50 Commonly used terms in Stock market and debt market

In our previous article, we covered 100 terminologies used in the Forex Market. In this article we have covered 50 common terms used in the stock market and debt market like  Arbitrage, ASBA, Asset allocation, Averaging down, Beta, Bid, Bid-Ask spread, Block chain stocks, blue chip stocks, P/E ratio, Bonus shares, Bull market, bear market, Upper Circuit, Lower Circuit, intraday-trading, short selling, long selling, Market Capitalisation, large-cap, mid-cap, small-cap, day-order, done for day order, IOC order, Limit order, VTC order, P/E ratio, Stock split, stock option, value stock, volatility, Bond, Coupon, YTM etc.

Arbitrage: Arbitrage is the practice of buying a security in one market and simultaneously selling it in another market at a higher price, thereby enabling investors to profit from the temporary difference in cost per share. The profit is the difference between the market prices at which the unit is traded.

ASBA: Application Supported by Blocked Amount (ASBA) is an application made by an investor for the subscription of an Initial Public Offer (IPO) and Follow-on Public Offer (FPO). The form contains an authorization to Self-Certified Syndicate Bank (SCSB) to block funds available in the applicant’s Savings Bank Account or Current Account (other than Overdraft or loan accounts), for subscribing to an Issue. The amount to be blocked must be to the extent of application money, till finalization of allotment in the issue or till withdrawal/ failure of issue, or till withdrawal/ rejection of the application, as the case may be.

Ask (or Offer) price: The Ask price or offer price is the minimum price that a seller or sellers are willing to receive for the security.

Asset allocation: Asset allocation refers to a strategy in which individuals divide their investment portfolio between different diverse categories. It involves dividing one’s investments among different assets, such as stocks, bonds, and cash. The asset allocation decision is a personal one.

Averaging down: Averaging down is the investing strategy of the investor that involves purchasing additional shares of a previously initiated investment after the price has dropped. The result of this second purchase is a decrease in the average price at which the investor purchased the stock.

Annual Report: The Annual Reports available on the website of NSE/BSE are based on the submissions made by the Companies. The annual report (AR) is a yearly publication document a public corporation is expected to send to shareholders annually to explain its activities and financial conditions. The purpose of the annual report is to provide stakeholders, such as shareholders, investors, and employees, with a clear and concise overview of the company’s performance and operations. It is also an important tool for communicating with these stakeholders and building trust and credibility with them.

Beta: Beta is a concept that measures the expected move in stock relative to movements in the overall market. A beta greater than 1.0 suggests that the stock is more volatile than the broader market, and a beta less than 1.0 indicates a stock with lower volatility. On comparison of the benchmark index e.g. NSE Nifty to a particular stock returns, a pattern develops that shows the stock’s openness to the market risk. A good beta will, therefore, rely on your risk tolerance and goals.

Bid: Bid, also known as bid price, is the maximum price an investor is ready to pay for a security.

Bid-ask spread: The bid–ask (offer) spread is the difference between the prices quoted for an immediate sale and an immediate purchase for stocks, futures contracts, options, or currency pairs in some auction scenario.

Blockchain stocks: Blockchain stocks are regular stock market shares of companies involved with blockchains. A blockchain is a decentralized, distributed, and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.

Blue chip stock: Blue chip stocks are the stocks/shares of a company that typically have a large market cap, a solid reputation, excellent financials, and long history of stable earnings, and a solid market presence.

Broker: A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange.

Bonds: In the finance market, Bonds are fixed-income securities that are issued by corporations and governments to raise capital. a bond is a type of security under which the issuer owes the holder a debt, and is obliged – depending on the terms – to provide cash flow to the creditor.

Bonus shares: Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are the company’s accumulated earnings which are not given out in the form of dividends but are converted into free shares. Bonus shares point towards the good health of a company. It implies that the company is strong enough to finance the additional equity.

Capital Market: A capital market is a market for long-term debt and equity shares.

Circuit:

Upper circuit: An upper circuit is the maximum percentage increase in the price of a stock in a single trading session. In this scenario, there are only buyers and a negligent number of sellers for that stock. When a stock hits its upper circuit, trading in that particular stock is temporarily suspended. This is to prevent investors from continuously buying the stock at inflated prices, which could cause a market bubble.

Lower Circuit: It is a scenario, where there are only sellers and a negligent number of buyers for that stock. A lower circuit in stock trading is a mechanism used by stock exchanges to prevent a stock’s price from falling beyond a certain percentage limit in a single trading day. This limit, set based on the previous day’s closing price, aims to curb panic selling and maintain market stability.

Coupon: Coupon rate (or simply a coupon) is the periodic rate of interest to be paid by the bond issuer to the bondholders. The coupon rate is calculated on the bond’s face value (or par value) not on the issue price or market value of the bond. For example, if you have a 12-year, Rs.5000 bond with a coupon rate of 8 percent, you will get Rs.400 every year for 12 years, irrespective of the changed price of that bond in the market.

Day trading/intraday trading:  Day trading involves the act of buying and selling a financial instrument within the same day or even multiple times over a day. Share prices keep changing throughout the day. The purpose of the trading person is to capitalize on short-term changes in the price of a specific stock. The person involved in day trading shall buy and sell the same number of shares of the same company on the same day before the market closes.

Dealer: Dealers in a financial market post prices they would be willing to buy and sell specific securities on their account. Brokers and dealers both provide useful financial information about investments to their clients but differ in how they operate. Dealers act as “market makers” by adding liquidity and can create a market by posting their offer price and bid price electronically.

Debt Market: The Debt Market is the market where fixed-income securities of various types and features are issued and traded. Debt Markets are, therefore, markets for fixed-income securities issued by the Central and State Governments, Municipal Corporations, banks, and financial institutions. A share may be bought or sold only once listed on the stock exchange.

Demat account: Demat Account is short for dematerialization account and makes the process of holding investments like shares, bonds, government securities, Mutual Funds, Insurance, ETFs, etc. A Demat account stores the financial instruments you buy in a digital format.

Dividend: A dividend is a distribution of a portion of profits by a company to its shareholders.

Exchange-Traded Fund (ETF): An exchange-traded fund (ETF) is index funds that are listed and traded on Stock exchanges. ETFs can comprise marketable securities like Stocks that track an index, a commodity, bonds, or a basket of assets like an index fund.

Equity: Equity represents the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debts were paid off. The equity holder is entitled to a share of ownership in the company, and entitled to a portion of the company’s profits, assets, and voting rights.

Going long or long selling: This strategy is simple. It consists of acquiring stock in anticipation of rising prices.

Going short or short selling: Short selling is a strategy of making a profit where the investor sells a particular stock with a plan to buy it back later for less money, betting on a lower price at a future date.

Index fund: An index fund is a pooled investment of mutual funds or exchange-traded funds that invests in stocks that imitate a stock market index like the NSE Nifty, BSE Sensex, etc. These are passively managed funds which means that the fund manager invests in the same securities as present in the underlying index in the same proportion and does not change the portfolio composition. These funds endeavor to offer returns comparable to the index that they track.

IPO: An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. In this process, a private company or corporation can become public. It could be a new, young company, or an old company that decides to be listed on an exchange and hence goes public.

Market capitalization: Market capitalization, is sometimes referred to as market cap. To calculate a company’s market cap, multiply the number of outstanding shares by the current market value of one share.

Large-cap stock: Large-cap stocks belong to well-established companies with a market cap of over Rs.20000 crore.

Mid-cap stocks: Mid-cap stocks have a market cap between Rs.5000 crore to Rs.20000 crore.

Small cap stocks: Small cap stocks have a market cap below Rs.5000 Crores.

Mutual Funds: A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that collects money from several investors and invests the money in securities such as stocks, bonds, and short-term debt.

Order:

Day order: A day order can be a limited order to buy or sell a security, but its duration is limited to the remainder of that trading day. It gets canceled automatically if unexecuted before the closing of market hours.

Done for Day order: The Done for Day Order or Order Done for Day may be sent to a broker. When a Day order is unfilled or partially filled at the end of the trading day no further executions will be sent before the order is canceled.

IOC order: Immediate: Orders placed with Immediate or Cancel (IOC) validity allow a user to buy or sell a security as soon as the order is placed into the market.

Limit order: A limit order is an order to buy or sell a stock with a restriction on the maximum price to be paid (with a buy limit) or the minimum price to be received (with a sell limit). If the order is filled, it will only be at the specified limit price or better.

VTC order: A VTC (Valid Till Cancelled) order is valid for 45 days. The order gets automatically executed when the stock reaches the desired set price or else gets cancelled after 45 days.

P/E ratio: The P/E ratio refers to the Price to Earnings Ratio or the Price to Earnings Multiple is the ratio of a company’s share price to the company’s earnings per share. The PE ratio is one of the most popular valuation metrics of stocks. i.e. P/E= Share price ÷ Earnings per share.

The ratio is used for valuing companies and to find out whether they are overvalued or undervalued.

Stock split: When a company declares a stock split, the number of shares of that company increases, but the market cap remains the same. Splits are often a bullish sign since valuations get so high that the stock may be out of reach for smaller. When a company splits its shares, the Shareholders who’ve already purchased and been issued shares of that Company’s stock would be given another share for every stock they already own. In such a scenario, let’s assume that ABC Company has 50 million outstanding shares. After the 2-for-1 stock split, they’ll have 100 million. However, this also means that the value of each share decreases by 50%.

Stock option: A stock option is a contract between two parties that gives the buyer the right to buy or sell underlying stocks at a predetermined price and within a specified period.

Time Horizon: Time horizon often referred to as investment time horizon, is the timeframe over which an investor would stay invested in a scheme.

Trade: Trading refers to the buying and selling of stocks, bonds, commodities, currencies, or other financial securities for a short period to earn profits.

Trading Volume: The number of shares transacted every day or a particular period is known as trading volume. As there is a seller for every buyer, one can think of the trading volume as half of the number of shares transacted. Trading volume is always measured over a specific period.

Value Stock:  A value stock is a stock that tends to trade at a lower price relative to its fundamentals, making it appealing to value investors.

Volatility: Volatility is an investment term that describes when a market or security experiences periods of unpredictable, and sometimes sharp, price movements. If the price of a stock fluctuates rapidly in a short period, hitting new highs and lows, it is said to have high volatility.

Yield to Maturity (YTM):  The term ‘yield to maturity’ is used to indicate the returns an investor gets on his investments by reinvesting every periodic coupon payment from the bond at a fixed interest rate until the bond’s maturity date. The ‘yield to maturity’ to an investor who bought the bonds at market price will be usually different from one who bought it originally at the issue price.