1.Define terms related to financial market.
TERMS RELATED TO FINANCIAL MARKET:
• Arbitrageurs :
Arbitreasury are traders who simultaneously buy and sell the same assets in an effort to profit from unrealistic price differentials they attempt to make profit by locking in a riskless trading by simultaneously entering into transactions into two or more markets. that try to earn riskless profit from discrepancies between futures and spot prices and among different future prices.
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court. It is provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trade done on Exchange.
The exchange purchase the requisite quantity in the auction market and give them to the buying trading members. Auctions are popular because buyers and sellers believe they will get a good deal buying or selling assets. The shortage are made through auction process and the difference in the price indicated in contract note and price received through auction is paid by the member to the exchange which is then liable to be recovered from the client.
The process of gradually buying and more securities in a declining market in order to level out the purchase price.
• backwardation /ulta Badla /undha Badla:
The payment of money charges made by a seller of shares which he borrows to deliver against his sale. These charges become payable only when there are more sellers who are not in a position to deliver against their sale. These charges become payable to the buyer, when the seller is not in a position to deliver the documents to the buyers who demand delivery.
Carrying forward for transaction from one settlement period to another settlement period without effective delivery this is permitted only in specified securities and is done at the making a price which is usually the closing price of the last day of settlement.
In future markets on the basis is defined as the cash price of whatever is being traded minus its future price for the contacted in question. it is very important because changes in the relationship between cash and future prices affect the values of using future as a hedge.a hedge,is however will always reduce risk as long as the volatility of the basis is less than the volatility of the price of whatever is being hedge.
• bear market:
Bear market it is a market in which a week or falling market characterized by the dominance of sellers. It typically describes a condition in which securities prices fall 20 percent or more from recent highs amid widespread pessimism and negative investor sentiment. Bear markets are often associated with declines in an overall market or index like the S&P 500, but individual securities or commodities can also be considered to be in a bear market if they experience a decline of 20 percent or more over a sustained period of time—typically two months or more.
• bear trap:
A false signal indicating that the rising trend of a stock or index has reversed when in fact it has not.The trap is thus a false reversal of a declining price trend. Bear traps can tempt investors into taking long positions based on anticipation of price movements which do not end up taking place. This can occur during a bear market reversal when short sellers believe the market will sink back to its declining ways in the market continues to rise the shorters get trapped and are forced to cover their position at Higher prices.
• Blue chip:
A blue chip is a nationally recognized, well-established, and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth. This is the best rate shares with the highest status and investment based on the return, yield, safety, marketability and liquidity.
Are negotiable certificate evidencing in debteness and a debt security or IOU issued by a company municipality or government agency. Bond investor lends money to the issue and in exchange the Issuer promise to repay the loan amount on a specified maturity date. and the issuer usually pays the bondholder periodic interest payment over the life of the loan.
• bonus shares:
Bonus Shares commonly known as scrip dividends are company’s accumulated earnings which instead of being given out in the form of dividends are converted into additional or free shares to be given to current shareholders in proportion to each shareholder’s stake without any additional cost.
However shares issued by the companies to their shareholders is free of cost by capitalisation of accumulated reserves from the profits earn in the earlier years.
Condition of the market denoting increased activity with rising prices and higher volume of the resulting from Greater demand of securities it is a state where enlarged business both investment and speculative has been taking place for a sufficiently reasonable period of time.
Member of a stock exchange who acts as an agent for clients and buy and sell shares on their behalf in the market.Because securities exchanges only accept orders from individuals or firms who are members of that exchange, individual traders and investors need the services of exchange members. Brokers provide that service and are compensated in various ways, either through commissions, fees or through being paid by the exchange itself. he is enrolled as a member with the concerned exchange and is registered with the securities and exchange Bank of India those strictly a stock broker is an agent yet for the performance for as part of the contract boat in the market and with the client he is deemed as a principal a Peculiar position of dual responsibility.
• BSE indonext:
Regional stock exchanges (RSEs) have registered negligible business during the last few years and thus small and medium-sized companies listed there find it difficult to raise fresh resources in the absence of price discovery of their securities in the secondary market. As a result, investors also do not find exit opportunity in case of such companies. BSE IndoNext has been formed to benefit such small and medium size companies .the investors in these companies and capital markets at large. It has been set up as a separate trading platform under the present BSE Online Trading system of the BSE. It is a joint initiative of BSE and the Federation of Indian Stock Exchanges .
It is a speculative share rise in share prices which like the bubble is expected to suddenly burst.
• Bull market:
A rising of market with abundance of buyers and relatively few sellers.
A market player who believes in prices will rise and would therefore purchase a financial instrument with a view to selling it at a higher price opposite of the bear.
• buy back:
The repurchase by a company of it’s own stock or bond.
• call option:
Agreement it that gives an investor the right but not the obligation to buy an instrument at a non price by a specified date for this privilege the investor pays a premium usually a fraction of the price of the underlying security.
• Chinese wall:
Artificial barriers to the flow of information setup in a large farms to prevent the movement of sensitive information between departments.
• close ended fund:
A type of investment company that has fixed number of shares which are publicly e traded the price of a closed and share fluctuates based on investors supply and demand closed ended funds are not required to redeem shares and have managed portfolios.
• corporate bonds:
A corporate bond is a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. When the bond expires, or “reaches maturity,” the payments cease and the original investment is returned. Such as issues of the bond is offered to the public shall be required to complete with the securities and exchange bike of India in 2000 .
• corporatization of Stock Exchange:
corporatization is a process of converting the organizational structure of the stock exchange from a noncorporate structure to corporate structure some of the stock exchanges in India was established as a association of person for example the stock exchange Mumbai ,Ahmedabad stock exchange ,and Madhya Pradesh stock exchange. corporatization is of such exchanges is the process of converting them into the incorporated companies
The interest paid on a bond expressed as a percentage of the face value in a bond carries a fixed coupon then the interest is paid on an annual or semi annual basis the term also describes the detachable certificate entitling in the bearer to payment of the interest .the interest rate is stated on the face of the coupon is called as coupon rate.
• credit rating:
Credit rating measures aborrower credit worthiness and provider and international Framework for comparing the credit quality of issuer and rated debt securities rating Agencies are allocated three kinds of rating issuer credit ratings ,long term debt and short term debt .
• Dabba trading:
Trading of securities outside the stock exchange is the broken Instead of routing the trade of his clients in the system of stock exchange Matches and executes the trades of its clients in a system provided by him outside the stock exchange.
• day trading:
Day trading refers to buying or selling of securities within the same trading day such that all positions will be closed before the market close of the trading day in the Indian securities market on the retail investors are allowed to day trade.
• Demutualization of stock exchanges:
The mutualisation refers to the transition process of an exchange from a mutually owned association to a company owned by the shareholders .on the other hand transforming the legal structure of an exchange from a mutual form to a business corporation form is referred to as demutualization the above is an effect means that after Demutualization the ownership the management and the trading right at the exchange are segregated from one another.
a system of organization which keeps records of securities deposited by its depositor.It can refer to an organization, bank, or institution that holds securities and assists in the trading of securities.
The term also refers to an institution that accepts currency deposits from customers such as a bank or a savings association. A DP can offer depository service only after it gets proper registration from the security and exchange Bank of India
A security derived from a debt instrument, share ,plan whether secured or unsecured, risk instrument or contract for differences or any other form of security a contract which derives its value from the prices for index for prices, of underlying securities derivative markets are markets such as futures and options markets that are developed to satisfy specific needs arising in traditional markets. These markets provide the same basic functions as forward markets but trading usually takes place on standardized contracts.
•DMA– DMA is a facility which allows the brokers to offer clients direct access to the exchange trading system through the broker infrastructure without manual intervention by the broker. Some of the advantages offered by DMA are direct control of clients over orders, faster execution of clients order reduced risk of errors associated with manual order and greater transparency, increase liquidity, low impact cost for large orders, Better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools algorithm for trading to stop presently,DMA facility is available for institutional investors.Direct memory access (DMA) is a feature of computer systems that allows certain hardware subsystems to access main system memory.
• discount– when a security is quoted at a price below its nominal or face value it is said to be at a discount.discount refers to an amount or percentage deducted from the normal selling price of something. If you wait until after the holiday, you can often buy goods at a steep discount — just make sure you need all that stuff. The noun discount means a reduction in price of a good or service.
• dividend– payment made to shareholders, usually once or twice a year out of a company’s profit after tax .Dividend refers to a reward, cash or otherwise, that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payment, stocks or any other form.Dividend is usually a part of the profit that the company shares with its shareholders. Diffident payments do not distribute the entire net profit of a company, a part of substantial part of which is held back as reserved for the company’s expansion. Dividend is declared on the face value or par value of a share, and not on its market price.
• exchange traded derivative– those derivative instruments that are traded via derivative exchange of other exchange.Exchange-traded derivative contracts are standardized derivative contracts such as futures and options contracts that are transacted on an organized futures exchange. They are standardized and require payment of an initial deposit or margin settled through a clearing house. a derivative exchange is a market where individual trade standardized contracts that have been defined by the exchange. Derivative exchange acts as an intermediary to all related transactions and takes initial margin from both sides of the trade to act as a guarantee.
• haircut– the margin for, more frequently, the capital tied up when a financial intermediary takes a position.haircut is the difference between the current market value of an asset and the value ascribed to that asset for purposes of calculating regulatory capital or loan collateral. The amount of the haircut reflects the perceived risk of the asset falling in value in an immediate cash sale . A Commission or fee for execution of a transaction.
• hedge– an asset, liability or financial commitment that protects against adverse changes in the value of or cash flows from another investment or liability. And unhedged investment or liability is called and exposure.A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles.
Perfectly match hedge will gain in value what the underlying exploser loses or what the the underlying exposure gain.
• hedgers– hedgers Arthur those who use derivative to reduce the risk that day face from potential Movement. In a market variable and they want to avoid exposure to adverse movements.A trader or commodity producer who places a trade in order to protect against price fluctuations in commodities or financial instruments. A hedger may be someone who owns Treasury bonds and is concerned that prices might decline. In the price of an asset majority of the participants in derivative market belongs to this category.
• insider trading– practice of Corporate agents buying or selling their Corporation securities without disclosing to the public significant information which is known to them but which has not yet affected the price. Institutional investors organisations does invest, including insurance companies, depositary Institutions, pension funds investment companies and individuals and endowments fund. Insider is any person who is or was connected with the company or is Deemed to have been connected with the company, and who is reasonably expected to have access connections, to unpublished price sensitive information in respect of securities of a company, for who has received or has had access to such unpublished price sensitive information.
• intangible assets– an item of value whose work is hard or almost impossible to determine such as Goodwill reputation patent and so on.An intangible asset is an asset that lacks physical substance; in contrast to physical assets, such as machinery and buildings, and financial assets such as government securities. An intangible asset is usually very hard to evaluate. Examples are patents, copyright, franchises, goodwill, trademarks, and trade names.
•jobber– member brokers of a stock exchange who specialise by giving two way quotations, in buying and selling of securities from and to fellow members.Jobber is an end-to-end business management system for your home service company. The software handles everything from customer relationship management, to quoting, scheduling, job tracking, invoicing, and a whole lot more. Joobers do not have any direct contact with the public but they serve the useful function of imparting liquidity to the market.
• kitting– the act of mystery presenting the value of a financial instrument for the purpose of extending credit obligations or increasing financial leverage.Kiting is the fraudulent use of a financial instrument to obtain additional credit that is not authorized. Kiting encompasses two main types of fraud: Issuing or altering a check or bank draft for which there are insufficient funds. Kitting generally occurs when securities forms fail to deliver securities involved in buy and sell transactions in a timely manner when this occurs, the firm failing receive the securities is required to purchase the shortage on the open market and charged the delinquent from any associated fees.
•long position– position throwing a purchase or a greater number of purchases than sales in anticipation of a rise in prices., a long position in a financial instrument means the holder of the position owns a positive amount of the instrument. The holder of the position has the expectation that the financial instrument will increase in value. This is known as a bullish position. A long position can be closed out through the sale of an equivalent amount.
• margin trading– margin trading is trading with borrowed funds / securities. It is essentially a liberating mechanism which enables investors to take exposure in the market over and above what is possible with their own resources.SEBI been prescribing eligibility conditions and procedural details for allowing the margin trading facility from time to time.
Corporate brokers with network of at least rupees 30000000 are eligible for providing margin trading facility to their clients subject to their entering into an agreement to that effect. Before providing margin trading facility to a client, the member and the client has been mandated to sign an agreement for this purpose in the format specified by S E B I. It has also been specified that the client shall not availed the facility from more than one broker at any time. The facility of margin trading is available for group 1 securities and those securities which are offered in the initial public offer and meet the conditions for inclusion in the derivative segment of the stock exchanges. For providing the margin trading facility, broker main use his own funds or borrow from scheduled commercial banks of nbfcs regulated by the RBI. Broker is not allowed to borrow funds from any other source.
• Naked option:
An Option that is written without corresponding security or option position as protection in seller account .
• net asset value:
The net asset value represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities. Most commonly used in the context of a mutual fund or an exchange-traded fund the NAV represents the per share or unit price of the fund on a specific date or time.
The fund net asset value is calculated by taking the fund total assets securities cash and Any accured earning deducting liabilities and dividing the remainder by the number of units outstanding.
• pay in day and pay out day:
Pay in day is a day when the broker shall make payment or delivery of securities to the exchange. pay out day is the day when the exchange make payment or delivery of security to the broker settlement cycle is on T+2 rolling settlement basis on April 01, 2003. The exchanges have to ensure that the pay out of funds and securities to the clients is done by the broker within 24 hours of the payout the exchanges will have to issue press releases immediately after payout.
• Ponzi scheme:
A classic contrick that has been repeated many times both before and since Charles ponzi give it its name in the 1920s.the scheme begins with a crook setting up as a deposit taking Institutions. the crook invites the public to take place deposit with the Institutions and offer them a generous rate of interest in the interest is then paid out of new depositors money and the crook lives well of the old deposit the whole scheme collapse when they are not enough new deposit coming into cover the interest payment due to the old ones.
a collection of securities found by an individual or an institution that may include stock Bond and money market securities.
• preferred stock:
Owners of this kind of stock ok are entitled to a fixed dividend to be paid regularly before dividend can be paid on common stock they also exercise claims to asset in the event of liquidation senior to holders of common stock but junior to bondholders holders of preferred stock normally do not have a voice management.
If an investor buys a security for a price above its eventual value at maturity he has paid a premium for it.
• price Discovery: a General term for the process by which financial market attain and equilibrium price especially in the primary market usually refers to the incorporation of information into the price.
Any document described or issued as a prospectus and includes any notice or circular or advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in are debentures of a body corporate.
• public issues: an invitation by a company to public to subscribe to the securities offered through a prospectus.
• put option:
An option that gives the right to sell a fixed number of securities at a specific price within a specified period of time.
• redemption price:
The price at which a bond is redeemed.
• reserve booking building:
Booking building is similar to the process of book building which is aimed at securing the optimum price for a company share in rivers book building the investor aim is to sell the share to exit the company.
• securities transaction tax:
Securities transaction tax is a tax levied at the time of purchase and sale of securities listed on stock exchanges in India.
Securities are tradable investment instruments such as shares, bonds, debentures, equity-oriented mutual funds and so on and are issued either by companies or by the Indian government.
Pursunant to the enactment of the finance act 2004 the Government of India notified securities Transaction Tax rules 2004 and Security Transaction Tax came into affection from October 1st 2004.The rate of STT differs based on the type of security traded and whether the transaction is a purchase or a sale.
The process of hormonizing and packaging financial instrument into a new fungible one acquisition classification collateralization ,composition ,pooling and distribution are functions with this process.
• selling short:
A manner in which an investor sells securities he does not possess in the hope of buying them back later at a lower price.
• share transfer agent:
Any person who on behalf of anybody corporate maintains the record of holders of securities issued by the Such body corporate and deals with all matter connected with the transfer and redemption of its 66 securities.
• short covering:
Buying of stocks by seller to complete his previous commitments.
• short position:
In future the short has sold the commodity or security for future delivery in options the short has sold the call for the put and is obligated to take a future position if he or she is assigned for exercise.
• short selling:
Short selling is an investment or trading strategy that speculates on the decline in a stock or other securities price. It is an advanced strategy that should only be undertaken by experienced traders and investors. Short selling can be done by borrowing the stock through clearing Corporation for clearing house of a stock exchange which is registered as approved intermediaries short selling can be done by retail as well as institutional investors.
The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity. Securities lending and borrowing mechanism allows short seller to borrow securities for making delivery securities in the f&o segment are eligible for short selling.
Speculators are trades who buy or sell the Asset only to sell or buy them back profitably at a later point in time.speculator utilizes strategies and typically a shorter time frame in an attempt to outperform traditional longer-term investors. Speculators take on risk, especially with respect to anticipating future price movements, in the hope of making gains that are large enough to offset the risk. They can increase both the potential gains and potential users by usage of derivative in a speculator venture.
• sub broker:
A ‘Sub-Broker’ is any person who is not a Trading Member of a Stock Exchange but who acts on behalf of a Trading Member as an agent or otherwise for assisting investors in dealing in securities through such Trading Members.
Underwriting is a common practice used in the commercial, insurance and investment banking industries. An underwriter works for mortgage, loan, insurance or investment companies. During the underwriting process, they do everything from evaluate your health to assess your financial status. Based on their findings, underwriters help companies determine if they should take on an applicant’s contract or not based on their associated level of risk. Underwriting is an agreement with or without condition to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public the not subscribe to the securities offered to them.
• ventures capital:
Professionals money co invested with the entrepreneur usually to fund an early stage more risky venture capital can provide large sums of money, advice and prestige by their mere presence. Just the fact that you’ve obtained venture capital backing means your business has, in venture capitalists’ eyes, at least, considerable potential for rapid and profitable growth.
Venture capitalist not only bring some money as equity capital but also brings on to the table extremely valuable domain knowledge business contact brands equity strategic advice and many more he is a fixed interval investor whom the entrepreneurs approach without the risk of takeover.
Stock market volatility is arguably one of the most misunderstood concepts in investing. Simply put, volatility is the range of price change security experiences over a given period of time. If the price stays relatively stable, the security has low volatility. A highly volatile security hits new highs and lows quickly, moves erratically, and has rapid increases and dramatic falls.the is that future volatility is hard to predict and measure of past volatility can ,themselves, be variable depending on how frequently returns are measured for and for how long.
• volume of trading:
The total number of shares which changes hands in a particular company securities. This information is useful in explaining and interpreting fluctuations in share prices.
• warrant :
Option contract option sold with another security. For instance, corporate bonds may be sold with warrants to buy common stock of that corporation. Warrants are generally detachable.
• wolf :
Speculators who make a kill in the market.
• writer: A person who issues an option. The individual who at the end of the day has to buy or sell the asset on which the option is written, should the person who holds the options wish to exercise his rights.
• X ex-dividend :
A term meaning without dividend. A stock bought on or after the X dividend day will not pay the purchaser the dividend already declared.