Commonly Used Jargons

Commonly Used Jargons

The objective of this chapter is to help you learn some of the common market terminologies, and concepts associated with it.

Bull Market (Bullish) –

if the stock market index is going up during a particular time period, then it is referred to as the bull market.

Bear Market (Bearish) –

if the stock market index is going down during a particular time period, then it is referred to as the bear market.

Trend - A term ‘trend’ usually refers to the general market direction, and its associated strength. For example, if the market is declining fast, the trend is said to be bearish. If the market is trading flat with no movement then the trend is said to be sideways.

Face value of a stock – Face value (FV) or par value of a stock indicates the fixed denomination of a share.

Usually when dividends and stock split are announced they are issued keeping the face value in perspective. For example the FV of Infosys is 5, and if they announce an annual dividend of Rs.63 that means the dividend yield is 1260%s (63 divided by 5).

 52 week high/low – 52 week high is the highest point at which a stock has traded during the last 52 weeks (which also marks a year) and likewise 52 week low marks the lowest point at which the stock has traded during the last 52 weeks.

if a stock reaches 52 week high, then it indicates a bullish trend for the foreseeable future. Similarly if a stock has hits 52 week low, some traders believe that it indicates a bearish trend for a foreseeable future.

All time high/low – This is similar to the 52 week high and low, with the only difference being the all time high price is the highest price the stock has ever traded from the time it has been listed.

Long Position – Long position or going long is simply a reference to the direction of your trade. For example if you have bought or intend to buy Biocon shares then you are said to be long on Biocon or planning to go long on Biocon respectively.

Short Position – 

You sell the stock at Rs.425, and 2 days later assuming the stock trades at Rs.405, you buy it back.If you realize the first leg of the trade was to sell at Rs.425, and the second leg was to buy the stock at Rs.405. This is always the case with shorting – you first sell at a price you perceive as high with an intention of buying it back at a lower price at a later point in time.

To sum it all up...

a.When you short, you have a bearish view on the stock. You profit if the stock price goes down. After you short, if the stock price goes up, you will end up making a loss

b.When you short you essentially borrow from another market participant, and you will have to deliver these shares back. You need not worry about the mechanics of this. The system will ensure all this happens in the background

c.Shorting a stock is easy – either you call your broker and ask him to short the stock or you do it yourself by selecting the stock you wish to short, and click on sell

d.For all practical purposes, if you want to short a stock, and hold the position for few days, it is best done on the derivatives markets

e.When you are short, you make money when the stock price goes down. You will make a loss if the stock price goes up afer you have shorted the stock.To summarize long and short positions as per table 8.1 in the following page........

 

Square off -

 Square off is a term used to indicate that you intend to close an existing position. If you are long on a stock squaring off the position means to sell the stock.

 

Intraday position – Is a trading position you initiate with an expectation to square off the position within the same day.

 OHLC – 

OHLC stands for open, high, low and close.open is the price at which the stock opens for the day, high is the highest price at which the stock trade during the day, low is the lowest price at which the stock trades during the day, and the close is the closing price of the stock.

example-OHLC of ACC on 17th June 2014 was 1486, 1511, 1467 and 1499.

Volume –

Volumes represent the total transactions (both buy and sell put together) for a particular stock on a particular day. For example, on 17th June 2014, the volume on ACC was 5, 33,819 shares.

Market Segment – A market segment is a division within which a certain type of financial instrument is traded. Each financial instrument is characterized by its risk and reward parameters. The exchange operates in three main segments.

a.Capital Market – Capital market segments offers a wide range of tradable securities such as equity, preference shares, warrants and exchange traded funds.For example, common shares of companies are traded under the equity segment abbreviated as EQ. So if you were to buy or sell shares of a company you are essentially operating in the capital market segment.

b.Futures and Options – Futures and Option, generally referred to as equity derivative segment is where one would trade leveraged products.

c.Whole sale Debt Market – The whole sale debt market deals with fixed income securities. Debt instruments include government securities, treasury bills, bonds issued by a public sector undertaking, corporate bonds, corporate debentures etc.