AMEX

Account

Summary of the changes in a particular asset or equity in financial terms.

Accumulate

It refers to buying often coincident with market bottoms or consolidations. It can also refer to purchases by insiders or major investors on a large scale over a period of time. Such accumulation may also indicate the first phase of a bull market. While most investors are discouraged with the market, and earnings are at their worst, some investors start buying shares.

Advance-decline
ratio

It is the ratio of the number of stocks going up to those going down. It is a useful indicator of the underlying condition of the market.

Amortisation

To liquidate on an installment basis. It could be repaying of a loan or writing-off of expenditure over a period of time.

Analyst

A person with expertise in evaluating financial investments; he or she performs investment research and makes recommendations to institutional and retail investors to buy, sell, or hold. Most analysts try to specialise in a single industry or business sector.

Annuity

A stream of uniform periodic cash flows .

Arbitrage

It is trading in attempt to take advantage of the price difference between one exchange and another. For example, simultaneously buying one Infosys share on one exchange and selling another Infosys share that is traded on a second exchange. By placing this trade the speculator intends to profit from the difference in the prices.

Arbitration

Involves settlement of claims, differences or disputes between one member and another and between a member and his clients, authorised clerks, sub-brokers, etc., through appointed arbitrators. It is a quasi-judicial process that is faster and an inexpensive way of resolving a dispute.

Arbitrator

Is a person who is selected to resolve a dispute in the financial industry. Usually there are three arbitrators on a panel. The composition of the arbitrators is from a pool of candidates viewed either as "Public" or "Industry."

Assessed value

Is the taxable basis of a property. Often it is at a fraction of the market value. Equally, as important, is the rate of taxation on that assessed value. Assessed values may differ substantially from market values and appraised values.

Assets

Economic resources that are expected to benefit the future activities of a company. An asset also indicates what the company owns.

Authentication

The process of identifying users, before they are allowed access to computer systems or networks, typically by user-identities and passwords.

Average collection
period

Also known as debtor's turnover ratio. It is expressed as debtors divided by sales. The result is multiplied by number of days in a year. Lower the figure, the better it is as it implies that the company's funds are not locked up for long.

Average daily share volume

The number of shares traded per day, averaged over a period of time, usually one year.

Average inventory
holding period

Also known as the inventory turnover ratio. It is used to calculate the stock of work in progress and finished goods. Expressed as inventory divided by the cost of goods sold multiplied by number of days in a year. A lower figure is good as it indicates that a company turns around its inventory faster.

Average maturity

The average time to maturity of securities held. Changes in interest rates have greater impact on funds with longer average life. This is true of fixed income securities.

Award

It is the final decision of an arbitration panel.

B2B

A short form for business-to-business type of dealings on the Internet. Also known as e-biz, is the exchange of products, services, or information between businesses.

B2C

A short form for business-to-consumer type of dealings on the Internet.

BBS

A Bulletin Board System is a system to access computers by remote users via modems for discussion, file downloads, and other services.

BSE

Formerly the Bombay Stock Exchange and now known as The Stock Exchange, Mumbai.

Back office

It is the area or function relating to the processing, record keeping, and other operational aspects of transactions for financial firms.

Back-end

A term to describe an interface or a service that relates to users doing a back-office or support function. A "back-end" application indirectly supports the front-end services. Compare front-end.

Bad delivery

Delivery of a share certificate, together with a deed of transfer, which does not meet requirements of title transfer from seller to buyer is called a bad delivery.

Bad delivery cell

When a delivery of shares turns out to be bad, the investor can approach the bad delivery cell of the stock exchange through his broker for correction or replacement with good delivery.

Bailout

It is an action taken by others to help a company, organization or country with its finances. It is an analogy to "bailing out" a sinking boat. There is considerable debate as to whether the process is a handout or subsidy versus a helping hand.

Bankruptcy

A state in which a firm (or an individual) is unable to meet its financial obligations and hence its assets are surrendered to a court for administration.

Barter

Is a process between counter parties who exchange goods or services for other goods and services. Generally, this activity is conducted as a cash-less transaction.

Bear market

A falling stock index means a bearish market. Likewise, a bearish perception means that the stock indices are expected to fall or remain flat for the time.

Bear trap

When a stock declines, attracting heavy selling and then suddenly surges trapping all those who have heavily sold the stock short. These short sellers then are forced to buy the stock to cover their position, which takes the stock price further up.

Bearer bond

It is a security, which does not have the owner's name on the certificate. Interest and principal are paid to the person presenting the attached coupons to the agents for payment.

Block trade

The sale or purchase of a large number of shares or debt instruments in a single transaction.

Blue chip

The term represents shares of an established company with a long record of stable growth, usually paying steady dividends.

Bond

Long-term debt issued by the government, financial institutions or state-owned infrastructure enterprises with a maturity of five or more years. The interest received on some of these bonds could also be exempted from tax, fully or partially.

Bond funds

They are mutual funds that invest in credit instruments like treasury bills, sovereign, mortgage backed and investment grade corporate bonds.

Bonus

Free entitlement to shares for every share held in a company on the record date. It is a non-monetary form of payout to shareholders by capitalisation of reserves.

Book value

Net worth divided by fully diluted equity. It is also the cost price of an asset less accumulated depreciation.

Bookrunner

The merchant bank, which takes overall control of structuring, pricing and inviting other underwriters into a debt or equity issue.

Bottom line

It is a term that has several meanings, which depend on usage and context. However it is mostly used as a term for profits.

Bourse

Stock markets are sometimes referred as bourses.

Breakout

It is the departure from a trading range. It can be on the upside or the downside.

Bricks and mortar

The term is used to describe traditional companies with physical (as opposed to a presence on the Internet) location.

Broker

A person to whom you pay a commission for acting as your agent when purchasing or selling securities, such as stocks. They act as intermediaries between purchasers and sellers.

Brokerage

The commission charged by brokers for purchase/sale transaction done through them. The maximum brokerage chargeable, as stipulated by SEBI, is at present 2.5 per cent of the trade value.

Bull market

Rising stock indices indicate a bull market. Likewise, a bullish perception means that the stock market is expected to show a rise or at least remain strong.

Bull trap

A false signal, which is generated which indicates that the price of a stock or index has reversed to an upward trend but which proves to be false.

Buy-and-hold
strategy

A long-term investing strategy where shares are bought and sold only after a certain period of time or at a time when the fundamentals are expected to undergo a drastic change for the worse. Such investors tend to ignore the short-term price movements of their securities in the stock market.

Buy-back of
shares

A method where a company uses surplus cash to buy shares from the open market and reduce the number of equity shares outstanding.

Buy-side

It refers to financial organisations, which tend to be natural buyers of securities, such as, mutual funds, insurance companies, and money managers.

Capital gain

It arises when an investment is sold at a higher price than what was originally paid while buying it. Tax is applied on these capital gains. When securities are sold at a price lower than their purchase price, it results in capital loss.

Cash cow

It is a security, investment or a project that generates or throws off lots of funds. Sometimes, the basis for this asset is an excellent customer, a monopolistic market position, or special advantage afforded by patents, licenses, or other economic properties. This cash flow can be used for many purposes. Typically, this situation constitutes the fundamental franchise of a business.

Cash dividend

The dividend paid by the company to its shareholders in cash.

Cash settlement

It is the practice of making a final cash payment or adjustment for an open position. This process differs from early or traditional futures markets that required either a futures contract offset or the delivery of a physical commodity. The cash settlement process recognizes the insurability factor of risk management products. This trend towards cash settlements reduces instability due to squeezes, weather, or other disruptive variables.

Circuit breakers

A mechanism by which exchanges temporarily suspend the trading in a security when its prices are volatile and tend to breach the stipulated price band.

Clearing

Is the process of financial guarantee between clearing members. This activity intends to eliminate the risk of contractual or transactional default. It also refers to the process, by which all transactions between members are settled through multilateral netting.

Clicks and mortar

It is a term describing traditional old economy companies that are taking advantage of the Internet and the new economy it has introduced.

Collateral

Assets (property or securities) pledged by a borrower as security to lender to secure payment of a loan or debenture issue in the event of default. An example is secured debentures, which are secured by first charge on fixed assets.

Commodity funds

Are investment vehicles that invest in futures and options on futures. Commodities can include the tradition grains, metals, and livestock as well as stock indices, currencies, and other financials.

Commodities

Commodities are used more narrowly to refer to physical goods such as, gold, silver, wheat, and pork bellies.

Consolidation

It is the process of combining shares that have a low face value into one share of higher value is known as consolidation. It is the opposite of splitting shares.

Consumer Price
Index

The consumer price index (CPI) indicates the change in prices of consumer goods and services. It is a measure of the rate of inflation.

Correction

A price reaction of generally one-third to two-third of the previous gain.

Credit period

The length of time, customers are allowed for their credit purchases.

Credit policy

A firm's policy regarding its credit standards, cash discount, credit period, and collection procedures.

Credit risk

It is the risk related to counter-party failure.

Day trading

Refers to buying/selling and reversing the entire position on the same day. Is the investment, speculation or risk management approach which is limited to intra-day activity with little or no overnight carrying of positions.

Debenture

Formal certificate of indebtedness that is accompanied by a promise to pay interest at a specified annual rate. It is a long-term debt instrument that may or may not be secured by a mortgage on specific property.

Deep-discount
bond

It is a debt instrument issued with a very low coupon. They sell at substantial discount of their par value and are therefore referred to as deep discount bonds. A case of deep discount bond with no coupon called a zero coupon bond.

Deferred taxes

Are a temporary source of free cash flow. This liability is a non-cash expense until it is paid.

Deflate

It is the economic and financial process whereby the monetary and fiscal authorities act to stabilise or reverse an upward trend in general price levels. Monetarists would view this activity as decreasing the money supply

Delivery price

It is the invoiced price for a futures contract.

Demat shares

Shares that exist in electronic form only; their physical certificates have been destroyed, so that they are now dematerialised. Transfer of such shares also takes place electronically through records of such transfers being maintained by National Securities Depository Limited.

Depository

It is an entity (mainly the National Securities Depository), which maintains an electronic record of all dematerialised (demat) shares and all subsequent transactions and transfers therein.

Derivative

Is a financial product, which is based upon another product. Futures are based on commodities, financial indices or securities. Options are based on futures, securities or cash markets. Forwards are extensions of the cash market across time. Generally, derivatives are risk management tools, however they are also used for investment or speculative purposes.

Devaluation

Refers to the action taken by a country via its central bank or monetary board which reduces the value of its currency vis-a-vis other currencies. Often, the result is more abrupt than would occur within a floating rate framework.

Dilution

The general downward effect on earnings per share and book value per share if all convertible securities were converted or all warrants or stock options were exercised.

Dividends

Amount distributed out of a company net profits to shareholders; they effectively liquidate a portion of the ownership claim.

Double taxation

Refers to corporate income, which is subject to both corporate taxes and individual taxes. Frequently, it is viewed as the case whereby the company's income is taxed and the distribution of that income in the form of a dividend paid to the shareholder as taxed again.

Du Pont system

A system of analysis designed to show the relationships between the return on total assets (net profit divided by total assets), asset turnover (net sales divided by total assets) and the net profit margin (net profit divided by net sales). Such a break-up helps in understanding the influence on the net return on total assets by the net profit margin and the total assets turnover ratio. The du pont Company of the Us pioneered this systems of financial analysis.

Earnings per
share

Net profit less preference dividend divided by number of equity shares outstanding and pending conversion. If the company has extraordinary income or expenses, the earnings should be adjusted accordingly. This makes year on year comparison simple and more meaningful. More famously known as EPS.

Economic Value
Added (EVA)

Simply stated, it is the difference between return on capital employed (ROCE) and the weighted average cost of capital (WACC). It gives the difference between the cost of funds of the company and the return it earns on it.

Emerging markets

Is a term, which broadly categorises countries in the midst of developing their financial markets and economic infrastructures. This development is viewed in terms of freer, more liquid markets, which facilitate trade. The financial markets of developing economies such as India, China and others are called emerging markets.

Ex-bonus

A share is described as ex-bonus when a purchaser is not entitled to receive the current bonus, the right to which remains with the seller.

Ex-rights

A share is described as ex-rights when a purchaser is not entitled to receive the current rights; these remain with the seller.

Face value

The fully paid up value of a share, typically Rs 10 per share on the Indian stock markets. It is also referred to as par value.

Financial assets

They are pieces of paper representing an indirect claim to real assets held by someone else. This paper could represent debt or equity shares.

Financial budget

A budget that focuses on the effect that the operating budget and other plans (such as capital expenditures and repayments of debt) will have on cash.

Fixed-income
securities

All debt instruments that obligate the borrower to pay the owner a certain rate of interest during the term of the loan and return the principal when the loan matures are collectively referred to as fixed income securities.

Floating rate

Refers to a state whereby exchange rates are relatively free to change. The interest rate linked to in majority of the cases, the prime lending rate of the lender. It is re-set after a pre-specified period.

Forward trading

Trading where contracts traded today are settled at some future date at prices decided today.

Free cash flows

It is the surplus of cash generated from business minus recurring capital expenditure and not immediately required for reinvestment into new capital assets.

Fully diluted EPS

Earnings available to equity shareholders divided by the average number of shares which would have been outstanding if all warrants and convertibles had been exercised or converted, regardless of the likelihood of their exercise or conversion.

Fundamental
analysis

An analysis that attempts to find fair value of a company's stock by forecasting its potential earnings, dividends within various macro economic scenarios. For commodities, it looks at supply and demand in terms of actual usage, production and inventories among other things. One who believes that best investment results are obtained from such a study, as distinct from studying cycles and investment psychology, is called a fundamentalist.

Future value (FV)

The amount to which a payment or series of payments will grow by a given future date when compounded by a given interest rate. FVIF is abbreviation for future value interest factor.

GAAP

It is the acronym for Generally Accepted Accounting Principles. Most often used in the context of US GAAP.

Gross margin

Also called gross profit. Excess of sales over the cost of goods sold, that is, over the cost of the merchandise inventory that is acquired and resold.

Hedge

It is the act of protecting a position. Hedges can be either long or short. Hedges are often done with derivative products. A long hedge refers to a position whereby a derivative contract is purchased to protect against a short actual position. A short hedge is a position whereby a derivative is sold to protect against a long actual position.

Hedge funds

They are alternative investment vehicles. Their trading styles are quite variable from one fund to another. Some place positions on movements in broad economic groups such as currencies, credit, equity and derivatives markets. Others are more focused on narrow specialties, such as convertible securities or mortgage backed securities. These funds operate as limited partnerships. There are limitations on the number of partners, minimum financial standards and commitments, and liabilities.

Incremental cash
flows

Change in a company's cash flows from a new project

Index futures

Are index derivatives, which allow people to alter their risk exposure to an index (this is called hedging) and to implement forecasts about index movements (this is called speculation). Hedging using index derivatives has become a central part of risk management in the modern economy. These applications are now a multi-trillion dollar industry worldwide, and they are critically linked up to market indexes.

Initial public
offering

It is the initial offering to the public of a company's securities. After the initial offering, the securities trade in the secondary market.

Institutional
investor

An institution which, invests in assets or those held in trust for others (example pension funds, insurance companies, mutual funds and so on).

Intangible assets

It refers to items such as goodwill or intellectual properties. Among the latter are copyrights, patents, and trademarks.

Intellectual
property

They are assets such as: copyrights, trademarks, and patents.

Intrinsic value

The value of an asset justified by its future net cash flows discounted by the required rate of return or as justified by facts, often as distinguished from the asset's current market price and/or its book value.

Investment bank

It takes up fee-based activities like advisory services related to securities market. It can also act as underwriter and take the devolved portion of the issue on its books.

Liquid investment

Any investment that can be quickly converted into cash.

Liquidity risk

It is the uncertainty introduced by the secondary market for an investment. Securities are first sold in the primary market and then all subsequent transactions take place in the secondary market.

Management
buyout

A MBO is the purchase of a company by its existing management, usually with the assistance of financial backers - often providing loans secured on the assets of the company. In India, company promoters have used the preferential allotment route to hike their stake in the company.

Margin call

It is the phrase used to represent a call for additional funds. This demand for more funds in either cash and/or securities is to restore an account to its initial margin requirement level. Generally, this occurs when the price action is adverse to the account holder's position. It can also reflect an increase in margin requirements.

Market
capitalisation

What the market says the equity of a company is worth: the number of shares outstanding multiplied by the market price.

Maturity date

Date at which the face value and final interest on a debt instrument become payable.

Melt down

It is a sudden decline or collapse in financial values. Tends to be used for broader indicators such as market indices or asset classes.

Money market fund

Open-ended mutual fund that invests in commercial paper, repurchase agreements, government securities, certificates of deposit, and other highly liquid and safe securities. The fund's net asset value will be strongly influenced by the changes in interest rate.

Mortgage

It is a pledge of real property in order to obtain a loan: It is not the note itself. The loan instrument is a note or bond. However, these two terms are frequently used synonymously.

NSE

The National Stock Exchange of India is the largest stock exchange in the country with fully computerised screen-based trading systems.

NYSE

It stands for New York Stock Exchange. Its NYSE Composite Index is a market value-weighted index which relates all NYSE stocks to an aggregate market value as of December 31, 1965, adjusted for capitalisation changes. The base value of the index is $50 and point changes are expressed in dollars and cents.

National Securities Depository Limited

The first and the biggest depository entity in India, the other being Central Depositary Services Limited (CDSL) promoted by BSE.

No-delivery
period

When a date for the book closure is announced by a company, the stock exchange sets a no-delivery period for that security. During which, trading is permitted in that security and these trades are settled only after such period is over. This is to ensure that investor's entitlement for corporate benefits are clearly determined.

Non-diversifiable
risk

Also referred to systematic risk or market risk, it is a risk that steams from the influence of certain economy-wide factors like money supply, inflation, level of government spending and industrial policy, which have a bearing on the fortune of almost every firm. Hence, this risk cannot be diversified away.

Off-balance sheet financing

Financing that does not figure on the balance sheet of the firm. Lease agreements, which are not capitalised, are a type of off-balance sheet financing.

Online trading

It is the investment activity, which takes place over the Internet without the physical inclusion of a broker. Orders are entered via terminals and reports are returned to the investor in a similar fashion. Confirmations remain a part of the investment or trading process.

Overbought

Market prices that have risen too steeply and too quickly.

Oversold

Market prices that have declined too steeply and too quickly.

Paid up capital

Share capital, which has been paid up by shareholders.

Parent company

A company owning more than 50 per cent of the outstanding voting shares of another corporation, called the subsidiary company.

Payback period

The length of time required for an asset to generate cash flows just enough to cover the initial investment outlay.

Payout

It is the day on which the securities and funds are delivered/paid out to the members by the clearing house of the exchange.

Price-to-earnings
ratio

This is the market price per equity share divided by EPS. Better put as the number of times its own earnings that a stock is selling for in the stock market. It is a popular valuation tool and factors in tangibles and intangibles like growth prospects, quality of management, liquidity in the scrip and quality of earnings. It is popularly known as the PE.

Quote

It is the highest bid or lowest ask price available on a security at any given time.

Record date

It is the date on which the beneficial ownership of an investor is entered into the register of members. Such a member is entitled to get all the corporate benefits. Put differently, the date on which the members/shareholders list is typically frozen for dividend payout, rights or a bonus issue.

Redemption Fee

It is a charge assessed against an investor for redeeming shares or interests in a fund. Often this charge is used for early or premature withdrawals. If no time period is specified, the fee will be charged regardless of how long the fund is held.

Repatriation

It occurs when a person's or company's assets are returned from a foreign country to that person's or company's home currency.

Return on capital employed

Also known as return on total assets, it is the profit before interest and tax divided by average total capital employed (total borrowings plus net worth or total assets). Average capital employed is the sum of capital employed at the beginning of the year and at the end of the year divided by two. The ratio indicates how efficiently the funds are utilised irrespective of the mode of financing. Also known as return on total assets.

Return on net worth

Profit after tax less preference dividend divided by average net worth. It is the return earned by the equity shareholders of the company. Also known as the return on equity, it measures the profitability of equity funds invested in the firm. It is influenced by several factors: return on investment, debt-equity ratio, the average cost of debt and tax rate.

Rollover

Is the transfer of a position into a different delivery month.

Salvage value

It is the amount remaining after a depreciated useful life. It refers to the residual or recoverable value of a depreciated asset. Gross salvage value may be adjusted by a removal or disposal cost. This adjustment would lower the gross salvage value.

SEBI

Securities and Exchange Board of India, the market's regulatory authority.

Secondary market

Shares issued in the primary market are listed on the secondary market that is various stock exchanges for trading.

Sector Funds

Specialised funds, which limit their investments to a specific industry or economic sector, e.g. technology, real estate or health care.

Settlement

Refers to the scrip-wise netting of trades by a broker after the trading period is over. Also the account period cycle for trading. It could be five days or one day.

Short position

Refers to trades that are bearish in nature. They have a negative market bias. Short position can be the actual short sale of a security, derivative, the sale of a call or the purchase of a put.

Short selling

It is the act by which a speculator or risk manager sells an instrument at a high price with the intent of purchasing it lower. This is particularly the case for the speculator.

Stock dividends

Instead of (and sometimes in addition to) cash dividends, investors can receive dividends in the form of stocks. The result to the investor is the same as from a stock split: He or she receives more shares.

Stop loss orders

These are orders that become market orders when a certain price level is met. A sell stop order is placed below the current market level. A buy stop order is placed above the current market level. A stop loss order allows the investor to place an order which gets activated only when the last traded price of the share is reached or crosses a predefined threshold price also called as trigger price. Further on NSE, classification of orders can be defined based upon the longevity of an order.

Tangible assets

Physical assets as opposed to intangible assets such as goodwill and the stated value of patents.

Tax exempt

It refers to income or property, which is not subject to tax.

Venture capital

Risk capital supplied to small, normally unlisted companies by wealthy individuals, partnerships or corporations in return for an equity position in their firm.

Volatility margin

It is additional margin required to bring an account up to the required level due to change in the price of the share on a given trading day or a settlement period.

Volume

It is the quantity of trading activity. The daily number of shares traded in a security or at an exchange. It also could refer to volume of goods bought, sold or traded by a company.

Working capital

A firm's investment in short-term assets-cash, short-term securities, accounts receivable and inventories. Gross working capital comprises a firm's total assets. Net working capital is current assets minus current liabilities. If the term working capital is used without further qualification, it generally refers to gross working capital.

Yield curve

It refers to the graphical or tabular representation of interest rates across varying maturity periods. It reflects the market's views about implied inflation/deflation, liquidity, economic and financial activity and other market forces.

Yield to maturity (YTM)

It is the rate of return which is measured by the current expected income stream relative to the prevailing market price assuming that the asset is held until maturity. If the instrument is trading at a discount, then the yield to maturity will be greater than the coupon rate. If the instrument is trading at a premium, then the yield to maturity will be less than the coupon rate.

Zero coupon bond

They are securities that do not pay interest during their terms but are sold at a discount from their face value. A zero coupon bond generally increases in value as it approaches maturity, and the return comes solely from its appreciation.