There are lots of technical words that are used in the stock market. But I have enlisted the below “Investing 101: A Glossary of Essential Indian Stock Market Terms”. With time I will make it more relevant and valuable to you.
Acid Test Ratio
The value of cash equivalents and accounts receivable (the quick assets) divided by current liabilities.
Also known as quick asset ratio or liquidity ratio, it is a measurement of corporate liquidity.
Active Portfolio Strategy
A strategy that uses available information and forecasting techniques to seek a better performance
then a portfolio that is simply diversified broadly.
Advance/Decline line
A technical analysis tool representing the total of differences between advances and declines of security
prices. The advance/decline line is considered the best indicator of market movement as a whole.
Asset Allocation
The process of determining the optimal division of an investor’s portfolio among different assets. Most
frequently this refers to allocations between debt, equity, and cash
At-the-Money Option
A term used to describe an option or a warrant with an exercise price equal to the current market price
of the underlying asset.
Aunt Jane/Aunt Agatha
A passive long-term investor.
Authorized Capital
The amount of capital that a company has been authorized to raise by way of equity and preference
shares, as mentioned in the Articles of Association / Memorandum of Association of the company.
Average Annual Growth Rate – AAGR
The average increase in the value of a portfolio over the period of a year.
Averaging
The process of gradually buying more and more securities in a declining market (or selling in a rising
market) in order to level out the purchase (or sale) price.
Balance Sheet
An accounting statement of a company’s assets and liabilities, provided for the benefit of shareholders
and regulators. It gives a snapshot, at a specific point in time, of the assets that the company holds
and how the assets have been financed.
Bear
A pessimist market operator who expects the market price of shares to decline. The term also refers
to the one who has sold shares that he does not possess, in the hope of buying them back at a
lower price, when the market price of the shares comes down in the near future.
Bear Market
A weak or falling market is characterized by the dominance of sellers.
Bear Trap
A false signal indicating that the rising trend of a stock or index has reversed when in fact it has not.
This can occur during a bear market reversal when short sellers believe the markets will sink back to
their declining ways. If the market continues to rise, the sorters get trapped and are forced to cover
their position at higher prices.
Bellwether
A security that is seen as a significant indicator of the direction in which a market’s price is moving
Beta
A measure of the volatility of a stock relative to the market index in which the stock is included. A low
beta indicates relatively low risk; a high beta indicates a high risk
Bid Spread
The difference between the stated and /or displayed price at which a market maker is willing to sell a
security and the price at which he is willing to buy it.
Bid – Ask for the spread
The difference between the bid price and the asking price.
Black-Scholes model
A mathematical model that provides a valuation technique for options. The model was adapted to
provide a framework for valuing options in futures contracts.
Blow Out
A security offering that sells out almost immediately
Blue Chip
The best-rated shares with the highest status as investment based on return, yield, safety, marketability
and liquidity.
Breadth of the Market
The number of securities listed on the market in which there is regular trading.
Break Even Point
The stock price (or price) at which a particular strategy of transaction neither makes nor loses money.
In options, the result is at the expiration date in the strategy. A dynamic break-even point changes as
time passes.
Broker
A member of a Stock Exchange who acts as an agent for clients and buys and sells shares on their
behalf in the market. Though strictly a stock broker is an agent, for the performance of his part of
the contract both in the market and with the client, he is deemed as a principal, a peculiar position of
dual responsibility.
Brokerage
Commission payable to the stockbroker for arranging the sale or purchase of securities. The scale of brokerage
is officially fixed by the Stock Exchange. Brokerage scales fixed in India are the maximum chargeable
commission.
Bubble
A speculative sharp rise in share prices like the bubble is expected to suddenly burst.
Bull
A market player who believes prices will rise and would, therefore, purchase a financial instrument
with a view to selling it at a higher price. Opposite of a bear.
Bull Market
A rising market with an abundance of buyers and relatively few sellers.
Butterfly spread
An option strategy involves the simultaneous sale of an at-the-money straddle and the purchase of an
out-of-the-money strangle. Potential gains will be seen if the underlying remains stable while the risk
is limited should the underlying move dramatically. It’s also the simultaneous buying and selling of call
options at different exercise prices or at different expiry dates.
Buyback
The repurchase by a company of its own stock or bonds
Buy on margin
To buy shares with money borrowed from the stockbroker, who maintains a margin account for the
customer.
Calendar spread
The simultaneous sale and purchase of either call or puts with the same strike price but different
expiration months.
Call Money
The unpaid installment of the share capital of a company, which a shareholder is called upon to pay
Call option
An agreement that gives an investor the right, but not the obligation, to buy an instrument at a known
price by a specified date. For this privilege, the investor pays a premium, usually a fraction of the
price of the underlying security.
Current Asset
Cash or an item of value expected to be converted into cash within one year or one operating cycle,
whichever is longer.
Current Liability
Accounting term for money payable within the current accounting year, on account of trade creditors,
taxation, dividends, etc. To these are often added provisions, i.e. any charges or liabilities (various
government duties, disputed claims, etc.) that the company may have to settle within the accounting
year.
Current Ratio
The current ratio measures a company’s current assets relative to its current liabilities. This gives an
indication of its ability to meet short-term liabilities; the higher the ratio, the more liquid the company.
Current Yield
A measure of the return to a bondholder is calculated as a ratio of the coupon to the market price. It is
simply the annual coupon rate divided by the clean price of the bond.
Dabba trading
Trading of securities outside the stock exchanges. The broker instead of routing the trade of his
clients in the system of stock exchanges match or execute the trades of its clients in a system
provided by him outside the stock exchange.
Day Order
An order that is placed for execution if possible, during only one trading session. If the order cannot
be executed that day it is automatically canceled.
Day Trader
A new breed of the retail investor, found mostly in the United States deals on the stock market via
online brokers from dawn to dusk. A day trader undertakes many different buy and sell transactions
during the day. Previously trading could only be carried out by stock broking professionals with access
to expensive trading terminals. Day traders love the Internet–related dot-com stocks and have been
blamed for some of the volatility that these stocks have been prone to.
Delivery Order
Output is given to each member of the Stock Exchange at the end of a settlement period containing
particulars such as the number of shares, the value of shares, names of the receiving members, etc. to
enable him to deliver such shares in time.
Delivery Price
The price fixed by the Stock Exchange at which deliveries on futures are invoiced. Also the price at
which the futures contract is settled when deliveries are made.
Dematerialise
The process of transforming securities holdings in physical form to those in electronic form through a
Depository Participant.
Dividend
Payment made to shareholders, usually once or twice a year out of a company’s profit after tax.
Dividend payments do not distribute the entire net profit of a company, a part or substantial part of
which is held back as reserves for the company’s expansion. The dividend is declared on the face value
or par value of a share, and not on its market price.
Dividend Cover
Denotes the number of times equity earnings per share covers the equity dividend per share.
Dividend Notification
A requirement that companies notify the Stock Exchange immediately that the company intends to
declare dividend so that it can set the ex-dividend date
Dividend Payable
A current liability showing the amount due to stockholders/shareholders for dividends declared but not
paid.
Equity
The ownership interest in a company of holders of its common and preferred stock.
European Option
A put or call that can be exercised only on its expiration date. The term has nothing to do with where
the option is traded or what underlies it. Stock options listed on European option exchanges are
usually American Style options in the sense that they can be exercised prior to the expiration date.
Exchange-traded funds (ETF)
A security that tracks an index but has the flexibility of trading like a stock.
Fixed Asset
An item of value used in a current operation that would normally be of use for more than one year.
Fixed Liability
An obligation of a company payable more than a year hence
Foreign institutional investor
An institution established or incorporated outside India that proposes to make an investment in India in
securities; provided that a domestic asset management company or domestic portfolio manager who
manages funds raised or collected or brought from outside India for investment in India on behalf of a
sub-account shall be deemed to be a Foreign Institutional Investor.
Index Fund
A mutual fund that invests in a portfolio of shares that matches identically the constituents of a well-known stock market index. Hence changes in the value of the fund mirror changes in the index itself.
Initial Public Offering (IPO)
The first public issue by a public limited company
insider trading
The practice of corporate agents buying or selling their corporation’s securities without disclosing to the
public significant information which is known to them but which has not yet affected the price.
Institutional Investors
Organizations that invest, including insurance companies, depository institutions, pension funds,
investment companies, and endowment funds.
In-the-Money
A call option is said to be in the money when it has a strike price below the current price of the
underlying commodity or security on which the option has been written. Likewise, when a put option
has a strike price above the current price it is said to be in-the-money
Intangible Assets
An item of value whose true worth is hard or almost impossible to determine such as goodwill reputation,
patents and so on.
Interim Dividend
A dividend payment is made during the course of a company’s financial year. Interim dividend, unlike
the final dividend does not have to be agreed upon in a general meeting.
Leverage
The use of borrowed money to finance an investment.
Liabilities
Any claim for money against the assets of a company, such as bills of creditors, income tax payable,
debenture redemption, interest on secured and unsecured loans, etc. Although on the balance sheet
shareholder’s equity is shown under liability, it has no claim on the assets of a company, unless it
goes into liquidation.
Limit Order
An order to buy or sell a specified number of shares of a security when a specified price is reached.
Listed Company
A company that has any of its securities offered through an offer document listed on a recognized
stock exchange and also includes Public Sector Undertakings whose securities are listed on a
recognized stock exchange
Long Position
A position showing purchase or a greater number of purchases than sales in anticipation of a rise in
prices. A long position can be closed out through the sale of an equivalent amount.
Market capitalization
The market value of a company is calculated by multiplying the number of shares issued and outstanding
by their current market price.
Mark-to-market margin (MTM)
Collected in cash for all Futures contracts and adjusted against the available Liquid Net worth for
options positions. In the case of Futures Contracts MTM may be considered as Mark to Market
Settlement
Money laundering
Process of converting the proceeds of illegal activities – disclosure of which would trigger financial
losses or criminal prosecution – into real or financial assets whose origins remain effectively hidden
from law enforcement officials and from society in general
Moving Average
The average of security or commodity prices over a period of a few days or up to several years shows
the trends up to the last interval. Each time the average is taken, the oldest price is dropped and the
latest price is added. Thus the average is moving one.
Mutual Funds /Unit Trusts
Mutual Fund is a mechanism for pooling resources by issuing units to the investors and investing
funds in securities in accordance with objectives as disclosed in the offer document. A fund established in
the form of a trust to raise monies through the sale of units to the public or a section of the public
under one or more schemes for investing in securities, including money market instruments.
Naked Option
An option that is written without corresponding security or option position as protection in seller’s
account.
Net Asset Value (NAV)
The current market worth of a mutual fund’s share. A fund’s net asset value is calculated by taking
the fund’s total assets, securities, cash, and any accrued earnings, deducting liabilities, and dividing
the remainder by the number of units outstanding.
Open market operation
Purchase or sale of government securities by the monetary authorities (RBI in India) to increase or
decrease the domestic money supply.
Open Order
An order to buy and sell a security that remains in effect until it is either canceled by the customer or
executed.
Option
The contractual right, but not obligation, to buy (call option) or sell (put option) a specified amount of
underlying security at a fixed price (strike price) before or at a designated future date (expiration
date). The option writer is the party that sells the option. As per the Securities Contract Regulation Act
(SCRA), “option in securities” means a contract for the purchase or sale of a right to buy or sell, or a
right to buy and sell, securities in the future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call
or a put and call in securities.
Option premium
The market price of an option that is paid by an option buyer to the option writer (seller) for the right
to buy (call) or sell (put) the underlying security at a specified price (called “strike price” or “exercise
price”) by the option’s expiration date.
Option Seller
Also called the option writer, the party who grants a right to trade a security at a given price in the
future.
Option spread
A spread is a type of option position where you buy an option and sell an option and both of them are
from the same option class.
Out-of-the-money option
An option is described as being out of the money when the current price of the underlying is below
the strike or exercise price for a call, and above the strike price for a put. Options can also be
described as being deep out of money when they are likely to expire the money
Penny Stocks (U.S.)
Generic term for very low-priced stocks- sometimes selling at a few pennies per share sometimes for
a dollar or two- in speculative companies
Pig
Operators who get killed by the speculators
Portfolio
A collection of securities owned by an individual or an institution (such as a mutual fund) that may
include stocks, bonds, and money market securities.
Portfolio investment
Investment which goes into the financial sector in the form of treasury bonds and notes, stocks,
money market placements, and bank deposits. Portfolio investment involves neither control of operations
nor ownership of physical assets.
Price Earning Ratio
The ratio of the market price of the share to earnings per share. This measure is used by investment
experts to compare the relative merits of a number of securities.
Pump and dump
A highly illegal practice occurring mainly on the internet. A small group of informed people buys a stock
before they recommend it to thousands of investors. The result is a quick spike in the price followed
by an equally quick downfall. The people who have bought the stock early sell-off when the price
peaks.
Put Option
An option that gives the right to sell a fixed number of securities at a specified price (the strike price)
within a specified period of time.
Red Herring
A preliminary prospectus was filed with the Securities and Exchange Commission in the United States in
order to test the market’s reaction to a proposed new issue of securities. In the Indian scenario, Red
Herring is a draft prospectus that is used in book-built issues. It contains all disclosures except the
price and is used for testing the market reaction to the proposed issue.
Rights Issue/ Rights Shares
The issue of new securities to existing shareholders in a fixed ratio to those already held.
Strike Price
The price, in contracts for put options and call options, at which the option can be exercised. Sometimes
called the exercise price or basis price
Value Investing
The investment style of attempting to buy underpriced stocks that have the potential to perform well
and appreciate in terms of price.
Venture Capital
Professional money is co-invested with the entrepreneur usually to fund an early-stage, more risky
venture. Offsetting the high risk is the promise of higher return that the investor takes. A venture
capitalist not only brings in amounts of money as “equity capital” (i.e. without security/charge on assets) but also
brings on to the table extremely valuable domain knowledge, business contacts, brand equity, strategic
advice, etc. He is a fixed interval investor, whom the entrepreneurs approach without the risk of
“takeover”.
Volatility
Volatility equates to the variability of returns from an investment. It is an acceptable substitute for risk;
the greater the volatility, the greater is the risk that an investment will not turn out as hoped because
its market price happens to be on the downswing of a bounce at the time that it needs to be cashed
in. The problem is that future volatility is hard to predict and measures of past volatility can, themselves,
be variable, depending on how frequently returns are measured (weekly or monthly, for example) and
for how long. Therefore, putting expectations of future volatility into predictive models is of limited use,
but resorting to using past levels of volatility is equally limited
Volatility
Volatility equates to the variability of returns from an investment. It is an acceptable substitute for risk;
the greater the volatility, the greater the risk that an investment will not turn out as hoped because
its market price happens to be on the downswing of a bounce at the time that it needs to be cashed
in. The problem is that future volatility is hard to predict and measures of past volatility can, themselves,
be variable, depending on how frequently returns are measured (weekly or monthly, for example) and
for how long. Therefore, putting expectations of future volatility into predictive models is of limited use,
but resorting to using past levels of volatility is equally limited
Wolf
Speculators who make a kill in the market