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Indices

Definition of 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.

Related Terms

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.

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

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.

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.

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

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.



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