SHARE MARKET KEY TERMS UPSC

SHARE MARKET TERMS USE & APPLICATION

SHARE MARKET FOR UPSC

Share market key terms:


Important Economic Terms for UPSC Exam

 

Ask Price

Ask price is a specific price at which you are looking to sell a share.

 

Annual Report

An annual report is a yearly report that every company prepares to impress the shareholders of their company. The annual report consists of lots of information about a company, from cash flow to management strategy.

Several people read the annual report to look at the company’s solvency and judge their financial position.

Arbitrage

Arbitrage means purchasing something like foreign money from one place and selling it to another place where the price of the foreign money is higher than buying place.

For example: if stock is trading out $20 from one Market and $21 on other markets, the trader must buy shares at $20 from one Market and sell them for $21 on the different Market, getting the difference amount between both the markets price.

Averaging Down

Averaging down means the investor buys more stock when the price of a particular stock goes down. This decreases the average purchase price of your specific stock.

Several investors use this strategy if they feel that consensus about a specific company is wrong, so they expect the stock price to jump back and earn profit.

Bear Market

It is a market where investors talk about the stock market performing in a downward trend, or it is a certain period where the prices of multiple stocks are falling.

Broker

A broker is a person who buys and sells investment on your behalf and, in exchange, takes a certain amount of money called commission or fee.

Bull Market

It is a market condition,  where the stock market is performing in an upward trend, or it is a certain period where the prices of multiple shares are increasing.

Bid Price

A bid price is nothing but the amount that you desire to pay for a particular share.

Bear market

A bear market is one that is falling or trending lower. This can happen during times of recession or public crisis and can last anywhere from weeks to years. If you think the market is going to drop, you’d be considered a “bear.” This description can also be applied to individual stocks you believe will fall, in which case you’d be “bearish” on the stock.

Bond

A bond is similar to a loan with some key differences. In the case of a bond, the buyer is the lender, and the seller is the borrower. Generally speaking, the bond issuer or seller is a government body or a corporation. When they issue the bond, they promise to repay a principal amount, which is the amount of money they are borrowing, in the future on a maturity date. Additionally, they will pay interest periodically to the bond buyer based on a rate called the coupon rate.

Bonus share   Read rights share

A company rather than giving dividend  may offer shareholders bonus shares. Suppose a share is valued at Rs. 100/share, if company gives a bonus in the ratio of 5:1, it means a shareholder gets 1 share for every 5 shares held or 20% returns, dividend is complicated paperwork which can be avoided this way.

Bull market

A bull market is one that is rising or trending higher. If you think the market is going to rise, you’d be considered a “bull.” If you believe an individual stock will go up, you’d be “bullish” on the stock.

Buy back

Companies sometimes buy back their own shares by using the profits they generate, this has two objects, either to reduce number of shareholders and tradable shares thereby reducing volatility or a step towards delisting in future.

 

Capital gain or loss

A capital gain is a profit or return on an investment. This is important for tax purposes.

 

Credit rating agencies

Are companies that keep track of credit situation of the companies & provide this insight to new investors at a price.

 

Dividend

A dividend means when the company earns profit, a particular portion of their earnings is distributed to shareholders or the people who own the company stock on a quarterly or annual basis. Not every company pays dividends, and if you’re after penny stocks, you’ll likely not get any dividends.

Delisting

When a listed company decides that it has no more possibility of growth & investment, this leads to the process of making it a private limited company, where an open offer is put forward to remaining shareholders once a company has acquired 90% from the market.

 

Dividend

Some companies pay out a portion of their income to shareholders, which is called a dividend. Depending on the company, dividends may be a one-time payment, may be sent periodically (i.e., every month, quarter, half-year, or year), or may not be paid out at all.

EBIT/EBITDA

“Earnings Before Interest & Taxes” (EBIT) and “Earnings Before Interest, Taxes, Depreciation & Amortization” (EBITDA) are two commonly-used metrics that represent a company’s profits excluding certain costs. The metrics are believed to represent the company’s core earnings.

Exchange-traded funds (ETFs)

As an investor, you can buy and sell shares of ETFs just as you do with stocks. But buying a share of an ETF gives you some ownership to a fund of different assets, while buying a share of stocks gives you some ownership to individual companies.

Earning guidance

In share markets in developed countries, good transparency norms, mandate listed companies to put forward a future earning guidance to the market so that they can take an informed decision.

 

Hedge fund

A hedge fund, like a mutual fund, is an investment vehicle that uses pooled funds to generate returns. The difference between mutual funds and hedge funds is that hedge fund portfolio managers are part of a firm (limited partnership or LLC) and raise money from investors, which they then manage and invest across different assets. Unlike mutual funds, not everyone can invest in hedge funds; to be considered, you generally need to earn a minimum annual paycheck of $200,000+.

Hostile takeover

When a company shares are bought to acquire the control of a company by acquiring a majority stake and replacing the existing shareholders.

 

Index

An index measures the performance of a group of assets based on common behaviour, such as stocks, bonds, and more. Some of the most well-known indexes include the Nasdaq-100, Nasdaq composite, S&P 500, and Dow Jones Industrial Average.

Index fund

An index fund is a mutual fund that is made up of assets in a way that mirrors a certain index. For example, if you are invested in a Nasdaq-100 index fund, and the Nasdaq-100 goes up, so will the value of your index fund. Since these types of funds are passively managed, the fees will be lower than investing in a typical mutual fund.

IPO roadshow

When company goes for an IPO, it creates Programmes to create customer awareness, also known as roadshow.

Insider trading

When shares are traded by people with illegal inside knowledge of company affairs, which should otherwise be private, this trading is illegal and known as insider trading.

Lead manager

When companies go on to become public companies from being private, it involves an IPO, creating offer document, listing on share markets, etc. this whole work is done by merchant banking companies, who are referred to as lead managers.

Independent directors

Are directors appointed by government to represent retail shareholders on company board.

 

Quote

The stock’s latest trading prices contain information that is given in a quote. Sometimes, the quote is delayed by 20 minutes unless you’re an actual stockbroker working in an existing trading platform.

  • Share Market

A share market is a market in which shares of a particular company are purchased and sold. The stock market is a definite example of a share market.

  • Order

Order means the purpose of buying and selling shares in a given range of price. For example, you have placed an order to buy 200 shares from company A, at a maximum price of Rs 50 per share.

  • Trading Volume

Trading volume means the number of shares that are traded on a particular day for all stocks or one stock.

  • Market Capitalisation

It simply means the value of a company according to the stock market. That is the current value of all the shares of a company put together.

  • Intra-Day Trading

Intraday trading means buying and selling your desired stocks on the same day so that before trading hours get over, all your trading positions will be closed within the same day.

  • Market Order

A market order is an order to buy and sell shares at the market price. Several investors don’t go with this Order because the trade price in the market order remains volatile.

  • Day Order

A day order is an order that remains good till the end of the trading day. If the Order does not perform by the time the market closes, the Order will be canceled.

  • Limit Order

A limit order is to buy shares below a fixed price and sell shares above a fixed price. It is advisable to use a limit order to trade shares.

  • Portfolio

The portfolio is a collection of all the investments that an investor holds at a particular time..

  • Liquidity

Liquidity means how soon stocks can be sold. Shares that get sold quickly, consist of high trade volumes and are called highly liquid.

  • IPO

IPO means a private company is turning into a public company by issuing its shares to the public for the first time. In the case of an IPO, the investor can buy the shares directly from the company.

  • Secondary Sharing

It is another offering used to sell more stocks and gain more money from the public.

  • Going Long

Betting on the price of a stock that will increase so that you can buy at a low price and sell at a high price.

 

Margin

When you open a brokerage account to invest, you will have to choose whether you want a cash or margin account. Margin is basically using borrowed money to invest. The credit will come from the broker, and your entire account is considered collateral. The hope is that you will be able to make a higher return with the borrowed money than the interest rate charged by the broker for the margin loan, so the investor will earn a personal profit.

Merchant bankers

Are banks or financial institutions or big brokers who facilitate an IPO, also referred to as merchant bankers.

 

Mutual fund

A mutual fund is a pooled portfolio managed by a professional portfolio manager. This manager uses the pooled fund to buy a diversified portfolio of securities. The pooled funds come from individual investors who purchase shares of the mutual fund. Mutual funds are actively managed, leading to higher fees than if you were to invest on your own.

Price-to-earnings (P/E) ratio

A P/E ratio is a valuation metric that determines the value of a company relative to its earnings, often expressed on a per share basis. For example, if a company’s stock is trading at $100 per share, and is expected to earn $4 per share, its P/E ratio would be 25. Lower the P/E ratio better the performance.

Rights share

A company might offer shares at a lower price than the existing value in market to raise capital known as rights share in a certain ratio, referred to as rights share.

Sensex

Sensex is a index that indicates the overall growth & sentiment of Stock Exchange.

  • Nifty

The Nifty 50 Index, called the National Stock Exchange of India, is the primary and brad based stock market index for the equity market of India.

The Nifty 50 consists of 50 Indian company stocks in 12 different sectors, and it is one out of two stock indices that are mainly used in the stock market.

 

Share

Shares, also known as stocks or shares of stock, are a portion of ownership of a company’s equity. The value of a share is based on how the company divided its equity into units. Shares entitle the share owner to a portion of the company’s profits (or gain in stock price). This also applies to a drop in the stock price, as the value of the share will go down with it.

Primary market

Is when shares are offered by company for the first time.

Secondary market

All sales after IPO are termed  secondary market.

Underwriters

When an IPO is initiated, the amount of money that a company wants to raise is declared and approved by SEBI, if a company fails to raise that capital in the stipulated period then all money is required to be returned to whoever has paid to subscribe, this involves substantial loss, to offset this possibility, underwriters offer to buy the offered shares equivalent to the shortfall to avoid the failure of the IPO. Underwriters are  financial institutions or merchant bankers.

Offer document

When a company goes for an IPO it gives out all information through an offer document.

At premium

Means the value of a share is more than the nominal value of a share.

At  par

Means the value of a share is Equivalent to the nominal value of a share

Private placement

Sometimes companiesor majority shareholders rather than raising capital from market through open auction or sale, raise capital by finding a buyer in private or away from public eye, these placements involve large chunk of shares.

Promoters

Are original owners, who started the company since inception.

Net asset value(NAV)

Share market prices go up and down not always based on real statistics but can be manipulated by extreme volatility, companies put forward a Net asset value(NAV) to give shareholders an exact view about how much their investment is really valued. This stat is mostly used by mutual funds.

Venture fund

Investments in Hi-tech, high promise companies by rich investors is called venture fund, chances of success are less, but investment to return ratio is really high.

Angel investor

Is a wealthy investor, who invests in a new business startup with high promise, he normally involves in ownership and functioning.

 

Mergers and acquisitions –

Companies are merged or are acquired one by the other to get benefits of the scale.

 

Upper & lower circuit

upper circuit and  lower circuit mechanisms are used to regulate extreme price movements of stocks or securities. These circuit filters, also known as price bands, are put in place to prevent stocks from being overbought or oversold, which could result in volatile market conditions.

  • An upper circuit is the maximum percentage increase in the price of a stock in a single trading session.
  • 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.
  • a lower circuit is the maximum percentage decrease in the price of a stock in a single trading session. When a stock hits its lower circuit, trading in that particular stock is also temporarily suspended. This is to prevent investors from continuously selling the stock at deflated prices, which could cause a market crash.
  • It is important to note that upper and lower circuits are calculated based on the previous closing price of the stock.

Short selling

When you short a stock, you borrow shares of stock and sell them at their current price with the promise to return the shares to the lender in the future. The hope is that the stock price will drop, at which point you can buy the shares of stock to return to your lender, making a profit on the difference between where you sold and bought the shares. Instead, if the stock price goes up, you will lose money when returning the shares to the lender.

Volatility

Volatility is the degree to which a traded asset varies or fluctuates in price over time.

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