Lexis of Stock Market
by C S Kannan S
Readers are invited to send questions referring to specific words used in stock market.
Did you know…!
The Amsterdam stock exchange (now part of the Euronext exchange) first listed shares in 1602. The first stock to be traded was that of the Dutch East India Company, a multinational mega-corporation granted a monopoly by the Dutch government to conduct trade with Asia. The company operated for almost two centuries, paying out an 18% annual dividend for almost the entire time.
A participant in one of the Investors’ Awareness Program asked what is meant by ISIN? I thought it is apt to discuss it in these columns. ISIN refers to “International Security Identification Number”. Every company has a name approved by the Registrar of Companies. The name is the identification mark for physical documents whereas when the transactions happen in electronic mode, the systems needs a unique reference system to identify a company. Such a system is achieved by introduction of ISIN. ISIN is used frequently by the investors and traders to identify the stocks in the securities market
ISIN is a 12 character alpha-numeric code that uniquely identifies a security. An ISIN uniquely identifies a security, such as stocks, bonds and more. ISIN is issued by National Numbering Agency (NNA), designed by ISO (International Organization Of standardization). In India, SEBI acts as NNA.
The first two characters represent country code. The third digit is for identifying the issuer type. The next four characters represent company identity. Here, the first 3 characters are numeric. The fourth character is alpha character. The next two characters represent security type for a given issue. The next two characters are serially issued for each security of the issuer entering the system. Last digit is double-add-double check digit (4).
What is BTST (Buy Today Sell Tomorrow)?
BTST is the short form of Buy Today Sell Tomorrow. Generally when an investor buys a stock in the stock market, the same could be sold only after getting the delivery of the securities into the demat account of the investor. The time of delivery of stocks purchased will vary based on the delivery period of the Exchange. In the process, if there is a considerable changes in the prices of the stock, it would be not possible for the trader to book profit or stop loss by selling them. To help the traders to enjoy better liquidity, BTST is introduced where in the trader will be able to sell the shares that he has purchased even before he receives the delivery of the shares from the Exchange. He will not have to wait till the time he receives the delivery from the Exchange. This facility is provided by few brokers as a customer focussed, customer retaining measure.
What is AMO (After Market Order) ?
In India the trading in stock exchanges starts at 9.15 AM and closes at 3.30 PM between Monday and Friday. No trading happens on Saturday and Sunday. To enable the investors who are otherwise unable to connect with the market during its live sessions, a facility is provided by certain brokers to place an order beyond the regular trading hours. This facility is called After Market Order.
Derivative means a byproduct. In the stock market when certain assets like stocks, bonds, currencies, interest rates, commodities and market indices are held, against the value of such underlying assets trading is done in such securities. The Derivatives are classified as Future Contracts, Forward Contracts, Options, Swaps and Credit Derivatives. This provides a good leverage opportunity and is a great tool for speculation. What are the options available under derivatives?
What is Futures:
In futures trading, a trader can take buy/sell positions in index or stock(s) contracts having a longer contract period of up to 3 months. If, during the course of the contract life, the price moves in favor of the trader i.e. rises in case the trader has a buy position or falls in case the trader a sell position), the trader makes a profit.
What are Options?
An option is a contract, which gives the buyer the right to buy or sell shares at a specific price, on or before a specific date. For this, the buyer has to pay to the seller some money, which is called premium. There is no obligation on the buyer to complete the transaction if the price is not favorable to him. To take the buy/sell position on index/stock options, the buyer has to place certain % of order value as margin. With options trading, the buyer can leverage on the trading limit by taking buy/sell positions much more than wha tthe buyer could have taken in cash segment.
What is Call Option?
The trader has the Right but not the Obligation to Purchase the Underlying Asset at the specified strike price by paying a premium whereas the Seller of the Call has the obligation of selling the Underlying Asset at the specified Strike price. Such an option is referred to as Call Option.
What is Put Option?
The trader has the Right but not the Obligation to Sell the Underlying Asset at the specified strike price by paying a premium whereas the Seller of the Put has the obligation of buying the Underlying Asset at the specified Strike price. Such an option is referred to as Put Option.
By paying lesser amount of premium, a trader in the stock market can create positions under OPTIONS and take advantage of more trading opportunities.
… to be continued
In the previous issues, we have seen various types of markets, investors and traders. Stock Market is an inclusive place where you will find several and different players operate at different levels. The kinds of securities dealt in also differ. Let us see some more important phrases regularly used in the Stock Market.
Averaging: In a falling market, the investor is required to ensure that the value of his investment is relatively kept low to reduce the losses. In the process, the investor keeps buying more shares of the same company as the price falls. This helps to average out the total investment as the price falls.
Beta: It is a method of measuring the relationship between the prices of a stock as compared to the movement of the market itself. For example, if the shares of a ABC Ltd., is measured to have a beta of 2, it means that for every point of movement in the market, the stocks of ABC would move 2 points. It is equally true in a falling market.
Blue Chip Stocks: Well managed, highly professional, good dividend yielding and highly investor friendly with good management and corporate governance practices are known to be blue chip companies and their stocks are known as blue chip stocks.
Stock Broker: A SEBI registered firm/individual who is permitted to deal in the stock market as the Broker between buyers and sellers for a fee. The fee collected by the broker is called brokerage. Stock Broker is one of the intermediaries in the market.
Dividend: A share in the profits of the company shared with the shareholders of the company is called as dividend. For the investor in the shares, it is an earning on such investment. Generally dividend is paid by the profit making companies once in a year. Based on the profits, the companies may also declare dividend on quarterly or half year basis more known as Interim Dividend.
Portfolio: Portfolio generally refers to a bunch of investments made by the investor in various types of companies. It also indicates the types of industries the investor preferred his investment which helps analyzing the performance of the investment.
Quote: Refers to the current trading price for any given shares which includes both buy quote and sell quote. With the usage of advanced technologies and live trading, investors are guided by the live quotes which determine the actual movement of the market. Quote also guides the investors whether to invest or not and if yes, how much.
Sector: Sector indicates the group to which a particular stock is related to. For example, Infosys, Wipro, TCS are grouped as IT companies hence, the stocks of these companies will fall under IT Sector. Similarly, stocks of listed banks would fall under the Banking Sector.
Each company listed in the stock exchange is referred to through a stock symbol either through a short name or through a number. This is called as Stock Symbol. For example, WeP Solutions Limited, a BSE listed company is referred to as “WEPSOL” and its Code is 532373. All the transactions in the market happens using the stock symbol.
Volume: Trading keeps happening in the stocks of a listed entity. The total number of shares of the company that are sold and purchased on a particular day refers to the volume of trade. Volume of trade also indicates the desire of the investors to own or to divest in the shares of the particular company.
… to be continued