is a candlestick pattern that is formed when the open and close price of a share or market is identical. The word Doji means indecision in Japanese, which is fitting because the Doji pattern is an indicator of indecisiveness. In terms of appearance, a Doji looks like a cross or like the letter T.

Definition

A Donchian Channel is the area between upper (highest price) and lower (lowest price) bands formed around the median as a result of calculating the moving average of a security’s price over a period of time. Visually, the Donchian Channel will have three lines.

Definition

A draft offer document is the preliminary version of the IPO document that a company must file with SEBI 21 days before submitting the actual IPO document. The draft offer document is open to the public for comments during the 21 -day period. SEBI may suggest changes to the draft offer document in this period.

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:

Definition

Earnings Per Share or EPS refers to the amount of profit that a company generates per outstanding share it has in the stock market. It is calculated by dividing the net income of a company by its shares outstanding.

Formula to calculate Earnings Per Share: Net Income / Number of Outsanding Shares

Generally, dividends distributed to preferred shareholders are deducted from the net income for EPS calculations. The EPS of a company can thus indicate whether or not it is generating enough profit. It can also be used as a valuation metric.

Definition

EBITDA is short for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA allows investors to understand cash flow from all operations while excluding certain non-cash expenses related to interest, depreciation, amortization, and taxes.

That’s why investors use EBITDA as a valuation technique to determine the profitability of a company. Interestingly, EBITDA is a variation of operating income which is known as EBIT.

While there are many ways to calculate EBITDA, the most common methods include:

Definition

EBITDA margin is the ratio of Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by revenue, represented as a percentage. It is used to understand whether a company is profitable and as a valuation technique.

The formula to calculate EBITDA margin is: EBITDA Margin = (EBITDA/Revenue)*100

Just like EBITDA, the EBITDA margin also excludes non-cash expenses. That’s why a positive EBITDA margin doesn’t necessarily mean that a company is profitable.

Definition

Enterprive Value is a metric used to determine the total value of a company. It is valuation technique used by companies to understand how much money they need to pay to acquire another company.

Conversely, Enterprise Value is also used to figure out the amount of money a company can get on selling their business. To calculate the EV of a company, the total market capitalization is combined with the net debt or cash subtracted from debt. The formula to calculate Enterprise Value is:

EV = Market Capitalization + Net Debt

Or

EV = Market Capitalization + Debt - Cash

Definition

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 number of goods demanded is equal to the number of goods supplied.

Equilibrium is the point where the curves of supply and demand converge in the market. It is determined by checking the price at which the curves of demand and supply meet.

Equilibrium price is achieved when the demand is exactly equal to the supply. It is a state where buyers and sellers have enough goods and services to meet each other’s demands - not more, not less. One could say that equilibrium price is a perfectly balance state in the market.

Points to remember:

Definition

The term equities can be used to describe two different things. First, equities refers to stocks held by shareholders. Equities of this type represent residual ownership or stake in a company.

Second, equities are the amount of money shareholders shall receive in the event that a company is liquidated. In such a case, the equities will be calculated by subtracting the total debt from total assets.

Definition

Equity is generally defined as a stake or per share ownership in a company. That's why stocks are often called equity or equities. In the broader markets, equity is also used to refer to the total amount of money shareholders stand to get in case a company is liquidated.

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.

Definition

Equity capital markets (ECMs) are a place where companies raise money by offering equity shares to financial firms, institutional investors, and retail investors.

Fund raising of this kind is often done through private placements or Initial Public Offerings (IPOs) in the primary market, which is a part of the ECM. The biggest IPOs in India are all part of the ECM.

The equity capital market is also a place where shares, futures, options, and other financial instruments are traded. This part of the ECM is known as the secondary market. The stock market is a popular example of an ECM.

Definition

In equity delivery, shares are delivered to an investor’s Demat account after the settlement period. That’s why it is called equity delivery. However, equity delivery is also known as delivery trading and long term investing.

For example, let’s say you place an order for 10 HDFC shares on Tuesday with a view of holding onto them for the long term. The trade will be settled on Thursday shortly after which the shares will be delivered to your Demat account.

Definition

The Equity Market is a place where shares are traded, money is raised, and stock is offered to investors. That's why it is divided into two categories:

The primary market is typically over the counter but may be regulated in the case of exchange traded IPOs. The secondary market is often well-regulated as most securities listed are exchange traded.

Definition

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.

An equity option gives the holder the right but not the obligation to buy or sell the underyling shares at a pre-agreed price and date. Equity options are derivative contracts that derive value from underlying shares.

Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.

Points to remember:

Definition

The total amount of money that is raised by a company through the issuance of shares is known as equity share capital. Shares issued could be classified as common or preferred shares, both of which are a part of the equity share capital.

In general, share capital is known to be the money raised by issuing shares. Companies have the option of raising more equity share capital by issuing additional shares through a Follow on Public Offer (FPO) or other financing methods.

Definition

Equity shares is a term used to describe stock of a company that’s issued via an Initial Public Offer (IPO), already issued and traded on the stock market, or freshly available through a Follow on Public Offer (FPO).

For a company, the goal of issuing equity shares is to raise money while investors who buy these equity shares get perks like voting rights, dividends, and even a share of the assets in case the company is liquidated.

Definition

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 trading refers to the buying and selling of equity shares on the primary and secondary market, either through a stock exchange or over the counter. Trading equity is done in many ways.

Some equity traders square-off their positions within one trading day. This is called intraday equity trading. Others look to ride price swings across days, weeks, or months. This is known as swing equity trading.

An individual who wants to engage in equity trading will need to open a trading & demat account. The charge for opening an equity trading account varies but the process is relatively simple.

Definition

A European Option allows a trader to exercise the contract only on the day of expiry. For example, let’s say an options trader bought a European Call Option that expires on 01-01-2023.

The options trader can only exercise the call option, that is, buy the underlying assets on the day of expiry which is 01-01-2023. In India, traders can only engage in European options.

Definition

The ex-dividend date is the trading day on and after which a new buyer of the stock is not entitled to any dividends. Most traders say that a stock has gone ex-dividend when this happens.

Traditionally, the ex-dividend date is set a day before the record date when a company evaluates its records for existing shareholders. If a trader buys a stock that has gone ex-dividend from a seller, the one who'll get dividends is the seller.

Definition

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.

Exit load is a type of premature withdrawal fee that mutual funds charge. The goal of charging an exit load is to ensure that investors think twice before exiting a fund, as premature withdrawals can affect existing investors.

Every mutual fund charges a different exit load based on the discretion of the fund manager. ETFs, liquid funds, and other debt funds typically have little to no exit load whereas equity funds do.

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:

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).

Definition

An expense ratio is a management fee that investors must pay for the services of the fund manager and their team. Mutual funds are handled by fund managers who take care of everyday stock analysis, buying & selling, and other activities. The expense ratio is a fee to compensate for this day-to-day management.

Definition

Exponential Moving Average (EMA) is a technical indicator used to follow price trends over a specific period of time. EMA assigns more weight to recent prices than older prices. The formula to calculate EMA is:

Exponential Moving Average = (K x (CP - PP)) + PP

A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.

Definition

The term face value refers to the actual price of a stock that’s obtained by dividing a company’s net value by its total shares outstanding. In India, the face value of shares can range from Rs. 1 to Rs. 100.

However, the market value of the share may vary. At times, the difference can be drastic. For example, the face value of an MRF share is Rs. 10 but the market value (LTP) of the same share is Rs. 86,313.45.

Face value is also known as nominal value or par value. The latter is used frequently in the case of bonds.

The face value of a bond is the amount that an investor receives from the issuer on maturity. Similar to stocks, bonds and other fixed income instruments may have a different face value and market value.

Definition

The fair value of a stock, product, or service is the price at which the buyer and seller willingly agree on without being on the losing end of the deal. Think of fair value as a win-win situation for both parties, assuming that all conditions are normal.

Say Mr. Apple is offered to buy shares of Mr. Orange’s company at Rs. 1000 per share. Mr. Apple evaluates the business and figures out that he can sell the same shares for Rs. 1200, even though Mr. Orange is content to sell the shares at Rs. 200 lower. Both parties agree on the deal at Rs. 1000 because both view it as a good deal.

The formula for the fair value of a stock or index is:

Fair Value = Cash * { 1 + r (X / 360)} - D

Where,

The definition of fair value is slightly different in the futures market. In the futures market, the fair value is reached when the supply meets the demand, which simply means that the spot price is equal to the futures contractprice.

However, due to inherent volatility of the markets, the price of a futures contract is known to fluctuate around the fair value of a stock or index. Thus, in the fair value in the context of futures is what the price of the contract should be, given the value of the stock or index, dividends, and others.

Definition

A Fibonacci Retracement is a predictive technical indicator that is used to determine possible direction or trend reversal of a stock or index’s price with horizontal lines for potential support as well as resistance levels.

The logic behind tuning to a Fibonacci Retracement is the assumption that prices will reverse direction towards a previous price-level, especially after a new trend is in motion.

Definition

Fililng is the process of submitting important information and documents to SEBI before an Initial Public Offer (IPO). This term is commonly used when a company submits a Draft Offer Document, Draft Red Herring Prospectus (DRHP), and Final Offer Documents in order to go public.

The process of filing any document with SEBI before an IPO is done to ensure that a company is completely compliant and transparent. That’s how SEBI ensures that public investors can make informed decisions. Thus, filing is a crucial step in the IPO process.

Definition

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.

Firm Allotment is the process of allocating shares during an IPO to investors who are not considered to be retail public investors. The firm allotment is done as per SEBI guidelines, which dictate that a portion of the IPO can be allocated to the likes of Mutual Funds, regular employees (permanent), and others.

The complete list of firm allotments for investors by allocation is as follows.

Any leftover percentage can be allocated to promoters.

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!

Definition

Fixed Income Securities are issued in exchange for a loan and offer returns to investors in the form of a fixed interest rate. That’s why they are referred to as “fixed income” securities. The common types of fixed income securities are: Firm Allotment is the process of allocating shares during an IPO to investors who are not considered to be retail public investors. The firm allotment is done as per SEBI guidelines, which dictate that a portion of the IPO can be allocated to the likes of Mutual Funds, regular employees (permanent), and others.

Such securities fall under the category of debt instruments, which means they do not give investors equity shares or ownership in the company but only a promise of returning the principal with interest on maturity.

Often referred to as the coupon rate, the interest on a fixed income security is determined by the creditworthiness of the issuing company or entity as well as the latest interest rate set by the government.

Fixed income securities also confer seniority of claim to investors, which means that the investors who’ve helped finance the loan will receive their money first in the event a company is liquidated.

Definition

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!

Flipping is the act of buying and selling an asset quickly to make a profit. The term is commonly used in real estate where an investor buys a property and sells it within a short span of time, say days or weeks, to make a quick buck.

The real estate investor may flip the property after making small improvements to it, thereby increasing the chance of making potentially lucrative returns. Flipping is also a term used to describe an investor’s actions during an IPO.

For example, let’s assume Mr. Apple invests in the IPO of Juice & Co. and intends to sell the shares days or weeks after the company’s stock is available on the secondary market.

The stock soars on the first day of listing, right at the opening bell, and Mr. Apple sells. In such a case, Mr. Apple will have earned potential profits by flipping IPO shares.

Points to remember:

Definition

The rate of interest that changes across the tenure of a loan, generally every quarter, due to the government’s interest rate, market conditions, and other factors is known as a floating interest rate.

Personal loans and home loans are typical examples of borrowing that carry a floating interest rate. A point to note here: the floating interest rate is added on top of a base interest rate that is charged by lenders.

Definition

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.

A Follow On Public Offer or FPO allows a publicly traded company to issue more stock to public investors. FPOs are similar to IPOs because FPOs allow companies to raise additional capital through the public market.

For an FPO to be possible, a company must have already done an IPO. FPO shares are typically issued at a discount by a company whose track record is already clear because they are publicly traded.

Points to remember:

Definition

Foreign Direct Investment (FDI) is the act of acquiring a majority stake in a company located in a different country with the intention of assisting, growing, and managing the business.

FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.

A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies

Definition

A Foreign Portfolio Investment includes stocks, bonds, ETFs, derivatives, and other financial instruments from another country. Generally, FPIs do not give an investor the right to ownership or a controlling stake in any organization.

Instead, FPIs act as a passive income vehicle. That’s why FPIs are different to Foreign Direct Investment (FDI) in which an ownership stake is acquired with the intention of controlling and influencing business decisions.

Definition

Forex futures trading is the buying and selling of exchange-traded futures contracts for currency pairs . A forex futures contract gives the holder the right and the obligation to buy or sell a pair of currencies at a predetermined price and date. The important components of forex futures trading include:

Forex futures trading in India is possible through three exchanges: NSE, BSE, and MSE. The forex futures contracts are standardized derivatives that can be traded between 9.00 AM to 7.30 PM. Forex futures in India are cash settled, meaning profits or losses are settled in INR while the base currency is not delivered.

Definition

Forex options are exchange-traded derivative contracts that give the right but not the obligation to buy or sell a pair of underlying currencies at a pre-agreed price and date. Forex options are also known as currency options.

Every forex option can be split into a call or put option. A forex call option gives the holder the right to buy underlying forex pairs while a forex put option gives the holder the right to sell underlying currency pairs.

In either case, there is no obligation to exercise the contract but there is a pre-agreed price and expiration date attached. In India, forex options are only available for the USD-INR currency pair.

Definition

Forex trading means buying and selling currency pairs through exchange-traded derivatives or on the OTC market. A currency can only be bought and sold in exchange for another currency, which is why forex trading is always done in pairs.

Trading forex derivatives is carried out on stock exchanges authorized by regulatory bodies (SEBI & RBI), in tandem with approved brokers who allow users to engage with the forex futures trading and options trading markets.

Definition

The forward market is a place where forward contracts are traded. A forward is an over-the-counter derivative that carries a pre-agreed expiration date and price on which the contract must be exercised. It carries a right and an obligation.

Forwards are similar to futures but there is one major difference - forwards are unregulated instruments. Any entity writing a forward contract can customize the lot size and other details to fit their needs.

The forward market, as a whole, is an unregulated market whose typical participants include banks, vendors, and other large financial players.

Definition

The forward price is the final value at which a forward contract is exercised, that is, delivered to the buyer by the seller. It is different from the spot price of the underlying asset as it includes the cost of carry like interest rates, storage cost, and other carrying charges. The formula to calculate forward price is:

Forward price: Spot Price − Cost of Carry (storage costs, interest rate, etc)

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.

Definition

The term founders stock refers to shares issued to the founders of a company. This type of stock is issued at face value and carries a vesting period, which is a lock-in period during which the shares cannot be sold.

During this period, the founders stock may not earn any returns, unless there are dividends attached to it. Founders stock is not an accounting term - it is used colloquially to denote the shares issued to founders.

Definition

In accounting and earnings reports, free cash flow refers to the amount of money a company has after paying its maintenance expenses, salaries, utility expenses, and other operating expenses as well as capital expenditures.

The formula to calculate free cash flow: Operating Cash Flow − Capital Expenditures

Free cash flow is an important metric, especially for investors because it is a direct indicator of the financial competence of a company. For example, the amount of FCF a company has can decide whether it has enough cash to offer dividends, expand business, buy back shares, etc.

Definition

Free float market capitalization is the market cap of a company based on the total freely available publicly traded outstanding shares. The formula to calculate free float market capitalization is:

Free float market capitalization = Share Price x (Number of Shares Available for Trading – Private and Locked-In Shares)

When calculating the free float market cap of a company, the number of shares held privately or the shares that are locked-in are not taken into account. Typically, these shares are held by promoters and the government.

Definition

Full market capitalization is the market value of the total shares outstanding issued by a company, including public and private stock. This includes stock that’s locked-in and unexercised. That’s why full market capitalization is also referred to as total market capitalization.

Definition

Futexagri refers to the commodity index of futures on NCDEX that’s equal-weighted, meaning all components have equally proportional weights assigned to them, comprised of the futures contracts of the most recent month.

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.

Definition

Futures trading is the buying and selling of futures contracts on a recognized exchange or over the counter. Futures contracts are derivatives that oblige a trader to buy or sell the underlying security at a predetermined price and date.

Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.

Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.

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.

Definition

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."

It serves as an agreement and obligation between two parties to buy or sell underlying securities at a pre-agreed price and date. Underlying securities in futures can be stocks, bonds, interest rates, currencies, and commodities.

Definition

Futures and options are derivative contracts that derive their value from one or more underlying financial securities like stocks, bonds, interest rates, currencies, and commodities.

Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.

Definition

A futures contract is a derivative instrument that is legal agreement between two parties for the mandatory purchase or sale of an underlying asset at a pre-agreed price and date.

Every futures contract contains a standard lot size on top of the agreed price and date as they are a standardized derivative traded on a stock exchange, most commonly on NSE and BSE.

The price of a futures contract is known to vary from the spot price of the same underlying asset due to factors like the cost of carry, interest rates, and more.

Points to remember:

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.

Definition

Futures expiry is the date on which the derivative contract’s terms and conditions must be fulfilled. Alternatively, it’s the day on or before which the trader must square-off their futures contract to avoid delivery. In India, futures expire on the final Thursday of the expiry month.

Definition

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.

Gamma is a mathematical formula used to measure the change in the delta of an options contract price.

Delta is the change in the price of an options contract in relation to the underlying asset’s price.

In simple terms, gamma can be called as the change of the change. The formula to calculate gamma of an options contract is: Γ = ∂2V/∂S2

Points to remember:

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.

Definition

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.'

To “go public” or going public means to get listed on the stock market by launching an Initial Public Offering (IPO). The act of going public involves receiving approval from existing stakeholders to launch an IPO, the price of which is decided by two methods:

Once the price of the IPO is decided, the shares are offered to the public on the primary market. Not everyone who applies to an IPO may get shares - the system works on the basis of allotment. After the shares are issued, the company is said to move from the “go public” stage to the publicly traded company stage.

Points to remember:

Definition

A gold ETF is an exchange-traded fund that invests in gold bullion. Every unit of a gold ETF is backed by one gram of gold of assured purity that is held in the physical or demat form (digital).

Gold ETFs combine the lucrative value of gold with the liquidity of stocks. Thus, gold ETFs track the price of gold bullion and are traded on stock exchanges like NSE and BSE.

Definition

Gold futures are commodity derivatives that derive their value from gold bullion. A trader who buys a gold futures contract acquires the right and obligation to buy gold at a later date and price that’s pre-agreed. Gold futures in India are eligible for physical delivery once the terms of the contract are successfully fulfilled.

Definition

Government bonds are debt instruments that allow the central banks to raise capital to finance operations. The types of government bonds are:

Every government bond has a credit rating that’s based on the financial health of the country. The government is the apex institution of any country, which is why their credit rating is the high.

In India, you’ll notice government bonds with the credit rating SOV. This is known as a sovereign rating.

Definition

A Gravestone Doji is a candlestick pattern that signals the reversal of a bullish trend into a bearish one. The key marker of a Gravestone Doji pattern is the open, low, and closing prices being near to one another.

This is a price action type trading strategy that is formed with a tall upper shadow, which is a signal of a bearish reversal.

Definition

The grey market is an unofficial yet legal marketplace where unlisted or soon-to-be-listed securities are traded.

By definition, the grey market is an over-the-counter market because of the lack of regulation and structure.

Underwriters of an IPO gauge market demand for a share by analyzing the grey market premium for it before going public.

Definition

The Gross Domestic Product is an economic measure of the financial value of all goods and services produced by a country during a specific time period.

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:

Definition

Growth stocks are shares of companies that have the potential to outperform the market. These are stocks can grow faster than the market due to strong fundamental characteristics like a strong balance sheet, high Earnings Per Share, solid P/E, and more that can bolster its profits in the medium to long term.

Definition

A Hammer Candlestick pattern occurs when a stock, commodity, or currency opens much lower than its previous closing price but moves close to or above the the same price at the close. The pattern looks like a hammer, hence the name “Hammer Candlestick”.

The candlestick can be read as follows:

Definition

When an underwriter buys his/her commitment at the earliest stage, then it is known as hard underwriting.

A hard underwriting occurs when the underwriter agrees to buy their share of stock before the IPO opens. This is known as hard underwriting because in a regular underwriting process, the underwriter is liable to buy all unsold shares after the issue opens.

Points to remember:

Definition

Hedging is a risk management technique where potential loss is offset by securing a safer, more stable trade. For example, buying stock (risky) and offsetting the risk with commodity (stable) is a common hedging practice in the securities market. In the derivatives market, hedging is followed by merchants and businesses who want to protect against adverse price movements in commodities or currencies. They do so by entering into a futures or options contract.

Definition

High Beta stocks are shares that outperform the market in terms of returns but carry high risk. Such shares are called “High Beta” because of their significantly high Beta Coeffient value, which measures the correlation of a stock and the market. A Beta value on the high side typically indicates more volatility and the potential for higher returns.

Definition

High Dividend Yield Stocks are shares of companies that generate above average dividends on top of regular market-based returns. These shares are known to be valued highly because they generate passive income as well as capital gains.

Definition

High volatility stocks are shares that fluctuate based on market conditions, typically more than others. The volatility could be a result of inherent fundamentals or other factors like the industry or domain. Identifying high volatility stocks is possible through indicators like Average True Range and Bollinger Bands.

Definition

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.

A holding company is a parent organization that holds a controlling interest in one or more subsidiary companies. The goal of a holding company is not to create products or services but to hold financial securities, typically in the form of equity, in other companies that create products or services. For example, Raise Financial Services is a holding company while Dhan is its subsidiary.

Points to remember:

Definition

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.

The holding period of a financial security is the time period between buying and selling the said security. It is the total amount of time for which the security has been held in the portfolio of an investor. At times, there’s a mandatory holding period attached to a security. During this mandatory holding period, the security can not be sold.

Points to remember:

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.

Definition

An investor might have a vast portfolio--the contents of which are known as holdings.

Holdings are the financial assets in the portfolio of an investor or company. They can include stocks, bonds, derivatives, commodities, currencies, and more.

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:

Example:

Scrips and Mutual Funds in your demat account are called as holdings.

Definition

An Iceberg Order is used to slice and execute large orders into multiple “legs”. Large orders have the potential to drastically affect stock prices and subsequently investor behaviour.

That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.

Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.

Definition

Ichimoku Cloud is a group of technical indicators that’s used to understand trends, momentum, support, and resistance by calculating averages.

Furthermore, the Ichimoku Cloud indicator is made up of two components:

There’s a cloud that’s formed as a result of plotting the averages and using the components on a chart. One glance at this cloud can tell you multiple things like:

Moreover, if the cloud and the price are moving in the same direction, there’s much more confidence in the trend that’s forming. In fact, it’s a trading signal.

Definition

Ichimoku Kinko Hyo is a combination of 5 lines that’s used to understand trends, momentum, support and resistance. The 5 lines include:

Definition

An identifiable asset is a tangible or intangible asset that be assigned a fair value at any point in time. This concept is important during acquisitions and mergers as not all assets on a company’s balance sheet can easily be valued.

Simple examlpeps of identifiable assets include machinery. You can easily identify machinery as a separate entity and assign it a value based on various factors.

Definition

An illiquid asset is something of value that can not be exchanged for cash easily. Although an illiquid asset may have value, you will not be able to find buyers for it readily. As a result, illiquid assets are typically sold at a significant discount or worse, lose value and expire.

Definition

Implied volatility in options is a measure of the expected volatility of the underlying stock over the period of the options tenure. You could say that an option’s premium is related to the implied volatility - the change in the underlying share’s value over time affects the share price. In fact, the implied volatility rises when the options premium rises.

Definition

An income statement of a company is a document that displays crucial financial information like profit, loss, revenue, expenses, taxes, and more. Income statements are logically divided and published in monthly or quarterly manner for better accounting and financial modelling. A combination of these statements is what you see as the quarterly or annual report published by publicly listed companies.

Definition

Income stocks are shares of companies that help you earn a steady income, typically in the form of dividend payouts. At the same time, income stocks are known to have lower risk compared to others and thus, relatively decent returns over a period of time. But the consistently growing dividend yield makes up for the perceived lack of returns.

Definition

Index arbitrage is the method of generating returns by trading the difference between the same or different indices that have a standard value but has diverged momentarily. The way one does index arbitrage can vary as it is possible to trade indices via ETFs, Options, Futures, and more.

Definition

Index futures are derivative instruments that track an underlying sectoral, thematic, or benchmark index like Nifty Bank, Finnifty, Nifty 50, and others. While trading index futures, a trader avoids individual share risk by trading an entire index.

Definition

India VIX is an index that measures volatility and market sentiment. The term VIX stands for Volatility Index and thus, the full form of India VIX is Indian Volatility Index.

A higher India VIX means higher volatility whereas India VIX would be lower due periods of low volatility. In fact, there are absolute values that help understand volatility via India VIX.

India VIX typically moves between 15 to 30, which represents a range that is considered “normal” as far as volatility is concerned.

However, India VIX has touched 90 during the 2008 financial crisis and trended near the value once again when the pandemic broke out in 2020.

Definition

Indices are a collection of financial instruments that measure the performance of those very instruments.

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.

For example, stock market indices like Nifty 50 and Sensex measure the top 50 and 30 stocks by market capitalization.

If indices go up, it generally means that the underlying stocks are performing well. The opposite is true when indices plummet.

By the way, there’s no limit to how many instruments an index can track. The Nifty Smallcap 250 tracks 250 stocks whereas Nifty Bank tracks 12 stocks.

Points to remember:

Example:

The Sensex is an index of the top 30 companies on the Bombay Stock Exchange.

Definition

Industry Analysis is a method of understanding the level of competition, potential profit/loss, supply and demand cycle, & other crucial factors within an industry.

Definition

Inflation is defined as the rise in the price of goods and services with a declining purchasing power amongst the general population. The primary cause of inflation is a surge in demand that can not be met with the same level of supply.

Definition

Information Ratio (IR) compares the returns generated by an asset adjusted for risk compared to a benchmark. IR helps you identify the level of consistency with which a fund or fund manager performs over time. This can help you compare fund managers who follow a similar investment strategy.

Definition

Insider trading refers to the often illegal act of trading shares based on information that is not publicly available, typically obtained through dubious sources.

This privileged access to confidential information is termed “insider trading” because information is generally sourced through insiders or employees working at a publicly traded firm.

Definition

Institutional Investor refers to the often illegal act of trading shares based on information that is not publicly available, typically obtained through dubious sources.

This privileged access to confidential information is termed “Institutional Investor” because information is generally sourced through insiders or employees working at a publicly traded firm.

Definition

Interest Coverage Ratio (ICR) is used to determine the likelihood of a company’s ability to pay interest on existing outstanding debt. A low ICR typically indicates that a company is less likely to pay interest.

In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.

Definition

Interest rate futures are derivative contracts whose underlying instrument is any instrument that bears interest.

Just like any other futures contract, interest rate futures also give the right and obligation to fulfil the terms of the contract on expiry.

The price of interest rate futures and the interest rate itself shares an inverse relationship. If interest rates move higher, then the futures will be less valuable.