Bazaar School

Two-minute concepts

Glossary

Every market word we use, one idea per card, with a worked example in rupees.

Cards you have opened get a tick, so you can see what you have covered. In the chapters, a word with a dotted underline opens its card here.

27 terms, about two minutes each

C

Call option The right, but not the duty, to buy an index or share at a set price (the strike) on or before expiry. You pay a premium for it. Candlestick A chart bar showing one period's opening, closing, highest and lowest prices. Green or blue if it closed higher, red if lower. Circuit breaker A pause in trading across the whole market when the Nifty 50 or Sensex moves 10, 15 or 20 percent in a day.

D

Demat account The account where the shares you own are held electronically, at one of India's two depositories, NSDL or CDSL. Dividend Part of a company's profit paid out in cash to shareholders, announced as rupees per share. The board decides it each time; it is never promised.

F

Free float The part of a company's shares that is actually available to trade, leaving out big holdings by promoters and the government. Futures contract An agreement to buy or sell an index or share at a fixed price on a fixed date, with the profit or loss settled every day.

I

Index fund A mutual fund that holds every share in an index in the same proportions, so it follows the index instead of trying to beat it. IPO Initial public offering: the first time a company sells shares to the public and lists them on a stock exchange.

L

Limit order An order to buy or sell only at a price you set, or better. A market order instead takes whatever price is available right now. Long-term capital gain Profit from selling listed shares or equity funds held for more than 12 months. Taxed at 12.5 percent on gains above 1.25 lakh rupees a year. Lot size The fixed number of units in one futures or options contract. You trade in whole lots, never in single units.

M

Market capitalisation The price tag the market puts on a whole company: the share price multiplied by the number of shares. Moving average The average closing price over a set number of recent days, recalculated daily. It smooths a chart so the trend is easier to see.

N

Nifty 50 The NSE's index of 50 large Indian companies, weighted by free-float market cap. The benchmark most Indian funds measure themselves against.

P

P/B ratio Share price divided by book value per share: how much you pay for each rupee of net assets on the balance sheet. P/E ratio Share price divided by earnings per share: how many rupees you pay for each rupee of yearly profit. Put option The right, but not the duty, to sell an index or share at a set price on or before expiry. Investors buy puts as insurance.

R

Related party transaction A deal between a company and its own promoters, directors or their other businesses. Normal in small doses, a warning sign in patterns. Return on equity A year's profit divided by shareholders' equity: the rate at which a business grows its owners' money.

S

SEBI The Securities and Exchange Board of India, which regulates stock exchanges, brokers, mutual funds, advisers and listed companies. Securities transaction tax A small tax on every purchase or sale of shares and derivatives on an Indian exchange, collected by your broker. Sensex The BSE's index of 30 large Indian companies, weighted by free-float market cap. India's oldest benchmark, published since 1986. Share A slice of ownership in a company. Own one and you own a small part of the business, its profits and its risks. Short-term capital gain Profit from selling listed shares or equity funds held for 12 months or less. Taxed at 20 percent plus cess, with no yearly exemption. Stop-loss An exit set in advance: an order that triggers a sale once the price falls to the level where you decided your idea was wrong.

T

T+1 settlement India's settlement cycle: shares you buy reach your demat account, and money from shares you sell reaches you, one working day after the trade.

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