Sensex
It is an index that represents
the direction of the companies that are traded on the Bombay Stock Exchange,
BSE. The word Sensex comes from sensitive index.
The Sensex captures the
increase or decrease in prices of stocks of companies that it comprises. A
number represents this movement. Currently, all the 30 stocks that make up the
Sensex have reached a value of 14,355 points.
Nifty- S&P CRISIL NSE
Index 50
It is the Sensex's counterpart
on the National Stock Exchnage, NSE.
The only difference between
the two indices (the Sensex and Nifty) is that the Nifty comprises of 50
companies and hence is more broad-based than the Sensex.
Having said that one must
remember that the Sensex is the benchmark that represents Indian equity markets
globally.
The Nifty 50 or the S&P
CNX Nifty as the index is officially called has all the 30 Sensex stocks.
Bull
A particular kind of investor
who purchases shares in the expectation that the market price of that company's
share will increase.
S/he sells her/his stock at a
higher price and pockets the profit. Simply put, the bulls buy at a lower price
and sell at a higher price.
For instance, if a bull buys a
company's share at Rs 100, s/he would prefer selling the same stock at Rs 120
or any price higher than Rs 100 to make a profit.
Usually, a bull buys first at
a lower price and sells later at a price higher than her/his cost of purchase.
Bulls are happy when the
markets (the Sensex and Nifty) move upwards. A falling market takes bulls into
hibernation.
Bear
Bull's counterpart is the
bear.
A bear sells stocks first that
s/he owns or borrows from, say a friend, and then purchases the same quantity
of shares at a lower price.
If a bear sells first, say 100
shares of Ranbaxy at Rs 400, and later purchases the same number of shares at
Rs 375, then her/his profit is Rs 25 (400-375) per share.
This way s/he has got back the
100 shares of Ranbaxy and simultaneously made a profit of Rs 2500. The shares
can later be returned to the bear's friend if s/he had borrowed the same from a
friend.
There are bears in the market
that sell shares first without actually owning them unlike in the above
example. Such selling is called naked short selling or going short on a stock.
Bears are happy in a falling
market.
While individual investors can
engage in selling first and buying later (also referred to as short selling),
mutual funds and foreign institutional investors are not allowed this luxury in
India yet.
Squaring off
A process whereby
investors/traders buy or sell shares and later reverse their trade to complete
a transaction is called squaring off of a trade.
Indian equity markets remain
open between 9:55 am and 3:30 pm normally (At times there are sun outages when
satellites fail to link with ground infrastructure of the two exchanges (the
servers where buy and sell orders are matched). During these times the trading
period is extended till 4:15 pm to compensate for the time lost in between).
If you purchase 50 shares of
say Infosys and sell them later before the market closes then you have squared
off your buy position.
Rally
The word suggests the gain
made by the Sensex or Nifty during the course of the day. If such gains are
made on a regular basis then market participants like investors, brokers etc
call it as a market rally.
Crash
As the word suggests, crash
refers to a fall in the value of Sensex and Nifty. In the first three trading
days of this week(February 12-14) alone
the Sensex had crashed by more than 700 points.
The Sensex then had plummeted
from around 14,700 levels to around 14,000 points. This sudden and violent
700-point fall is referred to as the crash or market crash.
Correction
A correction (or a measured
fall) in the Sensex and Nifty takes place when these indices rise for a few
days and then retrace or shave off some of these gains.
Say if the markets rally from
13,000 to 14,000 points in 10 days and the again fall to 13,700 points in the
next five-six days then this action is termed as a market correction.
Book closure date
This is the date on which a
company closes its books for business after it announces a bonus or dividend.
The company's registrar keeps a track of who owns how many shares of that
particular company.
Any investor having shares in
his/her demat account before this date becomes eligible for the bonus issue or
the dividend declared.
Say a company A announces a
1:1 bonus issue and the book closure date is February 28, 2007.
If you don't own this
company's share and want to avail of the bonus offer then you must not only buy
this share before February 28 but also make sure that the number of shares
purchased by you are transferred to your account from the seller before this
date.
If the ownership of shares is
reflected in your account after February 28 then you will not get any bonus
shares. The same is also true for dividend announcements.
This just sums up a few terms
used by stock market participants. We shall see some more next week
Short Position
A position in which a person's
interest in a particular series of options is as a net seller (writer) meaning
that the number of contracts sold exceeds the number of contracts bought. It is
similar in case of futures contracts.
Short Sale
A Short sale occurs when a
person believing that the prices of shares will fall, sells shares that he does
not own with the intention of purchasing the shares at lower price at the time
delivery has to be made. This is also known as forward sale.
Slump
The bottom of a trade cycle
when prices and employment are at their lowest, reflected in the downward
movement of share prices, Recovery from a slump is often slow.
Settlement
The payment of cash for
securities and, conversely, the delivery of securities against payment - the
conclusion of a securities transaction by delivery. Settlement is the payment
or receipt of an outstanding due at the end of the settlement period.
Settlement Day
The day on which bought
securities are due for delivery to the buyer and the appropriate consideration
to the seller.
Splitting/Consolidation
The process of splitting
shares that have a high face value into shares of a lower face value is known
as splitting. For e.g: A share with a face value of Rs 100/- may be split into
ten shares of Rs 10/- each. The reverse process of combining shares that have a
low face value into one share of higher value is known as consolidation.
stock option
An option given to a person to
buy stock at a predetermined price at a future date
Screen Based Trading
Screen based trading uses
modern telecommunications and computer technology to combine information
transmission with trading in financial assets. Trading members are connected to
the Exchange from their workstations to the central computer located at the
Exchange via satellite using VSATs (Very Small Aperture Terminals). Buy and
sell orders from the brokers reach the central computer located at NSE and are
matched by the computer.
Stock split
Splits are about as exciting
as getting change for a Rs100 note. Depending upon the split ratio one share of
a company is split into the decided number. This is done by reducing the face
value of the scrip. Stock splits are expected to improve liquidity in a stock.
Time Conditions
1. DAY - A day order, as the name suggests is an order which
is valid for the day on which it is entered. If the order is not matched during
the day, the order gets cancelled automatically at the end of the trading day.
2. GTC - A Good Till Cancelled (GTC) order remains in the
system until it is cancelled by the user. It will therefore be able to span
trading days if it does not get matched. The Exchange may however set an upper
limit to the number of working days an order can stay in the trading system. At
the end of this period, GTC orders are cancelled automatically from the system.
3. GTD - A Good Till Day (GTD) order allows the user to
specify the number of days up to which the order should stay in the trading
system. At the end of this period, the order gets flushed out from the system
if it is not traded or is not cancelled by the trading member.
4. IOC - An Immediate or Cancel (IOC) order allows a user to
buy or sell a security as soon as the order is released into the market,
failing which the order is removed from the market. There could be a partial
match for such an order resulting in one or more trades, in which case the
balance order will be removed from the market.
All reference to days in the
trading system would refer to working days. Thus, each day is counted on a
working day basis i.e. intervening holidays are not considered. The days
counted are inclusive of the day on which the order is placed. However, for
Repo term, days are counted on a calendar basis. Unit of Trading
The minimum number of shares
of a company which are accepted for normal
trading on the stock exchange. All
transactions are generally done in multiple
of trading units. Odd lots are
generally traded at a small discount.
Panic Selling
A condition of the stock
market in which not only inexperienced investors, but also sturdy bulls, take
fright and start selling. It may be caused by sudden unfavourable news or
rumour, or a Random Walk by shares downwards, or simply, in bear market
conditions, the absence of financial institutions from the market.
Portfolio
The group name for the entire
collection of investments belonging to an investor or held by a financial
organization such as a bank, pension fund or investment trust.The idea of a
portfolio is that you should invest in a diversifed selection of investments.
Don't have all your eggs in one basket
Primary market
a place where money is raised
by companies to pay for expansion or pay off existing investors.In the futures
markets, the primary market is the main underlying market for the financial
instrument on which the futures contract is based.
Nasdaq
National Association of
Securities Dealers Automatic Quotation SystemAn American stock exchange. It’s
also known as the technology heaven for companies in that category.
Moorat Trading
Auspicious trading on Diwali
day during specified hours.
Long position
A position in which a person's
interest in a particular series of options is as a net holder, meaning that the
number of contracts bought is more than the number of contracts sold. It is
similar for the futures contracts. A bull position in a security.
Listed Company
A public limited company which
satisfies certain listings conditions and signs a listing agreement wit the
stock exchange for trading in it securities. One important listing condition is
that 25% of its issued capital should be offered to the public.
Limit order
Is an order for which the
price (limit price) has been specified at the time of making the order entry. A
limit order describes the instruction an investor gives to his broker setting
out how much he's prepared to pay for shares (or any other asset for that
matter).
LIBOR
LIBOR stands for London Inter
Bank Offer Rate. It's the rate of interest at which banks offer to lend money
to one another in the so-called wholesale money markets in the City of London.
Money can be borrowed overnight or for a period of in excess of five years.
