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Finance Glossary
Finance Glossary

Finance Glossary

Power-up your financial vocabulary with key finance terms and concepts

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All Stock Market Definitions Simplified for You!



52 Week High

A 52-week high is the highest closing price of a stock or ETF in the last 365 days. Say for example you’re checking the history of a stock on 01-01-2022. Then its 52 week high will be the highest price it closed at between 01-01-2021 and 01-01-2022. 52 week highs are used as technical indicators by traders.

52 Week Low

A 52 week low is the lowest closing price of a stock or ETF in the last 365 days. Let’s say you check a stock’s history on 01-01-2022. Then the 52 week low will be the stock’s lowest closing price between 01-01-2021 and 01-01-2022. 52 week lows are used as technical indicators by traders.

Abandoned Baby Pattern

An Abandoned Baby Pattern is a type of candlestick pattern that signals the reversal of a bullish or bearish trend. It is made up of three candles, each of which varies based on the trend.

Bullish Abandoned Baby Pattern


  • Candle #1: Red in color & forms during a downward trend
  • Candle #2: Forms a Doji Star below Candle #1’s closing price
  • Candle #3: Leads to a bullish trend & forms above the Doji Star (similar size to Candle #1)

Bearish Abandoned Baby Pattern


  • Candle #1: Green in color & forms during an upward trend
  • Candle #2: Forms a Doji Star above Candle #1’s closing price
  • Candle #3: Leads to a bearish trend & forms below the Doji Star (similar size to Candle #1)

Abc Wave Theory

Abc Wave Theory or Elliot Wave Theory is used to determine the direction of the stock market by identifying recurring waves or patterns over the long term. The theory is named after Ralph Nelson Elliott.

5 Motive or Impulse Waves are formed if the movement is in the direction of the trend. 3 Corrective Waves are formed if the movement is against the direction of the trend.

Abridged Prospectus

An abridged prospectus is a short version of a company prospectus. As per SEBI norms, a company looking to offer equity or debt to investors must file a prospectus.

This document contains crucial details that can help investors make investment decisions. But a regular prospectus is lengthy.

That’s why Section 2(1) of the Companies Act of 2013 came into effect. It directed companies to publish an abridged or shorter version of their prospectus.

Acceptance Credit

Acceptance Credit is a way for buyers to authorize fund transfers to sellers at a specific date when various terms & conditions are met.

This is done through a letter of credit which is a creditworthy bank’s promise that the payment will be made.

There are two types of Acceptance Credit:

  • Confirmed: Bank guarantees payment in case the buyer defaults
  • Unconfirmed: Bank does not guarantee payment in case the buyer defaults

Accrued Expenses

An accrued expense is the cost that is incurred in the current accounting period but is due to be paid in the future.

More simply, an accrued expense is an unpaid bill due in the future for goods or services that have already been received by a company.

Accrued expenses show up as liabilities on a company’s books.

Accrued Interest

An accrued interest is the interest incurred in the current accounting period but the actual interest is due to be paid or received in the next accounting period.

Accumulation/Distribution Indicator (A/D)

An Accumulation/Distribution Indicator is used to figure out the trend of a stock based on the relationship between the price and volume. There are two parts to the name Accumulation Distribution Indicator:

  • Accumulation: Denotes demand or the buying levels of a particular stock
  • Distribution: Denotes the supply or the selling levels of a particular stock

Long story short, A/D tells you whether a stock is facing buying or selling pressure. A rising A/D depicts an upward trend while a falling A/D depicts a downward trend.

Acid Test Ratio

An Acid Test Ratio shows whether a company has enough liquid short-term assets to deal with current liabilities.

The higher the Acid Test Ratio the better a company’s ability to deal with debt.

Acid Test Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current liabilities

Adjusted Closing Price

The adjusted closing price of stock accounts for any changes that happen due to corporate actions like dividends, stock splits, and others after trading hours.

Adjusted Futures Price

An adjusted futures price shows the cost of purchasing, financing, and delivering the underlying assets of a futures contract.

The adjusted futures price is calculated by multiplying the price of the underlying asset by the number of units to be delivered (known as the conversion factor).

Advance/Decline Line

An Advance/Decline Line can help you plot the daily difference between the number of advancing and declining stocks.

As a result, the Advance/Decline Line is a technical indicator used to gauge market sentiment, price trends, and trend reversals.

Here’s how the Advance/Decline Line is calculated:


  • Calculate the number of stocks that finished in the red.
  • Calculate the number of stocks that finished in the green.
  • Subtract #1 from #2 to find out the net movement aka Net Advance.
  • Repeat #1, #2, and #3 the next day and add the values for Net Advance.
  • Add both the previous day’s and the present day’s Net Advance. Repeat for future calculations.

Advance Payment Guarantee/Bond

An Advance Payment Guarantee or Advance Payment Guarantee Bond is a contract issued by a third party willing to take responsibility for fulling the terms of an agreement or payments owed by one party to another.

The guarantee could be:

  • Primary: Indemnity (fulling payments)
  • Secondary: Guarantee (assuring that the outcome will be met)

After Hours Trading

After hours trading means buying and selling securities after the end of regular market hours. In India, the stock market is open for regular trade from 9.15 AM to 3.30 PM.

After hours trading is allowed from 3.30 PM to 4 PM. Around the world, stocks are known to suffer from a lack of liquidity during after hours trading.

Algorithmic Trading

Algorithmic trading or algo trading means buying and selling securities using computer algorithms that follow a set of predefined rules to execute trades.
In algo trading, predefined rules can be set to act on triggers like stock price, volume, time, and others.

All Or None Order

An all or none order is an instruction to execute the entire order or none of it. For example, you place an order for 1000 shares with a contingency that it should be an all or none order.

If so, then the order will be not executed if 999 shares are available. The order will only go through if 1000 shares are available. Otherwise, the order will be canceled.

Alpha

An Alpha indicates the measure by which a stock or portfolio has managed to outperform a benchmark like an index of shares.

A positive Alpha means that the security or portfolio is beating the market while a negative Alpha means that it is lagging.

Alpha can also be used to measure the competence of a fund manager and their strategies.

American Option

An American Option allows the contract holder to exercise the right any time before or on the expiry date. American style options contracts are not available in India.

Anaume Pattern

An Anaume Pattern can be seen when a gap is filled after a change in the direction of a security or market’s price.

Anaume Patterns are gap-filling patterns that can signal the reversal of a bearish trend, which is nothing but a potential onset of a bullish trend, when used in conjunction with other patterns.

Anaume Patterns are also known as exception exhaustion patterns.

Anchoring and Adjustment

Anchoring is a bias that drives people to make decisions that are based on (anchored to) pre-existing notions, ideas, and suggestions that may or may not be true.

Adjustments around anchoring are common as it becomes a starting point for many when it comes to decision-making.

For example, someone is anchored to a financial model or strategy. They may choose to use the anchor in situations where it may not fit and as a result, may end up getting an unfavorable outcome.

Annual Earnings Change

An Annual Earnings Change is the difference between a company’s earnings from the present and previous fiscal year. The formula for annual earnings change is:

Current Fiscal Year Earnings - Previous Fiscal Year Earnings

Say for example a liquid nitrogen manufacturing company earned Rs. 50 crores in the current fiscal year and Rs. 29 crores in the previous fiscal year. Their annual earnings change will be:
Rs. 50 crores - Rs. 29 crores = Rs. 21 crores.

Annual General Meeting

An Annual General Meeting or AGM is an event where a company’s board of directors presents the annual report, future outlook, and strategy to shareholders. AGMs serve as one of the few occasions when shareholders get to interact with a company’s board of directors.

Annual Net Profit Margin

A Net Profit Margin is the ratio of a company’s net profits to revenues. The formula to calculate Net Profit Margin is:

Net Profit Margin = Net Profit* / Revenue * 100

*Net profit = Revenue - Cost of goods - Operating Cost - Other Expenses - Interest - Taxes

Net Profit Margin is expressed as a percentage, which means that you can compare the financial health of multiple companies.

A company can use its Net Profit Margin to understand whether its strategies and business models are effective.

Annual Report

An annual report is an exhaustive written account of a company’s finances, activities, and other relevant information for the fiscal year.

Publicly traded companies are required to publish annual reports so that existing and potential shareholders have full transparency into the company’s finances and overall health.

Arbitrage

Arbitrage is a strategy where a security is bought in one market and sold in another market to generate profits due to the difference in price. This difference is known to be minor.

Say for example a share trades at Rs. 1000 on NSE and Rs. 1002 on BSE. The share can be arbitraged by buying it on BSE and selling it on BSE for a profit of Rs. 2.

Ask Or Offer Price

The ask or offer price is the price at which an investor is willing to sell a security like stocks, bonds, currencies, ETFs, and others.

Ask Size

The ask size is the number of units of a security that an investor is willing to sell at the ask or offer price.

Asset Allocation

Asset allocation is a strategy or method in which an investor decides how much money they should allocate to an investment based on their risk profile, financial goals, and other factors to maximize returns and minimize risk.

Assets

An asset is anything that has economic value and is owned by an individual, company, or group. Assets are bought to generate returns in the future.

Assets And Liabilities

An asset is something that has monetary value and can generate profits in the future while a liability is a debt that’s repayable immediately or in the future. Assets are owned whereas liabilities as owed.

At The Close Or Closing Price

At the close or closing price is the last traded price of securities like stocks, ETFs, and others at the end of regular market hours.

For example, if a stock hit Rs. 4,500 at 3.30 PM (market close), then that is its price at the close also known as the closing price.

Unlike Adjusted Closing Price, at the close or closing price does not take into account price changes due to corporate actions.

At The Money

At The Money is a scenario in which the strike price of an options contract is the same as the market price of its underlying security.

Exercising an option At The Money can lead to a loss as the premium paid for the contract won’t be recovered.

That said, At The Money is known to be a positive indicator as it indicates the option may soon have intrinsic value.

At The Opening

At the opening is an instruction to execute an order at the open price, which is the price of a security at the start of regular stock market hours.

Authorized Capital

Authorized capital or authorized share capital is the maximum amount of capital for which shares can be issued by a company to its shareholders.

Or in other words, authorized capital denotes all the shares across all the categories that a company could issue if it wanted to raise money.

Autoregressive Model

An autoregressive model uses one or more past values to forecast the current value of an asset.

The model assumes that past values can have an impact on the current value but the number of past values it takes into account can vary.
For example, an AR(1) model will use one preceding value, an AR(2) model will use two preceding values, and so on.

Average Daily Trading Volume

The Average Daily Trading Volume (ADTV) is a technical indicator that indicates the number of shares that were bought and sold on average across one or more trading days.

A high ADTV means that more investors are interested in a stock while a low ADTV implies that a stock isn’t on the radar of many investors. The formula for Average Daily Trading Volume (ADTV) is:

ADTV x days = Total trading volume of stock across x days / x days

Average True Range Atr

The Average True Range (ATR) is a technical indicator used to measure market volatility, typically using the average of true ranges from 14 periods that can be daily, weekly, monthly, or even intraday values.

The formula for ATR is:

ATR = Previous ATR (n - 1) + True Rangen / n

n= number of periods
True Range = The greater/highest of these:

  • High - low (Day 1)
  • Absolute value of (Day 1’s high - Day 0’s close)
  • Absolute value of (Day 1’s low - Day 0’s close)

Averaging Down

Averaging down means buying more shares when the price drops, thereby bringing down your overall average cost of investing. For example:

Day 1 (Normal price)

  • Shares bought of XYZ: 10
  • Price of each share: Rs. 1000
  • Total cost of investing: Rs. 10,000
  • Average investment cost: Rs. 1000


Day 2 (Lower price)

  • Shares bought of XYZ: 10
  • Price of each share: Rs. 900
  • Total cost of investing: Rs. 9,000
  • Average investment cost: Rs. 900


Averaging Down

  • Initial average cost of investing (Day 1): Rs. 1000
  • New average cost of investing (Day 1 & Day 2): Rs. 950

Back Months

“Back months” is used to refer to futures contracts that have a delivery date that’s due far into the future. Back months is generally known to be a popular term in commodity trading.

Backtesting

Backtesting means simulating trading strategies and models using historical data to understand whether they are effective.

In many ways, backtesting is considered to be an important part of crafting trading strategies that work.

If backtesting leads to positive results, then the trading strategy or model may be viable.

Balance Sheet

A balance sheet is a financial statement that reveals a company’s assets, liabilities, and shareholders’ equity. It can help current and potential investors understand the financial health of a company.

These are some of the key components of a balance sheet:

  • Current assets : Cash & cash equivalents, marketable securities, accounts receivable, inventories, prepaid expenses, and other liquid assets

  • Fixed assets : Property, equipment, furniture, machinery, software, and other intangible assets

  • Current liabilities : Short-term debt, unearned revenue, accounts payable, other accrued expenses & liabilities

  • Long Term liabilities : Long-term loans, bonds, and others

  • Shareholders’ equity : Paid-in capital and retained earnings

Basing

Basing happens when a security trades sideways after prolonged periods of falling prices.

As a result, the security forms a “base” or flat pattern which means there is little to no upward or downward movement and a decline in volatility.

This may go on for a relatively long time but is crucial as basing is an indicator of any meaningful reversal that may happen.

Basis Trading

Basis trading means futures trading strategies that use the difference between the spot price and the futures contract price of a stock or commodity.

The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:

  • Short the basis : Done if the price difference or basis is expected to reduce

  • Long the basis :Done if the price difference or basis is expected to increase

Basis Of Allotment

The basis of allotment is the criteria to allocate shares to investors, most commonly during IPOs. Criteria or basis for allotment lays out the following information:

The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:

  • Share allocation ratio
  • Bids
  • Demand
  • Final price

The basis of allotment can vary based on the type of investor in question. Bidders during an IPO for whom a different basis of allotment applies include:

  • Retail Individual Investors (RII)
  • Qualified Institutional Buyer (QIB)
  • Non-Institutional Buyers (NIBs)
  • High Net-worth Individuals (HNIs)
  • Anchor Investors

Bear Market

A bear market is a period of continuous decline in the stock or commodity market.

Typically, investors believe that a bear market has arrived when a stock, commodity, or entire index fall by 20% or more from its most recent highs.

The onset of a bear market is generally in tandem with poor economic conditions.

Benchmark

A benchmark is a standard used by investors to compare the performance of a stock, commodity, or other securities.

Stock indices like Nifty 50, Sensex, Nifty Bank, and others are often used as benchmarks to evaluate the performance of one or more stocks.

The onset of a bear market is generally in tandem with poor economic conditions.

Benchmarks are not just used for evaluating markets or securities, they can also be used to assess the performance of an investor or wealth manager. Here are some outcomes if the returns are:

  • Greater than benchmark: the asset is doing considerably well (great)
  • Same as benchmark: the asset is moving with the market (okay)
  • Less than benchmark: the asset is performing poorly (bad)

Best Efforts Underwriting/Offering

A best efforts underwriting or offering means the underwriter will do their best to market the securities for the issuer (company, supplier, etc) to investors. The underwriter will not buy all the securities from the issuer, only those the underwriter’s clients want to purchase.

Beta Coefficient

Beta coefficient is used to measure the volatility of stocks in relation to changes in the market. Basically, Beta helps investors understand the risks associated with a stock compared to the market.

The formula to calculate the Beta coefficient is:

Beta (β) = Covariance (Ri, Rm) / Variance (Rm)

Where:

  • Ri = a stock's return
  • Rm = overall market's return
  • Covariance = ups & downs of stock returns versus ups & downs of market returns
  • Variance = the difference between market returns and its average


Generally, Beta values are of four types:

  • Beta < 1.0: stock less volatile than the market
  • Beta = 1.0: stock just as volatile as the market
  • Beta > 1.0: stock more volatile than the market
  • Negative Beta: stock shares inverse relation with the market

Beta Stocks

Beta of stocks measures the risk that the shares carry compared to the broader market. Theoretically, the market is said to have a default Beta of 1. As a result, Beta stocks can be of four types:

  • High Beta Stocks : typically having a Beta value of more than 1, these stocks are known to be high-risk, high-reward investments
  • Low Beta Stocks : typically having a Beta value of less than 1, these stocks are known to be low-risk, low-reward investments
  • Negative Beta Stocks : typically having a Beta value of less than zero, these stocks are known to have an inverse correlation with the market
  • Same as the market : typically having a Beta that’s equal to 1, these stocks are known to share characteristics with the market

Block Trade

A block trade is a substantially large buy or sell order for a stock, commodity, or other security. Block trades are typically done by institutional investors like hedge funds, mutual funds, and others to mask the true size of the transaction.

Shares change hands between companies after the price of the security is privately negotiated. Most block trades are routed through investment banks and executed outside the conventional market.

Blue Chip Stocks

Blue chip stocks are shares of iconic companies in India that have been leaders of their respective industries for years, if not decades, and have a stellar yet consistent business track record. Example of blue chip stocks in India are: HDFC Bank, TCS, Reliance Industries, Hindustan Unilever, Infosys etc.

Bombay Stock Exchange

Established in 1875, Bombay Stock Exchange or simply BSE is a place where stockbrokers and traders can buy and sell securities like stocks, bonds, ETFs, and more. 5000+ securities are listed on BSE, which is the oldest stock exchange in India and Asia.

Bond Market

A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

Bonds

Bonds are fixed income securities issued in exchange for a loan, generally by governments and corporations. A bond will generate a fixed interest rate on top of the principal across a fixed time period. A bond market is a place where bonds are issued, bought, and sold. Bonds are issued in exchange for a loan generally by governments and corporations.

The quality of a bond can be understood by its credit rating, which is nothing but the creditworthiness of the company issuing it. The best bonds in India are known to have the following credit rating:

  • SOV: Only for government bonds
  • AAA: Highest
  • AA+: High-medium
  • A+: Upper-medium
  • BBB+: Lower-medium
  • BB+: Speculative
  • B+: Highlight speculative
  • CCC+: Risky
  • CC: Extremely risky

Book Building

Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

Book building is typically done by an underwriter (like an investment bank) who will invite institutional investors like hedge funds, mutual funds, and others to submit bids for the financial instrument.

These bids act as a range that the underwriter can use to fix a price that satisfies the company issuing the security and market participants.

Book Entry Securities

Book entry securities are financial instruments like stocks, bonds, ETFs, and others whose ownership is recorded and tracked electronically. Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

Book entries have made ownership certificates obsolete as they track who owns what electronically.

The trades are settled by the depository like NSDL or CSDL which sends the buyer a statement confirming ownership.

Book Running Lead Manager

A book running lead manager is the head or lead of the underwriting process when new shares or securities are issued for their client, most commonly during an IPO.

For context, there was a time when physical ownership certificates were issued. If someone wanted to sell their shares, they’d have to present the ownership certificate and get it transferred to the buyer.

Also known as the book runner, the book running lead manager handles these crucial elements of the underwriting process:

  • Perform due diligence
  • Determine the final offering price
  • Record & track interested buyers
  • Confirm orders
  • Guarantee purchase

Book To Bill Ratio

Book to Bill ratio is the value you get by dividing the total worth of new orders received by the total worth of orders sold. The formula to calculate Book to Bill ratio is:

Book to Bill ratio: Total worth of new orders received / Total worth of orders billed

Book to Bill ratio helps companies understand the demand and supply for their goods or services. A Book to Bill ratio of more than 1 means that there’s more demand and less supply.

Whereas, a Book to Bill ratio of less than 1 means that there’s less demand and more supply. Using these indicators, the company can work on increasing or limiting production.

Book Value

Book value of an asset is what you get by subtracting its accumulated depreciation from the original cost of the asset.

That’s why book value is referred to as the Net Asset Value (NAV) in the UK.

For a company, the book value is its total assets subtracted by liabilities, intangible assets and/or goodwill.

Bottom Line in Finance

Bottom line in finance is used to refer to a company’s crucial metrics like earnings, profits, net profits, earnings per share (EPS), and others.

Any move or action that can impact a company’s profit or net profit in a positive or negative direction is also referred to as the bottom line.

“Bottom line” is called such because the crucial metrics of a company are generally found at the bottom of a financial statement.

Bottom Up Investing

Bottom-up investing is a stock picking strategy that uses analysis of individual companies and shares for decision-making instead of focusing on the broader economy, market, or industry.

Bought Out Deal

A bought-out deal is a stock offering where an investment bank buys the entire issue of shares from a company. In turn, the investment bank will attempt to sell the shares to other investors. A deal of this kind has two benefits:

  • The company need not worry about subscription as the investment bank will purchase the entire offering
  • The investment bank can negotiate with the company and get the shares at a discount

That said, there are risks to a bought out deal like:

  • It is up to the investment bank to sell the shares to investors in order to recoup the principal or make a profit
  • The investment bank also runs the risk of receiving no interest in the shares from other investors
  • Guarantee purchase

If the issue size of the bought-out deal is large enough, the investment bank may team up with others to fulfil the purchase.

Bounce Trading

Bounce trading refers to buying a position in security when its price falls to a particular support level with the anticipation that it will “bounce” back to a certain price level. Technical analysis is the bedrock of bounce trading but various patterns and strategies can be used to achieve the desired goal.

Box Spread

A box spread is a trading strategy that involves buying a bull call spread and a matching bear put spread. The components of a box spread are designed as so:

  • Bull call spread : two call options with a lower and upper strike price
  • Bear put spread : buying and selling puts at different strike prices of the same underlying asset with the same expiration

Bracket Order

A bracket order is used in intraday trading to limit downside and lock upside by placing three types of orders together:

  • Buy or sell order at market price
  • Target order to square off & book profits
  • Stop-loss order to limit loss

Broker

A broker is an intermediary between a securities exchange and investors. Only registered entities can place trades on a securities exchange. These members can be individuals or firms known as stockbrokers.

That’s why investors must go through a broker when they want to trade or invest in stocks, ETFs, futures, options, and others.

Brokerage

Brokerage is the fee that an investor or trader must pay to a brokerage in exchange for its services. Brokerage varies from platform to platform. But, broadly speaking, brokerage on intraday, futures, and options trading is known to be higher than equity delivery (investing).

BSE

Bombay Stock Exchange or BSE is a stock exchange that allows companies to issue new securities through IPOs or FPOs and enables traders & investors to buy and sell securities like shares and ETFs. Established in 1875 under a banyan tree in Mumbai, BSE is the oldest stock exchange in India and Asia.

Bull Market

Bull market is a positive trend in the stock market where price of shares increase by 20% or more after falling by 20%. Investors may say they’re bullish or expect a bull market to arrive when they believe that there will be prolonged periods of increase in the stock market.

Bullion

Bullion is used to refer to gold, silver, and other non-ferrous metals that have been designed to have high purity. These metals are generally molded into bars, coins, and other valuable items.

Bureau Of Indian Standards

Bureau Of Indian Standards (BIS) is responsible for standardizing and certifying goods and services from third parties so that the end consumer knows that the products are safe and reliable.

BIS was established in 1986 and was rebranded from the Indian Standards Institution (ISI) to BIS during the year to adapt to the changing product landscape of India.

Butterfly Spread

A butterfly spread is an options strategy that combines bull and bear spreads to generate a small chunk of profit. To achieve this, a butterfly strategy consists of four positions in four options contracts that have the same expiration but different strike prices.

Buy and Hold

Buy and hold is a long term investment strategy that is designed to help investors ride out market volatility by buying and holding fundamentally solid businesses that have the potential to grow over decades.

Call Option

A call option is a type of derivative contract that gives the right but not the obligation to buy an underlying asset like shares, commodities, currencies, and others at a pre-agreed price and date.

There are three components to a call option:

  • Premium: the price paid to buy a call option
  • Strike price: the pre-agreed price of the underlying asset
  • Expiration date: the day after which the option contract will be worthless

Candlesticks

Candlesticks are technical charts used in trading to understand price movements. A candlestick chart will show the following information: There are three components to a call option:

  • High (for the period)
  • Low (for the period)
  • Open price
  • Closing price

The main body of the candle will be green if the closing price is higher than the opening price and red if the closing price is lower than the opening price.

Long green candles mean more investors and traders want to buy a stock. Long red candles mean more investors and traders want to exit a stock.

CANSLIM

CANSLIM is an acronym for a seven-step strategy to pick growth stocks by combining fundamental and technical analysis. Here’s the full form of CANSLIM:

  • Current quarterly Earnings Per Share (EPS): compare this fundamental indicator with the same figure from the previous quarter. If the figure grows (by 20% or more as a rule of thumb), the company is fundamentally strong.

  • Annual earnings: Compare this fundamental indicator from the previous years. If there’s year-on-year growth, the company is fundamentally strong. If the year-on-year growth is by 20-25%, even better.

  • New product or service: strong companies continue to innovate. That’s what this letter is about - checking if the company is continuously launching new products, services, or holding events.

  • Supply: a fundamentally strong business should have a good supply and demand when it comes to its goods, services, and stock. Executive supply of shares may reduce the value of the company - that’s why it should always be scarce in supply.

  • Leader: the company should be a leader in its own right, either in or across industries.

  • Institutional holding: a valuable company will have higher institutional ownership, the percentage of which should always be tracked.

  • Market trend: an investor must check whether the company or stock is going or against the trend by comparing it to broader indices.

Capital in Trading

Capital is the total amount of money that a trader can use to buy and sell securities. There are variations of the term, the most common one is “starting capital”. This is the amount of money a trader starts their journey with.

Capital Asset Pricing Model

Capital Asset Pricing Model or CAPM is used to determine the expected return one can earn on an asset by evaluating the associated risks and how markets price the asset.

Capital Expenditure

Capital expenditure or CapEx is the amount of money a company spends on maintaining, upgrading, or buying new assets like machinery, equipment, property, and others.

Capital Gain Or Loss

A capital gain is a profit that an investor or trader earns by selling an asset while a capital loss is the money a trader or investor loses after selling an asset. Capital gains are taxed while capital losses can be used to offset gains.

Capital Gains

A capital gain is a profit an investor or trader earns by selling shares, commodities, futures, options, currencies, and other assets. More literally, a profit is a gain on the capital that’s invested - hence the term capital gains.

Say someone buys a share for Rs. 1000 and sells it for Rs. 1100. The capital gains will be Rs. 100 in this case. The taxation of capital gains varies based on the asset type and the duration after which it was sold.

Capital Gains Exemption

Capital gains exemption is the tax break that a government offers on profits earned by selling assets. Generally, an investor must pay a tax on the short-term capital gains or long-term capital gains earned.

But in certain cases, the government allows investors to offset taxes. For example, if an investor sells property and reinvests the entire amount back again into another property, they can avail of capital gains exemption.

Capital Gains Tax

Capital gains are profits, which means they can be taxed. The rate of taxation is based on the type of asset (debt/equity) and holding period. Here is the list of ways capital gains are taxed in India:

Asset Type Gains Type Holding Period Tax Rate
Equity Short Term Capital Gains < 1 year 15%
Long Term Capital Gains > 1 year 10%
Debt Short Term Capital Gains < 3 years As per I-T slab
Long Term Capital Gains > 3 years 20%

Capital Growth

Capital growth is the profits an investment generates on the principal amount. Since the capital grows on earning profits, the term capital growth is also used to describe the overall corpus of an individual (principal + profits).

Capped Style Option

Capital is the total amount of money that a trader can use to buy and sell securities. There are variations of the term, the most common one is “starting capital”. This is the amount of money a trader starts their journey with.

Capture Ratio

The capture ratio is used to measure the performance of an asset during market highs and lows by comparing it to a benchmark.

The result is expressed as a percentage and helps investors understand whether the asset manager was able to steer through volatility the right way. There are two types of capture ratios investors can turn to:

  • Up market capture ratio
  • Down market capture ratio

Here’s how to calculate the up market capture ratio:

Returns during market highs / Benchmark returns * 100

Here’s how to calculate the down market capture ratio:

Returns during market lows / Benchmark returns * 100

Carrying Charge

Carrying charge or cost of carry is the money involved in the upkeep or general holding of an asset or financial instrument. Examples of carrying charges include maintenance costs, insurance, and others.

A carrying charge can increase the cost of owning an asset. At times, the cost of carry may exceed the potential returns, in which case an investor must evaluate whether the asset is worth keeping.

Cash and Cash Equivalents

Cash and cash equivalents are short-term assets or holdings which fall under the current assets of a business. Cash and cash equivalents have very high liquidity. When you take the term literally, you have two components:

  • Cash: money like cash holdings in a bank account, petty cash, and others
  • Cash equivalents: assets or investments like T-bills, commercial paper, and others that have a short maturity which can easily be converted into cash

Cash Commodity

A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.

Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.

Cash Contract

A cash contract is an agreement between two parties in which the delivery of goods is involved at a predetermined price and date. Typically, bulk buyers like big companies enter into cash contracts on the spot price of a commodity.

These companies aren’t in the business of speculation. As a result, the delivery of goods is always involved in cash contracts, unlike futures where the contract can be settled with cash without taking delivery.

Cash Conversion Cycle

A Cash Conversion Cycle (CCC) tells you how many days it will take to convert a company’s inventory or resources into cash. The formula for Cash Conversion Cycle is:

Cash Conversion Cycle = (DIO + DSO) – DPO

  • DIO: Days Inventory Outstanding is the average number of days it takes for a company to turn inventory into cash through sales
  • DSO: Days Sales Outstanding is the average number of days it takes for a company to collect its receivables
  • DPO: Days Payable Outstanding is the average number of days it takes fo a company to fulfil its obligations or payables

Cash Flow

The cash flow describes the amount of money that moves in or out of a company or an individual’s pocket. Cash flow can be of two types:

  • Positive cash flow: more money earned than spent
  • Negative cash flow: more money spent than earned

Cash flow is an important metric in finance because it helps calculate metrics like liquidity, cash conversion ratio, and others along with giving a broad overview of a company’s financial health.

Cash Flow Statement

A cash flow statement is used to present the amount of money that has been earned and spent by a business over a specific period of time. There are three sections or parts to a cash flow statement:

  • Operating Activities: cash flows from the core activities of a business that generate income as well as cash equivalents (current assets & liabilities)
  • Investing Activities: cash flows from investments or sales of long term assets
  • Financing Activities: an action or activity that brings a change in a business’ equity capital and/or borrowings

Cash Market

A cash market is a place where assets, goods, and services are bought and sold on the spot. That’s why it is also known as the “spot market”.

A stock market exchange like NSE or BSE is an example of a cash market as trades are settled on the spot at the spot price. Derivatives like futures are not a part of the cash market are trades are settled in the future.

Cash Ratio

A cash ratio measures a company’s ability to fulfill short-term debt obligations using only its cash and cash equivalents, which are known to have high liquidity. The formula for calculating cash ratio is:

Cash Ratio: Cash + Cash Equivalents / Current Liabilities

Cash Reserve Ratio

Cash Reserve Ratio (CRR) is the amount of liquid cash a bank has to deposit with the Reserve Bank of India (RBI), calculated as a percentage of the total deposit of the bank. The latest Cash Reserve Ratio in India is 4.5%.

There are two important uses of CRR:

  • It acts as a reserve or collateral because banks borrow money from the RBI
  • The RBI decides the interest rate for borrowing based on the CRR

These two pointers become extremely important during high inflation as the RBI can hike interest rates with the assurance of having collateral from banks.

Cheapest To Deliver

Cheapest to deliver (CTD) refers to the cheapest or lowest priced security in a futures contract that a seller can deliver to a buyer who holds a long position. Here’s the formula to calculate the cheapest security that can be delivered:

  • Short position: Current price of security + accrued interest
  • Long position: Settlement price x conversion factor + accrued interest

Circuit Breaker

A circuit breaker or market curb is a measure that exchanges use to put a stop to all trading activities across an index or entire market. This regulatory measure is put in place to curb panic selling, especially when markets are in free fall.

That’s why circuit breakers are also known as trading curbs and are put in place when an index or market reaches a specific level. These are the current circuit breaker limits on NSE:

Circuit Breaker Trigger Trading Halt Duration
10% 0-45 minutes
15% 45 minutes; 1 hour 45 minutes; rest of the day
20% Rest of the day

Commodity

A commodity refers to physical goods and raw materials like aluminium, cotton, copper, sugar, steel, zinc, and others. Commodities are an essential part of the day-to-day life of individuals, companies, and industries.

But they can’t be traded like stocks in India. Instead, a commodity trader will enter into either of these three contracts to secure commodities or benefit from its price fluctuations:

  • Futures contracts
  • Options contracts
  • Cash contracts

These derivative contracts are traded on commodity exchanges in India like:

  • Indian Commodity Exchange (ICEX)
  • Multi Commodity Exchange of India (MCX)
  • National Commodity & Derivatives Exchange Limited (NCDEX)
  • National Multi Commodity Exchange of India (NMCX)

Commodity Exchange

A commodity exchange is a marketplace where commodities and related derivative contracts are standardized and traded. The commodity exchange can be split into these sub-markets:

  • Derivatives market: this is where commodity exchanges allow futures, options, forwards, and other derivatives to be traded
  • Spot market: this is where commodity exchanges allow buying and selling of commodities in real-time (on the spot), including cash contracts

In India, there are 4 commodity exchanges that are popular and widely turned to:

  • Indian Commodity Exchange (ICEX)
  • Multi Commodity Exchange of India (MCX)
  • National Commodity & Derivatives Exchange Limited (NCDEX)
  • National Multi Commodity Exchange of India (NMCX)

Within these exchanges, the most commonly traded commodities include:

  • Crude oil
  • Coffee
  • Corn
  • Cotton
  • Gold
  • Natural gas
  • Silver
  • Sugar
  • Wheat

Commodity Futures

A commodity futures is a contract between two parties to buy or sell an underlying commodity like gold, silver, corn, and others are a pre-determined price and date.

A commodity futures contract is an obligation that’s entered into not just by retail traders but also companies who want to lock in a favorable price. This is the place to understand all about futures contracts in trading.

Commodity Options

A commodity option is a contract that gives the buyer or seller the right but not the obligation to execute a trade for a commodity like copper, cotton, zinc, and others at a pre-agreed price and date. Commodity options are derivative contracts that require a trader to pay a premium in order to secure the “option”.

Commodity Spread Straddle

A commodity spread straddle or simply a commodity straddle is an options trading strategy where a trader will buy call and put options with the same strike price and expiration date.

The goal of a commodity straddle is to create a neutral strategy that wins in the event that the underlying security’s price rises or falls. That said, the profits must be higher than the total premium paid for the options.

Common Stocks

A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:

  • Get higher returns
  • A part of the assets left after a company is liquidated (in case of default)

Company Debentures

A debenture is a debt instrument that a company uses to take out a loan in exchange for a fixed interest rate. Debentures can either be used to refer to bonds or documents created in exchange for a medium to long-term loan.

Comparable Company Analysis

Comparable Company Analysis (CCA) is a method used to evaluate a company’s value by comparing its essential metrics like EBIT, EBITA, and more with other companies.

The underlying assumption of CCA or “Comps” is that publicly traded companies from the same sector or industry will have similar metrics that are comparable.

Compounded Annual Growth Rate (CAGR)

Compounded Annual Growth Rate shows how much returns on average an investment can generate over a year, given the data for a period of time (say 5+ years).

CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:

CAGR = [(Ending value/Beginning Value)^(1/N)]-1

Consolidated Financial Statements

A consolidated financial statement is a record of all the assets, liabilities, income, expenses, and other financial data of a company and its subsidiaries.

Consumer Price Index

The Consumer Price Index (CPI) measures how costly goods and services have become over time. It is calculated by measuring the weighted average of the percentage change in the price of a basket of goods and services.

If the CPI increases, it means that inflation is on the rise. In India, the CPI replaced Whosale Price Index (WPI) as the primary measure of inflation in 2013.

Contingent Liabilities

A contingent liability is shown on a balance sheet for an event that may or may not happen in the future. The potential liability arising out of such an uncertain event is recorded as a contingency in both GAAP and IFRS accounting standards.

Contract Note

A contract note is a compilation of all the trades and transactions made through a stockbroker on a stock exchange. It is a legal record that all recognized stockbrokers must send to traders and investors at the end of each trading day.

Convertible Arbitrage

A convertible arbitrage is a trading strategy that involves buying convertible securities - most commonly bonds and preferred stock - and a short option on the common stock of the same company.

Because of this combination of purchases, a convertible arbitrage strategy is known as a neutral strategy designed to profit from the supposed inefficiencies that lie in the pricing of convertible securities.

Convertible Bonds

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:

  • Don’t convert bond: face value of the bond is transferred to the holder on maturity
  • Convertible Debentures

    A convertible debenture is a long term debt instrument that can be converted into equity on maturity. Convertible debentures are generally unsecured loans that small to mid-size companies take on in exchange for an interest rate.

    Cost Inflation Index

    A Cost Inflation Index or CII is used to calculate a financial security’s price after adjusting for inflation.

    Cost Of Carry
    Cost Of Revenue
    Cover Order
    Covered Call Option
    Covered Interest Arbitrage
    Covered Put
    Cross Currency
    Currency Futures
    Currency Options
    Currency Trading
    Current Assets
    Current Liabilities
    Current Ratio
    Custodian
    Cyclical Stocks

    Debentures

    A debenture is a legal certificate that a company issues in exchange for a long-term unsecured loan. A debt instrument like a debenture is issued by companies who want to fund their business without diluting existing shares.

    The components of a debenture are as follows:

    • Principal: The loan amount or the money lent by an investor
    • Tenure: The duration of the loan
    • Interest rate: The rate of interest
    • Repayment: Terms and conditions of the amount to be repaid

    Debenetures can also be issued by small-size companies who may not be creditworthy enough to secure a loan from traditional lenders. Hence, the unsecured aspect of the loan may help achieve their objective.

    Debt To Equity Ratio

    The debt to equity ratio is a measure of a company’s financial health that’s calculated by dividing liabilities from shareholder equity.

    Debt to equity ratio: Total liabilities / Shareholder equity

    A high debt to equity ratio means that a company is taking on more debt to run its business. A low debt to equity ratio means that a company is operating at low debt.

    That’s why investors calculate the D/E ratio to understand a company’s ability to operate without debt. Generally, D/E is used for comparative analysis within sectors, not across industries because the ideal debt ratio may vary.

    Defensive Stock

    A defensive stock refers to the shares of iconic companies that generate stable and consistent returns and dividends, regardless of the market conditions.

    Defensive stocks are rare because companies that have defense against every market condition are rare.

    While defensive stocks may not generate high returns, they are known to add stability and defense against declining economic conditions. In India, stock of ITC Limited is an example of a defensive stock.

    Deferred Tax

    The term deferred tax in a financial statement is used to refer to future tax payments in the case of temporary differences, a situation where an asset or liability on the balance sheet is realised but is taxable in the future.

    Common examples of deferred tax include line items such as employee bonus or PF contributions, depreciation of fixed assets, net losses, and others.

    Deferred Tax Asset

    A deferred tax asset is an item on a company’s financial statement that can be used to get tax relief, generally in the event of overpaying taxes or net losses that are carried forward.

    Companies tend to deduct these overpayments or losses for accounting purposes and to reduce their overall taxable income. Common examples of deferred tax assets include:

    • Depreciation of fixed assets
    • Net financial loss
    • Bad debt

    Deferred Tax Liability

    A deferred tax liability is line item on a company’s balance sheet that refers to taxes that owed but due in the future. Common examples of deferred tax liabilities include:

    • Paying less tax
    • Sales in instalments

    Delivery Date

    The delivery date of a cash or derivative contract refers to the final day and time on which the underlying asset should be delivered to the contract holder to fulfil the terms and obligations of the contract.

    Delivery Notice

    A delivery notice is produced by the seller of a commodity futures contract. It is proof of confirmation of the sellers intention to physically deliver the underlying commodity to the buyer at the pre-agreed date.

    Delivery Trading

    Delivery trading refers to buying a stock or ETF and holding it for more than one day. In such a scenario, the buyer take delivery of the asset instead of squaring off their position in the same trading session. Delivery trading is applicable for short term and long term trades and can last overnight to a decade or more.

    Demat Account

    A Dematerialized or Demat account is used to store shares and ETFs in the electronic format. It is linked to a bank account and is necessary for trading or investing that involves delivery, that is, where the asset is held overnight.

    Depository Participant

    A depository participant is a financial institution that acts as a bridge between a depositories like NSDL/CDSL and investors. Moreover, a depository participant is responsible for holding shares in the Dematerialized format in a Demat account.

    At the same time, a depository participant gives traders and investors access to an online trading account that can be used to buy and sell securities. The right depository participant will also ensure that your securities are safe.

    Derivative

    A derivative is a financial contract that is designed to derive its value from a single or group of underlying assets, generally between two parties or more. It contains a pre-agreed date of delivery and price.

    The most common examples of a derivative contract are:

    • Futures
    • Options
    • Forwards
    • Swaps

    A derivative can be bought and sold on an exchange or over the counter. Since derivatives derive value from underlying assets, their price is known to fluctuate when the underlying asset gains or loses value.

    Derivatives Market

    The derivatives market is a place where financial contracts like futures, options, forwards, and swaps are traded. It is a complex market that is a subset of the stock market, commodity market, currency market, and others depending on the underlying asset that’s a part of the derivative contract.

    Derivatives Trading

    Derivatives trading means buying and selling derivatives contracts like futures, options, swaps, and forwards either on an exchange or over the counter.

    Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.

    The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.

    Differential Pricing

    Differential pricing is a strategy that involves setting different prices for the same product or service based on the type of customer or tming.

    For example, a zoo ticket may cost Rs. 10 for domestic visitors and Rs. 100 for international visitors. Or, when buying a product gets costlier as and when the last date for the sale approaches.

    That’s why differential pricing is also known as discriminatory pricing and variable pricing.

    Differential Voting Rights

    Differential Voting Rights or DVRs are special types of shares that carry more or less voting rights, depending on the issuing company. For example, a DVR share that carries less than usual voting rights may generate relatively high dividends.

    A publicly traded company that wants to issue DVR shares must go through a postal ballot. There are other caveats as well. But broadly speaking, a company must have a healthy finanical track record if they want to issue DVR shares.

    Direct Public Offerings

    A Direct Public Offering or DPO allows a company to issue shares directly to the public without an intermediary like investment banks. In the process, the company becomes publicly traded.

    The cost of a DPO is known to be relatively low compared to an IPO.

    Furthermore, the issuer of the DPO has control over the issue price while the paperwork and effort involved is also comparatively low. That said, the company must go through proper regulatory procedures during the process.

    Discount Brokers

    Discount brokers are platforms that offer essential stock trading and investment services rather than a full stack of services that may or may not be useful for everyone.

    Discount brokers are discount brokers because their service is priced competitively, meaning the cost of trading and investing may be significantly low than a fullservice broker.

    Discounted Cash Flow

    Discounted cash flow is a method of valuing a company in the present based on future cash flows. An investment may be profitable in the present if the discounted cash flow is above the current cost of investing.

    The formula to calculate discounted cash flows is:

    DCF = Cash Flow Year 1 / (1+r1)^1 + Cash Flow Year 2 / (1+r2)^2 + Cash Flow Year N / (1+r)^n

    Diversification

    Diversification is the act of investing in more than one asset class, sector, industry, or country to mitigate risk. It is an investment strategy designed to reduce risk by pairing a volatile asset class like equities with a fixed income asset class like fixed deposits. Or, by investing in equities in one country and complementing it by investing a portfolio in stocks from another country.

    Dividend Payout Ratio

    The Dividend Payout Ratio refers to dividends paid to shareholders as a percentage of the net income or Earnings Per Share (EPS) of a company. The formula to calculate dividend payout ratio is:

    DPR = Dividend / Net income

    or

    DPR = Dividend / Earnings Per Share

    A higher dividend payout ratio means that a company is redistributing a chunk of its profits to shareholders, which generally implies that the company is well-established.

    Dividend Per Share

    Dividend per share indicates the amount of dividends paid as a ratio of the number of shares outstanding. Or, dividend per share could also refer to the product of earnings per share and dividend payout ratio.

    Thus, the formula to calculate dividend per share is:

    DPS: Total dividend amount / Number of shares outstanding

    Or

    DPS: Earnings Per Share x Dividend Payout Ratio

    An investor can determine how much dividends they stand to earn for each share they own by calculating dividends per share.

    Dividend Reinvestment Plan (DRIP)

    A Dividend Reinvestment Plan is a feature where an investor can reinvest the dividends they earn to buy additional shares or units of a mutual fund, either fractional or whole.

    Stocks and mutual funds offer Dividend Reinvestment Plans. As a result of reinvesting dividends, investors can add more money to their existing holdings for better compounding. That said, dividends that are reinvested are taxable.

    Dividend Stocks

    Dividend stocks are shares of companies that redistribute their profits to shareholders in the form of dividends. Such companies are typically industry or sector leaders with stellar reputations and track records.

    How much dividend a company offers can be calculated with the dividend yield ratio or dividend per share.

    Investors prefer to buy dividend stocks because they can either reinvest the dividends to buy more shares or earn passive income. Examples of dividend stocks in India include:

    • Coal India
    • Indian Oil Corporation (IOC)
    • ONGC
    • SAIL
    • Tata Steel

    Dividend Stripping

    Dividend stripping is a strategy of buying a company’s stock days before it announces a dividend and then selling the same stock at a lower price once the current holder is entitled to get the dividend previously announced.

    The resulting loss in capital gains is generally offset by the profits from dividends. Dividend stripping was once non-taxable, which made the strategy lucrative for smart investors. However, dividends in India are now subject to tax.

    Dividend Yield

    A dividend yield is a ratio of dividends paid per share by the latest share price, expressed as a percentage. It is used to understand how much dividends a company pays per share outstanding. The formula to calculate dividend yields is:

    Dividend Yield: Dividend Per Share / Current Shar Price

    A high dividend yield indicates a company’s willingness to redistribute more profits to shareholders, while a low dividend yield signals the opposite.

    Doji Pattern

    A Doji is a candlestick pattern that is formed when the open and close price of a share or market is identical. The word Doji means indecision in Japanese, which is fitting because the Doji pattern is an indicator of indecisiveness. In terms of appearance, a Doji looks like a cross or like the letter T.

    Donchian Channels

    A Donchian Channel is the area between upper (highest price) and lower (lowest price) bands formed around the median as a result of calculating the moving average of a security’s price over a period of time. Visually, the Donchian Channel will have three lines.

    Draft Offer Document

    A draft offer document is the preliminary version of the IPO document that a company must file with SEBI 21 days before submitting the actual IPO document. The draft offer document is open to the public for comments during the 21 -day period. SEBI may suggest changes to the draft offer document in this period.

    Earnings Per Share

    Earnings Per Share or EPS refers to the amount of profit that a company generates per outstanding share it has in the stock market. It is calculated by dividing the net income of a company by its shares outstanding.

    Formula to calculate Earnings Per Share: Net Income / Number of Outsanding Shares

    Generally, dividends distributed to preferred shareholders are deducted from the net income for EPS calculations. The EPS of a company can thus indicate whether or not it is generating enough profit. It can also be used as a valuation metric.

    EBITDA

    EBITDA is short for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA allows investors to understand cash flow from all operations while excluding certain non-cash expenses related to interest, depreciation, amortization, and taxes.

    That’s why investors use EBITDA as a valuation technique to determine the profitability of a company. Interestingly, EBITDA is a variation of operating income which is known as EBIT.

    While there are many ways to calculate EBITDA, the most common methods include:

    1) EBITDA = Net Income + Taxes + Interest + Depreciation + Amortization 2) EBITDA = Operating Income + Depreciation & Amortization

    EBITDA MARGIN

    EBITDA margin is the ratio of Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by revenue, represented as a percentage. It is used to understand whether a company is profitable and as a valuation technique.

    The formula to calculate EBITDA margin is: EBITDA Margin = (EBITDA/Revenue)*100

    Just like EBITDA, the EBITDA margin also excludes non-cash expenses. That’s why a positive EBITDA margin doesn’t necessarily mean that a company is profitable.

    Enterprise Value

    Enterprive Value is a metric used to determine the total value of a company. It is valuation technique used by companies to understand how much money they need to pay to acquire another company.

    Conversely, Enterprise Value is also used to figure out the amount of money a company can get on selling their business. To calculate the EV of a company, the total market capitalization is combined with the net debt or cash subtracted from debt. The formula to calculate Enterprise Value is:

    EV = Market Capitalization + Net Debt

    Or

    EV = Market Capitalization + Debt - Cash

    Equilibrium Price

    Equilibrium price is achieved when the demand is exactly equal to the supply. It is a state where buyers and sellers have enough goods and services to meet each other’s demands - not more, not less. One could say that equilibrium price is a perfectly balance state in the market.

    Equities

    The term equities can be used to describe two different things. First, equities refers to stocks held by shareholders. Equities of this type represent residual ownership or stake in a company.

    Second, equities are the amount of money shareholders shall receive in the event that a company is liquidated. In such a case, the equities will be calculated by subtracting the total debt from total assets.

    Equity

    Equity is generally defined as a stake or per share ownership in a company. That's why stocks are often called equity or equities. In the broader markets, equity is also used to refer to the total amount of money shareholders stand to get in case a company is liquidated.

    Equity Capital Markets

    Equity capital markets (ECMs) are a place where companies raise money by offering equity shares to financial firms, institutional investors, and retail investors.

    Fund raising of this kind is often done through private placements or Initial Public Offerings (IPOs) in the primary market, which is a part of the ECM. The biggest IPOs in India are all part of the ECM.

    The equity capital market is also a place where shares, futures, options, and other financial instruments are traded. This part of the ECM is known as the secondary market. The stock market is a popular example of an ECM.

    Equity Delivery

    In equity delivery, shares are delivered to an investor’s Demat account after the settlement period. That’s why it is called equity delivery. However, equity delivery is also known as delivery trading and long term investing.

    For example, let’s say you place an order for 10 HDFC shares on Tuesday with a view of holding onto them for the long term. The trade will be settled on Thursday shortly after which the shares will be delivered to your Demat account.

    Equity Market

    The Equity Market is a place where shares are traded, money is raised, and stock is offered to investors. That's why it is divided into two categories:

    • Primary Market: An equity market where shares are offered to investors for the first time through IPOs while fundraising also happens through private placements.
    • Secondary Market: An equity market where shares, bonds, futures, options, more are traded

    The primary market is typically over the counter but may be regulated in the case of exchange traded IPOs. The secondary market is often well-regulated as most securities listed are exchange traded.

    Equity Options

    An equity option gives the holder the right but not the obligation to buy or sell the underyling shares at a pre-agreed price and date. Equity options are derivative contracts that derive value from underlying shares.

    Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.

    Equity Share Capital

    The total amount of money that is raised by a company through the issuance of shares is known as equity share capital. Shares issued could be classified as common or preferred shares, both of which are a part of the equity share capital.

    In general, share capital is known to be the money raised by issuing shares. Companies have the option of raising more equity share capital by issuing additional shares through a Follow on Public Offer (FPO) or other financing methods.

    Equity Shares

    Equity shares is a term used to describe stock of a company that’s issued via an Initial Public Offer (IPO), already issued and traded on the stock market, or freshly available through a Follow on Public Offer (FPO).

    For a company, the goal of issuing equity shares is to raise money while investors who buy these equity shares get perks like voting rights, dividends, and even a share of the assets in case the company is liquidated.

    Equity Trading

    Equity trading refers to the buying and selling of equity shares on the primary and secondary market, either through a stock exchange or over the counter. Trading equity is done in many ways.

    Some equity traders square-off their positions within one trading day. This is called intraday equity trading. Others look to ride price swings across days, weeks, or months. This is known as swing equity trading.

    An individual who wants to engage in equity trading will need to open a trading & demat account. The charge for opening an equity trading account varies but the process is relatively simple.

    European Option

    A European Option allows a trader to exercise the contract only on the day of expiry. For example, let’s say an options trader bought a European Call Option that expires on 01-01-2023.

    The options trader can only exercise the call option, that is, buy the underlying assets on the day of expiry which is 01-01-2023. In India, traders can only engage in European options.

    Ex-Dividend Date

    The ex-dividend date is the trading day on and after which a new buyer of the stock is not entitled to any dividends. Most traders say that a stock has gone ex-dividend when this happens.

    Traditionally, the ex-dividend date is set a day before the record date when a company evaluates its records for existing shareholders. If a trader buys a stock that has gone ex-dividend from a seller, the one who'll get dividends is the seller.

    Exit Load

    Exit load is a type of premature withdrawal fee that mutual funds charge. The goal of charging an exit load is to ensure that investors think twice before exiting a fund, as premature withdrawals can affect existing investors.

    Every mutual fund charges a different exit load based on the discretion of the fund manager. ETFs, liquid funds, and other debt funds typically have little to no exit load whereas equity funds do.

    Expense Ratio

    An expense ratio is a management fee that investors must pay for the services of the fund manager and their team. Mutual funds are handled by fund managers who take care of everyday stock analysis, buying & selling, and other activities. The expense ratio is a fee to compensate for this day-to-day management.

    Exponential Moving Average

    Exponential Moving Average (EMA) is a technical indicator used to follow price trends over a specific period of time. EMA assigns more weight to recent prices than older prices. The formula to calculate EMA is:

    Exponential Moving Average = (K x (CP - PP)) + PP

    C: Current Price of stock, currency, commodity, etc. P: The EMA of preceding periods K: Exponential smoothing constant

    A Simple Moving Average (SMA) is used to calculate the value of the first period. Furthermore, the EMA can be used to identify support and resistance areas. However, it may not be optimal for identifying precise entry and exit points.

    Face Value

    The term face value refers to the actual price of a stock that’s obtained by dividing a company’s net value by its total shares outstanding. In India, the face value of shares can range from Rs. 1 to Rs. 100.

    However, the market value of the share may vary. At times, the difference can be drastic. For example, the face value of an MRF share is Rs. 10 but the market value (LTP) of the same share is Rs. 86,313.45.

    Face value is also known as nominal value or par value. The latter is used frequently in the case of bonds.

    The face value of a bond is the amount that an investor receives from the issuer on maturity. Similar to stocks, bonds and other fixed income instruments may have a different face value and market value.

    Fair Value

    The fair value of a stock, product, or service is the price at which the buyer and seller willingly agree on without being on the losing end of the deal. Think of fair value as a win-win situation for both parties, assuming that all conditions are normal.

    Say Mr. Apple is offered to buy shares of Mr. Orange’s company at Rs. 1000 per share. Mr. Apple evaluates the business and figures out that he can sell the same shares for Rs. 1200, even though Mr. Orange is content to sell the shares at Rs. 200 lower. Both parties agree on the deal at Rs. 1000 because both view it as a good deal.

    The formula for the fair value of a stock or index is:

    Fair Value = Cash * { 1 + r (X / 360)} - D

    Where,

    Cash = Latest stock or index value

    r = interest rate on purchase

    x = number of days to contract expiry

    Dividend = Dividends

    The definition of fair value is slightly different in the futures market. In the futures market, the fair value is reached when the supply meets the demand, which simply means that the spot price is equal to the futures contractprice.

    However, due to inherent volatility of the markets, the price of a futures contract is known to fluctuate around the fair value of a stock or index. Thus, in the fair value in the context of futures is what the price of the contract should be, given the value of the stock or index, dividends, and others.

    Fibonacci Retracement

    A Fibonacci Retracement is a predictive technical indicator that is used to determine possible direction or trend reversal of a stock or index’s price with horizontal lines for potential support as well as resistance levels.

    Fibonacci retracement in action

    The logic behind tuning to a Fibonacci Retracement is the assumption that prices will reverse direction towards a previous price-level, especially after a new trend is in motion.

    Filing

    Fililng is the process of submitting important information and documents to SEBI before an Initial Public Offer (IPO). This term is commonly used when a company submits a Draft Offer Document, Draft Red Herring Prospectus (DRHP), and Final Offer Documents in order to go public.

    The process of filing any document with SEBI before an IPO is done to ensure that a company is completely compliant and transparent. That’s how SEBI ensures that public investors can make informed decisions. Thus, filing is a crucial step in the IPO process.

    Firm Allotment

    Firm Allotment is the process of allocating shares during an IPO to investors who are not considered to be retail public investors. The firm allotment is done as per SEBI guidelines, which dictate that a portion of the IPO can be allocated to the likes of Mutual Funds, regular employees (permanent), and others.

    The complete list of firm allotments for investors by allocation is as follows.

    • Foreign Institutional Investors (FIIs): 30%
    • Development Financial Institutions (DFIs): 20%
    • Mutual Funds: 20%
    • Regular Employees (permanent): 10%
    • Employee of Promoting Company: 10%
    • Lead Bankers: 5%

    Any leftover percentage can be allocated to promoters.

    Flipping

    Flipping is the act of buying and selling an asset quickly to make a profit. The term is commonly used in real estate where an investor buys a property and sells it within a short span of time, say days or weeks, to make a quick buck.

    The real estate investor may flip the property after making small improvements to it, thereby increasing the chance of making potentially lucrative returns. Flipping is also a term used to describe an investor’s actions during an IPO.

    For example, let’s assume Mr. Apple invests in the IPO of Juice & Co. and intends to sell the shares days or weeks after the company’s stock is available on the secondary market.

    The stock soars on the first day of listing, right at the opening bell, and Mr. Apple sells. In such a case, Mr. Apple will have earned potential profits by flipping IPO shares.

    Floating Interest Rate

    The rate of interest that changes across the tenure of a loan, generally every quarter, due to the government’s interest rate, market conditions, and other factors is known as a floating interest rate.

    Personal loans and home loans are typical examples of borrowing that carry a floating interest rate. A point to note here: the floating interest rate is added on top of a base interest rate that is charged by lenders.

    Follow On Public Offer

    A Follow On Public Offer or FPO allows a publicly traded company to issue more stock to public investors. FPOs are similar to IPOs because FPOs allow companies to raise additional capital through the public market.

    For an FPO to be possible, a company must have already done an IPO. FPO shares are typically issued at a discount by a company whose track record is already clear because they are publicly traded.

    Foreign Direct Investment

    Foreign Direct Investment (FDI) is the act of acquiring a majority stake in a company located in a different country with the intention of assisting, growing, and managing the business.

    FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.

    A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies

    Foreign Portfolio Investment

    A Foreign Portfolio Investment includes stocks, bonds, ETFs, derivatives, and other financial instruments from another country. Generally, FPIs do not give an investor the right to ownership or a controlling stake in any organization. Instead, FPIs act as a passive income vehicle. That’s why FPIs are different to Foreign Direct Investment (FDI) in which an ownership stake is acquired with the intention of controlling and influencing business decisions.

    Forex Futures Trading

    Forex futures trading is the buying and selling of exchange-traded futures contracts for currency pairs . A forex futures contract gives the holder the right and the obligation to buy or sell a pair of currencies at a predetermined price and date. The important components of forex futures trading include:

    • Forex pair: the currency you will buy in exchange of the other at the end of the futures contract
    • Lot size: the value of the currency included in the contract
    • Contract price: the price at which the futures contract is trading
    • Spot price: the latest forex rate for the currency pair, different from the contract price
    • Margin: the amount of money you’re required to deposit with your currency trading platform
    • Tick size: the minimum amount by which a forex futures contract can move, which is Rs. 0.0025 in India
    • Expiration date: the preagreed day on which the contract must be excercised or squared off

    Forex futures trading in India is possible through three exchanges: NSE, BSE, and MSE. The forex futures contracts are standardized derivatives that can be traded between 9.00 AM to 7.30 PM. Forex futures in India are cash settled, meaning profits or losses are settled in INR while the base currency is not delivered.

    Forex Options

    Forex options are exchange-traded derivative contracts that give the right but not the obligation to buy or sell a pair of underlying currencies at a pre-agreed price and date. Forex options are also known as currency options.

    Every forex option can be split into a call or put option. A forex call option gives the holder the right to buy underlying forex pairs while a forex put option gives the holder the right to sell underlying currency pairs.

    In either case, there is no obligation to exercise the contract but there is a pre-agreed price and expiration date attached. In India, forex options are only available for the USD-INR currency pair.

    Forex Trading

    Forex trading means buying and selling currency pairs through exchange-traded derivatives or on the OTC market. A currency can only be bought and sold in exchange for another currency, which is why forex trading is always done in pairs.

    Trading forex derivatives is carried out on stock exchanges authorized by regulatory bodies (SEBI & RBI), in tandem with approved brokers who allow users to engage with the forex futures trading and options trading markets.

    Forward Market

    The forward market is a place where forward contracts are traded. A forward is an over-the-counter derivative that carries a pre-agreed expiration date and price on which the contract must be exercised. It carries a right and an obligation.

    Forwards are similar to futures but there is one major difference - forwards are unregulated instruments. Any entity writing a forward contract can customize the lot size and other details to fit their needs.

    The forward market, as a whole, is an unregulated market whose typical participants include banks, vendors, and other large financial players.

    Forward Price

    The forward price is the final value at which a forward contract is exercised, that is, delivered to the buyer by the seller. It is different from the spot price of the underlying asset as it includes the cost of carry like interest rates, storage cost, and other carrying charges. The formula to calculate forward price is:

    Forward price: Spot Price − Cost of Carry (storage costs, interest rate, etc)

    Founders Stock

    The term founders stock refers to shares issued to the founders of a company. This type of stock is issued at face value and carries a vesting period, which is a lock-in period during which the shares cannot be sold.

    During this period, the founders stock may not earn any returns, unless there are dividends attached to it. Founders stock is not an accounting term - it is used colloquially to denote the shares issued to founders.

    Free Cash Flow

    In accounting and earnings reports, free cash flow refers to the amount of money a company has after paying its maintenance expenses, salaries, utility expenses, and other operating expenses as well as capital expenditures.

    The formula to calculate free cash flow: Operating Cash Flow − Capital Expenditures

    Free cash flow is an important metric, especially for investors because it is a direct indicator of the financial competence of a company. For example, the amount of FCF a company has can decide whether it has enough cash to offer dividends, expand business, buy back shares, etc.

    Free Cash Flow

    Free float market capitalization is the market cap of a company based on the total freely available publicly traded outstanding shares. The formula to calculate free float market capitalization is:

    Free float market capitalization = Share Price x (Number of Shares Available for Trading – Private and Locked-In Shares)

    When calculating the free float market cap of a company, the number of shares held privately or the shares that are locked-in are not taken into account. Typically, these shares are held by promoters and the government.

    Free Float Market Capitalization

    Full market capitalization is the market value of the total shares outstanding issued by a company, including public and private stock. This includes stock that’s locked-in and unexercised. That’s why full market capitalization is also referred to as total market capitalization.

    Futexagri

    Futexagri refers to the commodity index of futures on NCDEX that’s equal-weighted, meaning all components have equally proportional weights assigned to them, comprised of the futures contracts of the most recent month.

    Future Trading

    Futures trading is the buying and selling of futures contracts on a recognized exchange or over the counter. Futures contracts are derivatives that oblige a trader to buy or sell the underlying security at a predetermined price and date.

    Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.

    Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.

    Futures

    Futures are derivative contracts that serve as an agreement and obligation between two parties to buy or sell underlying securities at a pre-agreed price and date. Underlying securities in futures can be stocks, bonds, interest rates, currencies, and commodities.

    Futures and Options

    Futures and options are derivative contracts that derive their value from one or more underlying financial securities like stocks, bonds, interest rates, currencies, and commodities.

    Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.

    Futures Contract

    A futures contract is a derivative instrument that is legal agreement between two parties for the mandatory purchase or sale of an underlying asset at a pre-agreed price and date.

    Every futures contract contains a standard lot size on top of the agreed price and date as they are a standardized derivative traded on a stock exchange, most commonly on NSE and BSE.

    The price of a futures contract is known to vary from the spot price of the same underlying asset due to factors like the cost of carry, interest rates, and more.

    Futures Expiry

    Futures expiry is the date on which the derivative contract’s terms and conditions must be fulfilled. Alternatively, it’s the day on or before which the trader must square-off their futures contract to avoid delivery. In India, futures expire on the final Thursday of the expiry month.

    Gamma

    Gamma is a mathematical formula used to measure the change in the delta of an options contract price.

    Delta is the change in the price of an options contract in relation to the underlying asset’s price.

    In simple terms, gamma can be called as the change of the change. The formula to calculate gamma of an options contract is: Γ = ∂2V/∂S2

    Go Public

    To “go public” or going public means to get listed on the stock market by launching an Initial Public Offering (IPO). The act of going public involves receiving approval from existing stakeholders to launch an IPO, the price of which is decided by two methods:


    Once the price of the IPO is decided, the shares are offered to the public on the primary market. Not everyone who applies to an IPO may get shares - the system works on the basis of allotment. After the shares are issued, the company is said to move from the “go public” stage to the publicly traded company stage.

    Gold ETF

    A gold ETF is an exchange-traded fund that invests in gold bullion. Every unit of a gold ETF is backed by one gram of gold of assured purity that is held in the physical or demat form (digital).

    Gold ETFs combine the lucrative value of gold with the liquidity of stocks. Thus, gold ETFs track the price of gold bullion and are traded on stock exchanges like NSE and BSE.

    Gold Futures

    Gold futures are commodity derivatives that derive their value from gold bullion. A trader who buys a gold futures contract acquires the right and obligation to buy gold at a later date and price that’s pre-agreed. Gold futures in India are eligible for physical delivery once the terms of the contract are successfully fulfilled.

    Government Bonds

    Government bonds are debt instruments that allow the central banks to raise capital to finance operations. The types of government bonds are:

    • Treasury Bills
    • Fixed Rate Bonds
    • Floating Rate Bonds
    • State Development Loans
    • Sovereign Gold Bonds
    • Zero Coupon Bonds

    Every government bond has a credit rating that’s based on the financial health of the country. The government is the apex institution of any country, which is why their credit rating is the high.

    In India, you’ll notice government bonds with the credit rating SOV. This is known as a sovereign rating.

    Gravestone Doji

    A Gravestone Doji is a candlestick pattern that signals the reversal of a bullish trend into a bearish one. The key marker of a Gravestone Doji pattern is the open, low, and closing prices being near to one another.

    This is a price action type trading strategy that is formed with a tall upper shadow, which is a signal of a bearish reversal.

    Grey Market

    The grey market is an unofficial yet legal marketplace where unlisted or soon-to-be-listed securities are traded.

    By definition, the grey market is an over-the-counter market because of the lack of regulation and structure.

    Underwriters of an IPO gauge market demand for a share by analyzing the grey market premium for it before going public.

    Gross Domestic Product

    The Gross Domestic Product is an economic measure of the financial value of all goods and services produced by a country during a specific time period.

    Growth Stocks

    Growth stocks are shares of companies that have the potential to outperform the market. These are stocks can grow faster than the market due to strong fundamental characteristics like a strong balance sheet, high Earnings Per Share, solid P/E, and more that can bolster its profits in the medium to long term.

    Hammer Candlestick Pattern

    A Hammer Candlestick pattern occurs when a stock, commodity, or currency opens much lower than its previous closing price but moves close to or above the the same price at the close. The pattern looks like a hammer, hence the name “Hammer Candlestick”.

    The candlestick can be read as follows:

    • The main body shows the difference between the financial security’s opening and closing price.
    • The wick (shadow) of the candlestick shows the high and low prices of the security for the day.

    Hard Underwriting

    A hard underwriting occurs when the underwriter agrees to buy their share of stock before the IPO opens. This is known as hard underwriting because in a regular underwriting process, the underwriter is liable to buy all unsold shares after the issue opens.

    Hedging

    Hedging is a risk management technique where potential loss is offset by securing a safer, more stable trade. For example, buying stock (risky) and offsetting the risk with commodity (stable) is a common hedging practice in the securities market.

    In the derivatives market, hedging is followed by merchants and businesses who want to protect against adverse price movements in commodities or currencies. They do so by entering into a futures or options contract.

    High Beta Stocks

    High Beta stocks are shares that outperform the market in terms of returns but carry high risk. Such shares are called “High Beta” because of their significantly high Beta Coeffient value, which measures the correlation of a stock and the market. A Beta value on the high side typically indicates more volatility and the potential for higher returns.

    High Dividend Yield Stocks

    High Dividend Yield Stocks are shares of companies that generate above average dividends on top of regular market-based returns. These shares are known to be valued highly because they generate passive income as well as capital gains.

    High Volatility Stocks

    High volatility stocks are shares that fluctuate based on market conditions, typically more than others. The volatility could be a result of inherent fundamentals or other factors like the industry or domain. Identifying high volatility stocks is possible through indicators like Average True Range and Bollinger Bands.

    Holding Company

    A holding company is a parent organization that holds a controlling interest in one or more subsidiary companies. The goal of a holding company is not to create products or services but to hold financial securities, typically in the form of equity, in other companies that create products or services. For example, Raise Financial Services is a holding company while Dhan is its subsidiary.

    Holding Period

    The holding period of a financial security is the time period between buying and selling the said security. It is the total amount of time for which the security has been held in the portfolio of an investor. At times, there’s a mandatory holding period attached to a security. During this mandatory holding period, the security can not be sold.

    Holdings

    Holdings are the financial assets in the portfolio of an investor or company. They can include stocks, bonds, derivatives, commodities, currencies, and more.

    Iceberg Order

    An Iceberg Order is used to slice and execute large orders into multiple “legs”. Large orders have the potential to drastically affect stock prices and subsequently investor behaviour.

    That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.

    Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.

    Ichimoku Cloud

    Ichimoku Cloud is a group of technical indicators that’s used to understand trends, momentum, support, and resistance by calculating averages. Furthermore, the Ichimoku Cloud indicator is made up of two components:


    • TenkanSen: The short-term indicator
    • KijunSen: The long-term indicator

    There’s a cloud that’s formed as a result of plotting the averages and using the components on a chart. One glance at this cloud can tell you multiple things like:


    • Uptrend: If the price is above the cloud
    • Downtrend: If the price is below the cloud
    • Neutral: If the price is in the cloud

    Moreover, if the cloud and the price are moving in the same direction, there’s much more confidence in the trend that’s forming. In fact, it’s a trading signal.

    Ichimoku Kinko Hyo

    Ichimoku Kinko Hyo is a combination of 5 lines that’s used to understand trends, momentum, support and resistance. The 5 lines include:

    • Tenkan-sen
    • Kijun-sen
    • Senkou span A
    • Senkou span B
    • Chikou span

    Identifiable Asset

    An identifiable asset is a tangible or intangible asset that be assigned a fair value at any point in time. This concept is important during acquisitions and mergers as not all assets on a company’s balance sheet can easily be valued.

    Simple examlpeps of identifiable assets include machinery. You can easily identify machinery as a separate entity and assign it a value based on various factors.

    Illiquid Asset

    An illiquid asset is something of value that can not be exchanged for cash easily. Although an illiquid asset may have value, you will not be able to find buyers for it readily. As a result, illiquid assets are typically sold at a significant discount or worse, lose value and expire.

    Implied Volatility In Options

    Implied volatility in options is a measure of the expected volatility of the underlying stock over the period of the options tenure. You could say that an option’s premium is related to the implied volatility - the change in the underlying share’s value over time affects the share price. In fact, the implied volatility rises when the options premium rises.

    Income Statement

    An income statement of a company is a document that displays crucial financial information like profit, loss, revenue, expenses, taxes, and more. Income statements are logically divided and published in monthly or quarterly manner for better accounting and financial modelling. A combination of these statements is what you see as the quarterly or annual report published by publicly listed companies.

    Income Stocks

    Income stocks are shares of companies that help you earn a steady income, typically in the form of dividend payouts. At the same time, income stocks are known to have lower risk compared to others and thus, relatively decent returns over a period of time. But the consistently growing dividend yield makes up for the perceived lack of returns.

    Index Arbitrage

    Index arbitrage is the method of generating returns by trading the difference between the same or different indices that have a standard value but has diverged momentarily. The way one does index arbitrage can vary as it is possible to trade indices via ETFs, Options, Futures, and more.

    Index Futures

    Index futures are derivative instruments that track an underlying sectoral, thematic, or benchmark index like Nifty Bank, Finnifty, Nifty 50, and others. While trading index futures, a trader avoids individual share risk by trading an entire index.

    India VIX

    India VIX is an index that measures volatility and market sentiment. The term VIX stands for Volatility Index and thus, the full form of India VIX is Indian Volatility Index.

    A higher India VIX means higher volatility whereas India VIX would be lower due periods of low volatility. In fact, there are absolute values that help understand volatility via India VIX.

    India VIX typically moves between 15 to 30, which represents a range that is considered “normal” as far as volatility is concerned.

    However, India VIX has touched 90 during the 2008 financial crisis and trended near the value once again when the pandemic broke out in 2020.

    Indices

    Indices are a collection of financial instruments that measure the performance of those very instruments.

    For example, stock market indices like Nifty 50 and Sensex measure the top 50 and 30 stocks by market capitalization.

    If indices go up, it generally means that the underlying stocks are performing well. The opposite is true when indices plummet.

    By the way, there’s no limit to how many instruments an index can track. The Nifty Smallcap 250 tracks 250 stocks whereas Nifty Bank tracks 12 stocks.

    Industry Analysis

    Industry Analysis is a method of understanding the level of competition, potential profit/loss, supply and demand cycle, & other crucial factors within an industry.

    Inflation

    Inflation is defined as the rise in the price of goods and services with a declining purchasing power amongst the general population. The primary cause of inflation is a surge in demand that can not be met with the same level of supply.

    Information Ratio

    Information Ratio (IR) compares the returns generated by an asset adjusted for risk compared to a benchmark. IR helps you identify the level of consistency with which a fund or fund manager performs over time. This can help you compare fund managers who follow a similar investment strategy.

    Insider Trading

    Insider trading refers to the often illegal act of trading shares based on information that is not publicly available, typically obtained through dubious sources.

    This privileged access to confidential information is termed “insider trading” because information is generally sourced through insiders or employees working at a publicly traded firm.

    Institutional Investor

    Institutional Investor refers to the often illegal act of trading shares based on information that is not publicly available, typically obtained through dubious sources.

    This privileged access to confidential information is termed “Institutional Investor” because information is generally sourced through insiders or employees working at a publicly traded firm.

    Interest Coverage Ratio

    Interest Coverage Ratio (ICR) is used to determine the likelihood of a company’s ability to pay interest on existing outstanding debt. A low ICR typically indicates that a company is less likely to pay interest.

    In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.

    Interest Rate Futures

    Interest rate futures are derivative contracts whose underlying instrument is any instrument that bears interest.

    Just like any other futures contract, interest rate futures also give the right and obligation to fulfil the terms of the contract on expiry.

    The price of interest rate futures and the interest rate itself shares an inverse relationship. If interest rates move higher, then the futures will be less valuable.

    Interest Rate Risk

    Interest rate risk refers to the probable decline in the value of a fixed income security because of a fluctuation in the interest rate. Fixed income securities lose value when interest rates rise whereas a bond or other debt instruments become more valuable when interest rates fall. Equity shares and securities do not carry interest rate risk.

    Internal Rate Of Return

    Internal Rate Of Return (IRR) is used to measure the compound annual return generated by a financial asset. IRR is a tool in Discounted Cash Flow financial analysis that operates by bringing the Net Present Value (NPV) of cash flow to zero. That’s why IRR can be used to compare a variety of financial assets from the equity market or bond market to real estate.

    Intraday Trading

    Intraday trading refers to the buying and selling of financial instruments within the same day. There is no delivery involved in intraday trading as a result. Equity shares are the most popular instrument for intraday day but commodity options and forex futures trading also make it to the list.

    Intrinsic Value Of Share

    Intrinsinc value of a share is the actual value of a stock, not the value at which it is trading in the secondary market. There are multiple ways to calculate the intrinsic value of a share. The most common method include discounted cash flow while adjusting the time value of money to calculate the present value of the stock is also a popular method.

    IPO

    An IPO or Initial Public Offering is the method in which a privately held company becomes a publicly listed company. Existing shareholders must approve the IPO plan before the company can go public. Once shareholders approve, the company will either hire an intermediary or go for a Direct Public Offering, the result of which will be the determination of a price for the new equity shares that will be listed in the primary market.

    Iron Condor

    The Iron Condor is an options trading strategy wherein the trader will buy two calls and two puts each with different strike prices but the same expiration date. It is a version of the Butterfly Option Strategy. If the underlying asset averages out or in other words, closes between the middle strike prices, then the Iron Condor generates the maximum profit.

    Irredeemable Debentures

    Irredeemable debentures are debt instruments that can not be sold unless the company is sold or shuts up shop. Those who hold irredeemable debentures will be paid an interest as long as the company operates its business.

    Issue Price

    The issue price is the price at which a company sells its newly issued shares during an IPO. The company that is set to go public will conduct thorough market analysis before deciding the issue price.

    Issuer

    An issuer is the company that sells its shares to the public for the first time via an IPO. Investors can buy the freshly issued shares from the issuer by meeting the issue price. Large Cap Stocks

    Lead Underwriter

    The lead underwriter is a financial institution that is in charge of ensuring that an IPO is successful on the primary market. Companies may also hire lead underwriters to carry out a FPO.

    Leverage In Stock Market

    Leverage is a loan that a broker offers to allow traders to take up bigger positions by paying lesser capital. This feature is known as Margin Trading Facility (MTF) or simply margin funding. Leverage is often represented as a multiple like 2x, 3x, 4x, and so on. For example, getting 4x leverage on a trade worth ₹1,00,000 means you’ll pay ₹25,000 and the broker will cover the rest of the ₹75,000.

    Liabilities

    Liabilities are debt that a company owes to individuals or financial institutions in the form of bonds, debentures, salary, tax, and others.Liabilities play an important role in the balance sheet of a company as it signals competence to existing and prospective stakeholders.

    Limit Order

    A limit order is an instruction that specifies the price at which a financial security should be bought and sold known as the limit price. The broker will execute the order only if the limit price is met. But there is no guarantee that a limit order will be executed since it is essentially in queue.

    Liquidity

    Liquidity determines the ease with which an asset can be sold in exchange for cash at or around its current market price. Liquidity is also used in the context of businessess, where the term indicates the company’s ability to secure loans to fulfil short term debt obligations or to sell its assets and procure cash in exchange.

    Liquidity Ratio

    The Liquidity Ratio is a tool in financial analysis for measuring a company’s ability to fulfil short-term debt obligations without the need to secure external financing. The key term here is liquidity.

    Liquidity Risk

    Liquidity Risk is the potential inability of a company to fulfil its debt obligations. It also refers to the lack of liquidity that an equity share of other financial instruments like commodity futures may carry.

    Liquidity Trap

    A Liquidity Trap is an economic event where the general public stashes cash in their bank savings account instead of investing in bonds because of the assumption that a rise in interest rates is imminent, even though interest rates are low.

    Listing

    Listing is the process of a private company making its shares available for trading to the public on a recognized stock exchange. To do so, the company meet regulatory requirements and checks. Getting approval means going public and welcoming bids from potential investors.

    Listing Date

    The listing date is the specific date on which a company's shares are available for trading & investing on a stock exchange, in the secondary market. You could say that the listing date marks the beginning of the company's journey as a publicly traded entity.

    Lock In

    Lock-in is the period during which you can not sell shares or other financial instruments. The purpose of a lock-in is to ensure that the price and liquidity of the instrument do not take a sudden nosedive. Lock-in is commonly applied to shares held by promoters or major shareholders. You may have heard the term while investing in mutual funds as well, where it is used in reference to close-ended funds and ELSS funds.

    Long Strangle

    A long strangle is an options strategy involving the purchase of both a call option and a put option on the same underlying asset with the same expiration date. The strike price of the call option is typically higher than the current market price, while the strike price of the put option is lower. Long strangles are used to generate a profit regardless of the underlying’s price direction.

    Long-Term Capital Gain Tax

    Long-term capital gain tax is the tax imposed on profits from selling shares or financial securities held for a period of at least three years. The tax rate applied is typically lower than the short-term capital gains tax, which are profits from the sale of shares held for a shorter duration.

    Long-Term Stocks

    Long-term stocks are shares of companies that investors hold for three years or more with the intention of getting lucrative returns combined with solid future prospects. Long-term stocks are typically chosen based on fundamental analysis, including factors such as the company's financial health, growth potential, competitive advantage, and industry trends.

    Lump Sum

    Lump sum refers to a one-time, single payment made in a single installment, as opposed to a series of smaller periodic payments. It commonly refers to a large sum of money paid at once, like a mutual fund investment or a share market investment, rather than spread out over multiple payments like SIPs.

    MACD

    MACD (Moving Average Convergence Divergence) is a technical indicator used to identify entry or exit signals when trading stocks, futures, options, and others. MACD consists of two lines as follows: MACD line Signal line The MACD line represents the difference between two exponential moving averages, while the signal line is a moving average of the MACD line.

    Margin Funding

    Margin funding is a feature offered by brokers that allows users to borrow funds from the broker to increase purchasing power for trading or investing in financial markets. Margin funding is effectively a loan and as a result, there’s collateral to be pledged in the form of shares either already owned to about to be bought. Thus, margin funding amplifies profit and loss.

    Margin Trading

    Margin trading is a strategy that involves borrowing funds from a broker to take bigger positions in stocks, commodities, currencies, futures, or options.


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    *All securities mentioned on this website are exemplary and not recommendatory.

    We are bullish on India, we are bullish on India's prospects to be one of the largest economies in the world. We believe that the stock market provides a unique opportunity for all of India's traders and investors to participate in the growth story of the country.

    Yet, most investing & trading platforms in India have remained more or less the same over the past decade. Times have changed and retail traders and investors have become smarter about managing their trades and money. Modern traders & investors require an online trading platform that helps them keep up with the technological advancements of our time.

    That's why we're building Dhan - to help you trade, to help you invest, and to help you participate in India's growth stock via the stock market with awesome features and an incredible experience.

    ©2021-2024 Moneylicious Securities Private Limited. All rights reserved. CIN - U74999WB2012PTC184187 Moneylicious Securities is part of Raise Financial Services.

    SEBI Stock Broker Registration No: INZ000006031 | Depository Participant (CDSL) ID: IN-DP-289-2016
    Exchange Membership No. : NSE: 90133 | BSE: 6593 | MCX: 56320
    Registered Office: Office No. 14D, 4th Floor, Shri Krishna Chambers, 78, Bentick Street, Kolkata - 700001, West Bengal, India.
    Corporate Office: A-302, The Western Edge I, Off Western Express Highway, Borivali East, Mumbai - 400066, Maharashtra, India. Land Line: 022-43116666.


    For any query / feedback / clarifications, email at help@dhan.co.

    In case of grievances for any of the services rendered by Moneylicious Securities Private Limited, please write to grievance@dhan.co (for NSE, BSE and MCX) or grievancedp@dhan.co (for Depository Participant). Please ensure that you carefully read the Risk Disclosure Document as prescribed by SEBI, our Terms of Use and Privacy Policy. Compliance Officer: Mr. Manish Garg and Mobile: 8655740961 Email: complianceofficer@dhan.co To lodge your complaints using SEBI SCORES, click here.


    Procedure to file a complaint on SEBI SCORES: Register on SCORES portal. Mandatory details for filing complaints on SCORES: Name, PAN, Address, Mobile Number, E-mail ID. Benefits: Effective Communication, Speedy redressal of the grievances


    Disclaimer: Investment in the securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed the SEBI prescribed limit


    Attention investors:

    1. Stock brokers can accept securities as margins from clients only by way of pledge in the depository system w.e.f September 01, 2020.
    2. Update your e-mail and phone number with your stock broker / depository participant and receive OTP directly from depository on your e-mail and/or mobile number to create pledge.
    3. Check your securities / MF / bonds in the consolidated account statement issued by NSDL/CDSL every month.

    Note: As a policy we do not give stock tips or recommendations and have not authorized anyone to give this on behalf of us. If you know anyone claiming to be a part of Dhan / Moneylicious / Raise or our associate companies or partners and offering such services, please report us on help@dhan.co. Important Information for Investors: To prevent unauthorized transactions in your trading / demat account, do not share your account details, credentials or any personal details with anyone. Keep your mobile number updated with your Stock Broker, Depository Participant and ensure that the same is registered with Stock Exchanges, Depository and KRAs. You will receive alerts and information on your registered mobile number / email for debit and other important transactions in your demat account directly from CDSL / Exchange on the same day. KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (Stock Broker, DP, Mutual Fund, etc.), you need not undergo the same process again when you approach another intermediary. No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account. This is issued in the interest of investors.


    Moneylicious Securities Private Limited also known as Dhan is only an order collection platform that collects orders on behalf of clients and places them on BSE StarMF for execution. Client expressly agrees that Dhan is not liable or responsible and does not represent or warrant any damages regarding non- execution of orders or any incorrect execution of orders with regard to the funds chosen by the client or due to, but not being limited to, any link/system failure, delay in transfer of the funds on account of any unforeseen circumstances/issues in the banking system/payment aggregators or any other problems that may result in a delay in crediting the funds into the BSE Star MF's bank account.


    Mutual fund investments are subject to market risks, read all scheme related documents carefully before investing. Dhan is not a distributor or agent of any mutual fund. Mutual Funds are not exchange-traded products. Any related disputes will not have access to the Exchange-investor redressal forum or arbitration mechanism. For other disclaimers please refer https://dhan.co/advertisement-disclaimer/


    Download client registration documents (Rights & Obligations, Risk Disclosure Document, Do's & Don'ts) in vernacular language: BSE | NSE | MCX


    Kindly, read the Advisory Guidelines of BSE | NSE | MCX for investors as prescribed by the exchange with reference to their circular dated 27th August, 2021 regarding investor awareness and safeguarding client's assets


    Important Links: SEBI | BSE | NSE | MCX | CDSL | SCORES | ODR Portal | Investor Charter for Stock Brokers | Investor Charter for DP | UCC Advisory | e-Voting for Shareholders

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