Meanings and definitions of important stock market terminology – this glossary provides it all. Understanding the meaning of these stock market terms will help in knowing stock market jargon better. This stock market dictionary will take care of all questions like ” what is the meaning of ” ” what is the definition of ” and other basic questions related to the stock market. It is a beginners guide to the stock market.
23 Meanings and Definitions
Scalping : This is a trading strategy that attempts to profit from small price changes. It is a strategy that day traders use to identify opportunities and profit from the intraday movement of stocks or other securities. Scalping is based on an assumption that a stock will move in the desired direction for a brief time, but where it goes from there is uncertain. After that initial stage, some stocks will cease to advance and others will continue. It requires a trader to have a strict exit strategy.
Secondary Market : It refers to a market where securities are traded after being initially offered to public in the primary market and listed on the stock exchange. It is what most people typically think of as the stock market. The secondary market is where investors buy and sell securities. The stock exchanges are secondary markets. Prices in the secondary market are determined by the basic forces of supply and demand. Equity shares, bonds, preference shares, treasury bills, debentures, etc. are some of the key products available in a secondary market. In India SEBI is the regulator of the same.
Secured Bond : Secured bonds are issued with some form of assets backing the bonds. Secured bonds generally pay interest, and at maturity, the principal or face value of the bond is repaid to the bondholder.
Secured Debt : When a company borrows money to be paid back at a future date with interest it is known as debt. It could be in the form of a secured or unsecured debt. A secured debt is a loan that is secured or collateralized with the assets of the company taking the loan. Usually a company takes a loan to either finance a working capital or an acquisition.
Securities : Securities are proof of one’s ownership or indebtedness in a company. Securities are easily bought and sold in the stock (exchange) market. A security is a transferable certificate of ownership of investment in stocks, bonds, future contracts and options which an individual holds.
Securities Transaction Tax (STT) : As the name implies it is a tax on the buy and sale of security (transactions) in the stock market. Rapid growth of the Indian stock market and the wealth of the investors has provided the government an avenue of revenue, by way of imposing the STT. Initially it was imposed as replacement to capital gains tax, as it is more efficient. But in the last fiscal budget Government has reintroduced capital gains tax, over and above STT.
Sell Limit Order : A sell limit order is an order to sell a sell a security at a specified price or better. A limit order is not a market order, it may not be executed if the price set by the investor cannot be met during the period of time in which the order is left open. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled. While the execution of a limit order is not guaranteed, it does ensure that the investor does not miss the opportunity to sell at the target price point if it occurs in the market.
Settlement : The process that follows a transaction when the seller delivers the security to the buyer and the buyer pays the seller for the security. Settlement is a two way process which involves transfer of funds and securities on the settlement date. Settlement is the actual exchange of money and securities between the parties of a trade on the settlement date . Settlement of securities traded is done electronically. Stock trades are settled in 2 business days (T+2), while government bonds and options are settled the next business day (T+1). In futures, settlement refers to the mark-to-market of accounts using the final closing price for the day.
Settlement Price: The price used to determine the daily net gains or losses in the value of an open futures or options contract. The settlement price is the price at which a derivatives contract settles once a given trading day has ended. It is also the market price at which a given contract begins trading at the opening of the next business day. It is crucial for investors because it indicates whether they lost or made money on a given trading day. In the event that (notional) losses were incurred, the settlement price signals whether or not investors need to infuse funds into their margin accounts to compensate. This is also popularly referred to as “mark to market”.
Shares : Shares are the units of the ownership of a company. They are also known as stocks, or equities. There are different types of shares such as equity shares, preference shares, bonus shares, right shares, employees stock option plans, etc.
Short Hedge : To hedge is to protect. A hedge is a position taken to reduce a risk. A short hedge is a selling hedge. A short hedge can be used to protect against losses and potentially earn a profit in the future.
The short hedge involves taking up a short futures position while owning the underlying product or commodity to be delivered. Should the underlying commodity price fall, the gain in the value of the short futures position will be able to offset the drop in revenue from the sale of the underlying.
Short Position : A short position is generally the sale of a stock one does not own. Investors who sell short believe the price of the stock will decrease in value. If the price drops, one can buy the stock at the lower price and make a profit. If the price of the stock rises and one can buy it back at the higher price,. This transaction will result in loss.
Short Selling : The selling of a security that the seller does not own (naked or uncovered short) or has borrowed (covered short). Short selling is a trading strategy used to take advantage of an anticipated decline in price or to protect a long position. In the case of stocks, the seller borrows the stock for delivery, betting that the market price will drop and that the stock can be bought later at a lower price. If a stock is sold short at Rs. 100 per share and the price of that stock drops to Rs. 90, then the seller can buy the shares at Rs. 90, making a profit of Rs. 10 per share. Short sellers can face a substantial loss if the stock price rises. They may be forced to buy back the stock at much higher prices then where it was originally sold.
Short Squeeze : This is a situation where stock prices are pushed upwards due to lack of supply and very high demand. This usually happens when short sellers close their trades. They need to buy the stock they had shorted and the price increases.
SIP : Systematic Investment Plan (SIP) is an investment strategy wherein an investor invests a fixed amount of money in a particular mutual fund on a regular basis. Investing in SIP enables an investor to take part in the stock markets without actively timing them and one can benefit by buying more units when the price falls and less units when the price rises.
Small cap stocks : Small cap stocks lie at the low end of market capitalisation. Small cap companies have smaller revenue and client bases and usually include the start-ups or companies in the early stage of development. Small cap stocks are potentially big gainers as they are yet to be discovered and can show growth potential in once unfurled in the market. Small-cap stocks are generally the ones whose market capitalization is up to Rs. 20 billion. .
Speculation : Speculation is a method of short-term investing whereby traders essentially bet on the direction an asset’s price will move. Speculation is often based on expectations of a future event, or a sense of how other investors might react to such expectations. Speculation can increase short-term volatility. It can inflate/deflate prices.