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in USD and evidencing non-US equity paper. Holders of ADRs essentially enjoy the same ownership and membership rights as shareholders. Alpha Ratio which expresses risk-adjusted performance of an investment fund. If the average return on a security or portfolio is larger than its expected return, the alpha is positive. If the average return is smaller than expected, the alpha is negative. Arbitrage The simultaneous purchase and sale of identical or equivalent financial instruments or futures in order to benefit from a discrepancy in their price relationship. At-the-money When the price of the underlying security is equal to the strike price, an option is at-themoney. Blue Chip Stocks Stock in a well-established, financially-sound, and stable company that has demonstrated its ability to pay dividends in both good and bad times. Book Building The process of optimum price discovery in which the company decides the price of the security by asking various investors about how much and at what price would they invest in the company’s equity. Cost of carry Cost of financing an asset Derivatives
Expiration Date The last day on which an option may be exercised. Market Maker A person who provides both buy and sell quotes for a security.A derivative instrument is an instrument which derives its value from the value of one or more underlying which can be commodities. stock. Also. Open Interest The cumulative number of either long or short contracts which have been initiated on an exchange. precious metals. Limit Order An order placed with a broker to buy or sell shares at a specified price or better than the specified price. Green Shoe Option The green shoe option allows a company to retain the amount of oversubscription in case of a fresh public issue. Mark-To-Market The daily adjustment of margin accounts to reflect profits and losses. bonds. Open Order . and have not been offset. Odd Lot A lot of share that is less than the marketable lot is called an odd lot. currency. Kerb Deals The sale/purchase of securities before and after the official trading hours of the stock exchange. stock indices etc. the last day of trading for a futures contract.
The seller of a put option has the obligation to buy the underlying security should the buyer choose to exercise his option to sell. each stockholder would receive an additional share for each share formerly held. Rally An upward movement of prices following a decline. usually due to an inability to meet listing requirements. Stock Split The division of a company’s existing stock into more shares. but not the obligation. In a 2-for-1 split. For such securities. brokers/dealers negotiate directly with one another over computer networks and by phone. usually within the same day. the opposite of a reaction. Over the Counter (OTC) A security which is not traded on an exchange. Put A put option gives the buyer the right. Reaction A decline in prices following an advance. to sell an underlying security at a specific price for a specified time. hour or even just a few minutes. Rights Issue Issue of additional equity to existing shareholders of a company Scalping Scalping normally involves establishing and liquidating a position quickly. Tick Smallest increment of price movement possible . The opposite of rally.An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed.
The current market value of all of a company’s shares outstanding. which go from 1 to 99. you have to look at those earnings relative to the stock price. To calculate market value. Market = Shares Outstanding* Share =10 million * $13 = $130 million Price/Earnings Ratio (P/E). Earnings per share alone mean absolutely nothing. relative strength is a momentum indicator. it would have a P/E of 15. Spicer used to scrawl in bright red ink on your algebra quizzes – to the performance of a stock over a given period. most investors employ the price/earnings (P/E) ratio. You can find information about shares outstanding from the company’s last quarterly report or any online quote service. those who look at earnings use earnings per share (EPS). In order to get a sense of how expensive or cheap a stock is.Earnings Per Share (EPS). To allow for apples-to-apples comparisons. is currently trading at $15 a share with $1. To do this. Thus. Cap. If XYZ Corp. is the money that is left over after a company pays all of its bills. stocks over the past year. The P/E ratio takes the stock price and divides it by the last four quarters’ worth of earnings. for example. indicates a wonderful stock. one that has outperformed 95% of all other U.00 of earnings per share (EPS). you take the number of shares outstanding and multiply them by the current price of each share. However. also known as relative price strength. A relative strength of 95. the market capitalization is $130 million. The most popular form of relative strength ratings are those published in Investor’s Business Daily. given that relative strength is only a mathematical relationship between the . The rating system gives a numerical grade – just like the ones Mr. Price Relative Strength : Relative strength. rates the performance of a stock versus the performance of the market as a whole over a given time period. also known as net income or net profit. Market Capitalization. earnings are the most important factor in analyzing a company. For many investors.S. For instance. Earnings. if a company has 10 million shares outstanding and trades at $13 per share. normally the past 12 months.
When the market expects a company to come out with a Bonus Issue. though the number of total shares increase. Revenues. natural gas providers. many others have created their own relative strength measures. Market watchers will say a company has traded at a certain number of times the average daily volume. Electric companies. particularly if the average daily volume is very low. Illiquid stocks trade infrequently and large sales often cause the price to rise or fall dramatically. These businesses are almost always under some form of regulation by the government and normally have a monopoly position in a certain region. . revenues are how much the company has sold over a given period. Also known as revenues. Following a bonus issue. sales are literally how much the company has sold over a given period. A business that provides a service essential to almost everyone is called a utility. the difference between the buying price and the selling price. the price of the shares normally goes up. Many investors look at volume over a month or a year to come up with average daily volume.stock’s performance and an index’s performance. Illiquid stocks on the Nasdaq also tend to carry the largest spreads. a stock can trade as much as 20 or 30 times its average daily volume. The number of shares traded on a given day is known as the volume. Sales. Highly liquid stocks trade easily in large batches with low transaction costs. Annual sales would be the sales for a given year. giving the investor a sense of how active the stock was on a certain day relative to previous days. The average number of shares traded gives an investor an idea of a company’s liquidity – how easy it is to buy and sell a particular stock. When major news is announced. whereas quarterly revenues would be the sales for a given quarter. Volume. Also known as sales. Annual revenues would be the sales for a given year. whereas quarterly sales would be the sales for a given quarter. Bonus Shares Shares allotted to the existing shareholders by capitalizing the reserves into additional capital. Utilities. and local phone companies are often referred to as utilities. the proportional ownership of shareholders does not change.
Banks are reluctant to authorize loans against assets which have encumbrances and prefer a clear title. Common Stock Equity or ownership in a corporation. Broad Based Fund (sub-account) A fund which has a minimum of 20 shareholders without any single investor holding more than 10 percent of the shares and units of the fund is known as broad Based Fund. bullion. sold. rather than being expensed in the year of purchase. Options and similar other instruments are examples. Bridge/Mezzanine Funding Financing for a company expecting to go public within 6-12 months. to another person. Capitalize When costs of items such as buildings. etc. For instance. Derivatives A financial contract between two or more parties based on the future value of an underlying asset. . Clear Title A title to an asset proves your legal ownerships of that asset. option. currency. it is any hybrid contract of a pre-determined fixed duration such as forward. etc. This represents an encumbrance on the title. commodities. rented or otherwise transferred. live stock. the value of a call option on reliance (derivative) fluctuates with the price of reliance stock. temporarily or permanently. The Exchange may relax the limit after a cooling off period of about half an hour. The value is totally 'derived' from the value of the underlying asset such as securities. That asset be mortgaged. future.Breakout A technical analysis term meaning a stock price has moved above or below a previous trading range. linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. Stockholders participate in a company's profits or losses through dividends and changes in the stock's market value. usually so structured as to be repaid from proceeds of a public offering. Circuit Breaker A mechanism used to restrain the market when it gets overheated. or to establish a floor price for public offer. equipment and other items with a useful lifetime exceeding one year are categorized as assets to be depreciated over a number of years.
Equity per Share Shows how much of a company's equity one share represents. If the market price is greater than the equity per share. The seller remains the beneficiary. Like when you may like to cover possible loss by also backing the horse for a place. Ex rights shares are cheaper than Cum Rights and offer a good 'buy' opportunity for investment oriented players. Hedging A practice of taking one market position to offset potential losses in another. Front-End Load Sales charge paid when purchasing a mutual fund. A hedger takes an equal and opposite position in the futures market to the one he holds in the equity market. Financial Futures Legally binding agreements to buy or sell financial instruments at a future date (for example. Growth Stocks Stocks that pay low dividends. For example using a futures a contract to reduce the impact of price fluctuations in a cash or physical market. The seller remains the beneficiary. foreign currency). In securities trading. since there is no win or place. Equity divided by number of shares at the close of the period. Ex Bonus A Share is described as ex dividend when the buyer is not entitled for the dividend. the market believes that the company will generate extra value. Green Shoe An agreement allowing the lead underwriter to buy additional shares of an IPO at the offering price after the IPO begins trading. Strictly for long term investors who have a vision for the future and are not interested in maximizing short term profits. you have to look for another investment avenue where the return is less but the risk is also correspondingly less. It is representative of the market sentiment. The day after dividends is paid! Ex Rights A share is described as ex rights when the buyer is not entitled for the Rights. Index/Indices An index is managed and publishes either by a stock exchange or a professional financial and investment body. bonds stocks. Normally the index components are the highly traded . treasury bonds. but are expected to grow.
banking. then it will have to pledge shares worth Rs. The downside: most individuals pledge existing stocks with their bankers or brokers for the loan. The margin for demat shares is35 percent. financial leverage is popularly called �trading on the equity'.stocks of that exchange. Mark to Market . he repays the broker the loan amount and keeps the profit himself. it refers to the ratio of debt (in the form of bonds and preferred stock outstanding) to equity (in the form of common stock outstanding) In the company's capital structure. the greater the financial leverage. For corporations. futures and option contracts also provide leverage. etc is made up of the highly traded stocks in that particular sector. Utilities. Because of this effect. Usually they represent about 80 to 85 percent of the market capitalization and trading. not through debt but by offering the prospect of a high return for little or no investment. Margin An upfront payment made by the customer to take a position in the market. The difference in the value of shares pledged and the loan amount sanctioned. Rights. Institutional Ownership Shares of a company owned by pension funds. warrants. Multiply this instance by thousands and you can imagine the margin pressure that is exerted on the market. The margin for physical shares is 50 percent (that is you can borrow only up to 50 percent of the values of your pledged shares. Now suppose the market value of the pledged stocks goes down to Rs. as when an investor borrows money from his broker �on margin' and so is able to buy more stock than he otherwise could. If one wants to borrow Rs.100.100 on the market against which you are given a loan of Rs. Leverage Any means of increasing value and return by borrowing funds or committing less of one's own money. in number. By borrowing money he has achieved a higher return on his investment than if he had paid for all the stock himself. The lender is immediately going to ask you to pledge more stocks (or pay cash) to bring the level up to 200 per cent of the loan. they represent anything up to 85 per cent. The more long-term debt there is. banks. are a miniscule percent of the total listed shares.75. This is when the market falls and we have what is known as a �bear' market. which is a percentage of the market value of the stocks pledged. For individuals. Industry Group Companies in related businesses. but in terms of value of trade and market capitalization. The BSE Sensex is based on 30 stocks as is New York 's Dow average. Sectored indices like Industrial. These 30 stocks. etc. Say you have pledged stocks worth Rs.50 (50 per cent). The market value of the company rises and so do its shares. His exposure limit is fixed based on the margin money brought in by him. If the stock goes up. Shareholders benefit from this financial leverage to the extent that the return on the borrowed money exceeds the interest costs of borrowing it.200. mutual fund. Margins are at the sole discretion of the bank and may even vary from scrip to scrip. leverage can involve debt. financial institutions.
Operating Earnings Earnings without considering certain expenses such as inventory write downs. Changes in levels of inventories. accounts receivable and accounts payable also affect cash flow. strong earnings growth. For an investor this means that. the greater the expectations for a company's future growth in earnings. the ratio is the weighted average P/E. it is best used for companies operating in the same field. whose shares have to be offered as security for obtaining loans.A notional profit or loss of a long or short position as compared to the current market price. Also see Free Cash Flow. in case of IDBI Bank the shares to be offered as security should be of at least of two companies. earnings excluding special items or operating earnings. Banks also profitability of a number of companies. Also known as core earnings. In today's market. depreciation and amortization charges. if you hold a unit in a mutual fund. Momentum Analysis Usually involves looking for stocks in a strong uptrend (high relative strength). Net Asset Value (NAV) Net Asset Value (NAV) is the market value of the securities held by the scheme of a Mutual Fund.NAV varies on a day-to-day basis since the market value of securities changes regularly.To simplify. Operating Cash Flow Surplus cash generated from a company's basic operations without regard to income tax entries such as depreciation and amortization. The total market value divided by the total number of units of the scheme on a specific date is the NAV. the NAV is the value today of your unit. It is in your interest to pledge the shares of an number of companies when you take a loan. Penny Stocks . if the P?E ratio is 10. or just about anything else the company feels like excluding to make its earnings look better. Minimum Number of Companies Accepted The minimum number of companies. the price is equivalent to ten years earnings. may include relative strength only. For a portfolio. P/E (Price/Earnings Ratio) Shows a share's market price in proportion to its earnings. severance pay. In comparisons. ongoing earnings. Operating Income Sales minus all expenses except income taxes and other items not relaxed to basic business. if the value of some shares drop in the market they may be offset by the other shares which have risen in price. For example. The figure illustrates expectations of future company growth. Calculated by dividing the share price by the reported or forecast annual earnings per share. and increasing earnings forecasts.
. Low-priced issues. usually seen as a price chart pattern. more appropriately. Resistance Historical price level at which rising prices have stopped rising and either moved sideways or reversed direction. In a bullish market this causes the price to rise further and increase the operator's profit. if you have not held the fund for the prescribed minimum time. the company seeks temporary delegation of your voting rights. a loan. It is not unusual. often highly speculative. Private placements are usually made to investment banks and financial lending institutions from whom the issuing company takes or intends to take. Post-Offering Shares The number of shares that will be outstanding after an IPO. In effect. Redemption Fee Fee charged when you sell a mutual fund. In a bear market this causes margin calls and substantial losses. The private placement results in the lending institute holding the company's stock collateral. Pyramiding So called because it is akin to building a pyramid. Frequently used as a term of disparagement although some penny stocks have developed into investment-caliber issues. It involves pledging shares with a banker or broker to raise a loan to buy more shares of the same company. These shares are pledged again to secure a further loan to buy additional shares of the same company in a self-feeding cycle which is called pyramiding. The whiff of a market rumors and pyramid could collapse around you. Poison Pill Steps taken by a corporation to thwart a hostile takeover attempt. For instance.This term is typical to the USA stock markets. selling at less than $1 a share. pushing up their prices. it can. In India they are called low-Capped stocks and BSE has a separate index for them. a company could issue rights to purchase shares at a substantial discount after a merger. When a bull market is raging. These stocks offer larger returns but at higher risk. Private Placement The sale of securities to a small group of investors that is exempt from the elaborate requirements of a public issue. be called building a house of cards. Proxy Statement Material given to stockholders when the corporation solicits shareholder votes. Rematerialisation Process of converting the shares from electronic form to physical form. The proxy statement usually contains details on the corporation's executive compensations plans. or it might issue preferred shares giving holders the right to redeem their shares at a discount after a merger. to find the index for these stocks outpacing the Sensex.
For example. Tick The tick is the direction in which the price of stock moved on its last sale. the price of the stock is currently 60 a share. Later on the person may withdraw some shares and pledge new ones to replace the shares he has withdrawn. A reverse split is where the total number of shares is decreased and the stock price increases proportionally. usually seen as a price chart pattern. and then reverses the up or down trend convincingly. Third Stage Capital Capital provided to an enterprise that has an established commercial production and basic marketing setup. The shareholders equity does not change. Road Show Presentations made by underwriters and IPO company officials to institutional buyers to create interest in the offering. This increase in the number of shares result in the proportionate decrease of share price. typically for market expansion. An up-tick means the last trade was at a higher price than the one before than the price was at a higher price than one before it and a . Rollover A point where a stock price has fallen to support. This is popularly called security swapping. Support Historical price level at which falling prices have stopped falling and either moved sideways or reversed direction. product development etc. a company declares a "3 for 1 " stock split. a shareholder with 100 shares before the split would have 300 shares after the split with a value of 20 a share. Security Swapping One has to pledge one's shares when availing of "loan against shares". it is issued in a fixed ratio to those shares which are already held. acquisitions. As in a split the total stock holders equity remains the same.Rights Issue Issue of new shares to the existing shareholders at a price which is normally lower than the current market price of the old shares. or risen to resistance. Split An increase in the number of shares outstanding. Second Stage Capital Capital provided to expand marketing and meet growing working capital needs of an enterprise that has commenced production but does not have positive cash flows sufficient to take care of its growing needs.
Yield In stocks and bonds.down -tick means the last sale price was lower than the one before it. but still higher than the nearest preceding price.00/10. Value Traded This is the total monetary value of all trading in a security for the market day. The tick becomes especially important when large market movements trigger the implementation of certain circuit breakers meant to stabilize the market. Also the effective interest rate on a bond. the amount of money returned to investors on their investments. Interest and dividends paid to mutual fund shareholders as a percentage of share price (Net Asset Value). A zero-plus tick means the transaction was at the same price as the one before. It is calculated by multiplying the volume traded by the average sale price. . For instance. Top A technical analysis term meaning the stock price is going down from here. Also known as rate of return.00) 10 per cent.00. the yield is (1. if a bond pays 1.00 interests annually. and is selling for 10.