Important Share Market Terms

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.