CA Piyali Parashari

400+
Stock Market
Terms - A-Z
(All in one post)
 CA Piyali Parashari

33 stock market
terms you must
know
(series A, B, C, D)
 01
Arbitrage:
1/5
It refers to buying an asset from one market and
selling it to another market where the selling
price is higher so you get a profit

Ask:
The price at which a seller is ready to sell his
shares

Alpha:
It is the relative return on investment as
compared to the overall market or index. Alpha
of +10% means the shares have outperformed
index by 10% and vice versa
 02
Asset Allocation:
1/5
It refers to an investment strategy which aims to
balance risk and reward by dividing the
investment into various asset classes.

Averaging Down:
Buying more of a share whose price has gone down
to reduce the overall cost price of investment

Annual Report:
A snapshot of the financial condition and
operations of a company. It has the audited
statements of income, financial situation, cash
flow, and may even include management’s
discussion and analysis,
 03
Active Return:
1/5
It is the excess returns generated by the portfolio
as compared to the benchmark, index or market as
a whole. It is the returns earned due to active
management of the portfolio by the manager

Absolute Returns:
It is the rate of return obtained over a specific
period. It shows the gain or loss expressed as a
percentage over the initial investment

At the money:
A situation at which an options strike price is equal
to the price of the underlying securities. Options
trading tends to be high when options are at the
 04
Beta:
1/5
It measures the risk of the asset vs the market.
If market has 1 beta and stock has 1.5 it means
that stock will move 50% more than the market.
High beta indicates higher risk

Bid:
The price that a buyer is willing to pay for a
share

Bid-Ask Spread
Difference between what buyers are
willing to pay and the price sellers are
asking for a stock.
 05
Blockchain:
A blockchain
1/5 is a record-keeping database in
which transactions made in Bitcoin or other
cryptocurrencies are recorded across multiple
computers and distributed across the entire
network of those computers.

Blue Chip Stocks:

Stocks of well known companies known for their
track record of growth and profitability

Bond
A debt security which represents a loan given by
the investor to the company or govt
 06 Bull Market:
A 1/5
market where prices are expected to rise. It
means the aggregate prices of the shares are rising

Buyback:
When a company repurchases shares from
investors to reduce the number of shares in the
market. It generally causes the remaning shares to
increase in value.

Bear Market:
It is a downward trend in the overall market. The
cumulative market prices of the stocks listed on
the stock market are declining.
 07
Bonus Shares:
1/5
Additional number of shares given by the company
to its existing shareholders as “BONUS” in lieu of
cash dividend.

Book Runner
The managing underwriter for a new issue of
shares. He maintains the book of securities sold.

Bear Hug:
A Hostile takeover attempt in which the
purchaser offers an exceptionally large premium
over the market value of the shares so as to as to
squeeze (hug) the target into acceptance.
08
Capital Gains
1/5Profit earned after selling an asset or
investment for a price higher than your buy
price

Common Stock:
It refers to the ordinary share capital of the
company which entitles the investor for
ownership of the company

Current Ratio
The excess of Current Assets over Current
Liabilities. It shows short term liquidity
 09
Capitalisation
The
1/5 total market value of all a company’s
outstanding shares, calculated by multiplying the
total number of shares by the
current share price.

Call Option:
It gives the buyer the right but not the obligation to
buy an underlying asset at a strike price on or
before the expiry date. Call option buyers are
bullish on share prices.

Compound Annual Growth Rate:

Return calculated based on previous years balance
of principal + Interest
 10
Day Trading
Also1/5
called intraday trading it means buying and
selling shares in same day

Derivatives:
A financial instrument that derives its value
from an underlying asset. Futures and options
are examples of derivatives. Underlying assets
are market indices, shares, commodities,
currencies.

Dividend Yield:
Dividend expressed as a percentage of its stock
price.
 11
Daily price limit
The
1/5 price level within which many commodity,

futures, and options markets are allowed to rise or

fall in a day. Exchanges usually impose a daily price
limit on each contract. Also called upper circuit or
lower circuit

Debt Equity Ratio

It compares assets provided by creditors to assets
provided by shareholders. Determined by dividing
long-term debt by common stockholder equity.

Delivery:
When the financial instrument is actually credited to
demat account
 CA Piyali Parashari

36 stock market
terms you must
know
(series E, F, G)
 01
Equity:
It also
1/5refers to Shareholders Equity and represents

pro rata ownership of a company. Equity

shareholders are paid last in case of liquidation of
a company.

Earnings Per Share (EPS):

When the Net Profit of a company is divided by the
number of outstanding shares we get EPS. Higher
the EPS higher the profitability

ESOP:
An employee benefit plan that gives the employees
benefit of ownership in the company in the form of
shares of that company
 02
Economic Moat:
1/5
Popularised by Warren Buffet, it represents the
competitive advantage enjoyed by a company over
competitors.

EBITDA:
Earnings before Interest, Tax, Depreciation and
Amortisation. It represents the cash profit. When
depreciation is deducted from this we get the
operational income

Enterprise Value
It represents the total value of a company i.e sum
of market capitalisation, short term & long term
debt and cash
 03
Efficient Market theory:
1/5
Principle that all shares are correctly priced by the
market, since the participants have perfect
knowledge.

Elliot Wave Theory:

Technical strategy for timing the market that
predicts prime movement on the basis of pastprice
wave patterns and the psychology of participants

Exchange Traded Funds:

A basket of stocks representing an index. Hoiwever
unlike MFs they can be traded through demat
account like shares.
 04 Financial Asset:
An intangible asset that derives its value due to a
1/5
contract or ownership right eg cash, stocks, bonds,
Mutual Funds

Finance Charge
Fee charged for the use of loans or other credit
facilities as a percentage or on fixed terms

Family of Funds:
A group of MFs offered by 1 investment company

Face Value
The amount quoted on the face of the security that
the issuer agrees to pay on maturity.
 05
Fortune 500:
It is1/5the list of the 500 largest companies of US
ranked as per revenue compiled by Fortune
Magazine every year.

FAANG:
Acronym for the 5 fomous US Tech companies-
Facebook, Apple, Amazon, Netflix, Google

Financial pyramid
A risk structure that spreads investors risk
across low, medium and high risk securities.
 06 Follow On Public Offer (FPO):
When
1/5 a company issues additional shares after the

initial public offering. FPO may be dilutive meaning

new shares are added in market or non dilutive
meaning private shares are sold publicly.

Forward Contract:
A tailor made contract between 2 parties to buy or
sell something at a pre determined price and
predetermined date. They are not exchange traded
eg forward contract to buy dollars

Foreign Institutional Investors (FII):

An investor or Investment Fund investing in a
company or index outside his country of registration.
 07
Foreign Portfolio Investment (FPI)
It is1/5
a form of passive investment when a person
holds foreign financial assets. Eg investment by a US
national in ADRs of Infosys. He does not get direct
ownership in Infosys.

Free Cash Flow (FCF):

Cash a company generates after paying for all
operational expenses (OpEx) and Capital Expenses
(CapEx). High FCF indicates low CapEx and low FCF
indicates high OpEx

Fixed Charge Coverage Ratio

Shows whether a company is earning enough to
cover its fixed charges like interest,debt repayment
 08
Free Float
Shares
1/5 which are readily available for trading in

the stock market

Futures Contract:
It is a standardised contract to buy/sell an
underlying security at a predetermined price at
a specified time in future. They are traded in
exchanges

Full Disclosure
Listed public companies are required to provide
all material facts that are relevant to their on
going operations for free.
 09
GAAP
Set
1/5 of Standards and Rules governing the
preparation and presentation of Financial
Statements by listed companies in US

Gap Up or Gap Down:

An opening price that is significantly higher or
lower than the previous day closing price due to
some extraordinary news

Gearing:
Also called Financial Leverage which measures the
extent of debt in a company's long term capital.
High proportion of debt vs own capital indicates
highly geared company
 10
Global Depository Receipt (GDR)
A receipt
1/5 representing ownership in a foreign
based company shares traded in stock markets
around the world

Godfather Offer:
A takeover bid made to a target company at a
great premium compared to its market value
making it difficult for the company to reject

Going Concern Value:

A value that assumes that the company will
remain in business indefinitely and continue
operations profitably.
 11
Golden Cross
A term
1/5 used in Technical Analysis when short term

moving averages cross over the long term moving

averages

Good Till Cancelled

A type of order placed by an investor to buy/sell a
share will remains active till order is filled or
cancelled.

Greeks:
Variable that are used to assess risk in Options
Trading such as alpha, beta, gamma, theta and delta
 12
Growth Stocks
A share
1/5 in a company that is expected to grow at a
rate higher than the average growth rate of that
market. They look expensive and trade at high PE
ratio

Growth Investing
A style of investing in small companies whose
earnings are expected to grow at a rate higher than
the industry average

Green Field Investment:

It is a type of Foreign Direct Investment in which a
parent company creates a subsidiary in another
country.
 CA Piyali Parashari

33 stock market
terms you must
know
(series H, I, J)
 01
Hands off/ Hands On Investor:
1/5
A person who has a large shareholding in a
company but does not wish to actively participate
in management of the company. Hands on
Investor is the opposite of Hands off Investor

Harvest:
A term used in Private Equity, It means to generate
cash from the sale/ IPO of companies.

Haircut:
The difference between actual market value of a
security and the price at which it is actually used as
a collateral in a transaction
 02 Hedge:
A transaction that reduces the risk of an
investment. A hedged portfolio reduces risk of
investment by taking position opposite to the one in
the portfolio

Hedge Fund:
Also called Alternative Investment Funds, it employs
diverse or complex trading strategies and invests in
securities having diverse risks or complex products
including listed and unlisted

High Flyer:
A high priced and higly speculative stock that
fluctuates sharply in a short period
03 Holding Company
A company which by virtue of its majority
shareholding in another company is capable of
controlling the management & operations

Hostile Takeover:
The takeover of a company by an open offer to the
shareholders against the wishes of the current
management

High Frequency Trading:

A method of trading that uses alogorithms to
analyze markets and execute orders based on
market conditions
 04
Horizontal Merger:
Where two or more firms in the same industry & in
the same stage of production
cycle; i.e 2 competitors merge their businesses

Hot Money:
Money that moves across country borders due to
interest rate differences and moves away when
the difference disappears.

High Low Index:

It compares stocks reaching 52 week high vs those
reaching 52 week low. It is used to confirm market
trend of the broader index.
 Index Fund:
05
A type of Mutual Fund whose portfolio is constructed
to match a particular index Eg Nifty 50 Index Fund,
Midcap Index Fund

Initial Public Offerring

The process by which a private company offers its
shares to the public for the first time in the primary
market. It is used to raise fresh capital or as an exit
strategy for early investors

Insider Trading:
Trading in the shares of a listed company by people
who have confidential information about the company
Eg when directors trade in shares of the company on
the basis of confidential information
 06
Internal Rate of Return:
It is 1/5
the rate which measures the profitability of
an investment considering the time value of
cash flows

Impairment:
A permanent reduction in the value of a
company's asset

Implied Volatility
It is used to project future movement in stock
prices and supply and demand and is often used
in pricing Stock Options. When implied volatility
is high Options Premium increases
 07 Inflation Adjusted return/ Real return:
It takes
1/5 into account the inflation rate during the
time period. When inflation rate is removed we can
see the true earning potential of the security.

Inflection Point:
An event which causes a significant change in the
progress of a company, industry, economy.

Inherent Risk:
It is the risk of errors or omission in the Financial
Statement. It is more likely to occur when
transactions are complex or where a high amount of
judgement is required for estimation of asset values.
 08
Imbalance of orders
Term
1/5 used in share market when there are too

many market orders of the same kind with no

matching opposite orders. Eg only buy orders
following a recent news

Impaired Capital:
When the company's total capital is less than face
value of its issued shares. It occurs due to
accumulation of losses

Income Stocks:
Stocks which give a regular and steady income in
the form of dividends.
 09
January Effect:
It
1/5is a seasonal increase in stock prices in

January due to increased buying after a fall in

prices in December due to tax loss harvesting

Joint Venture:
A business arrangement where two parties
agree to pool resources to accomplish a specific
task

Jensen Index
An index that uses the Capital Asset Pricing
Model to determine whether a money manager
has outperformed the index. Also called Alpha
 10 Jobless Claims
A statistic reported weekly by US Govt Labour
Department that counts people filing to receive
unemployment insurance benefits.

Joint Bond:
A bond which is issued under the guarantee of at
least two or more parties for payment of interest &
repayment of principal

Judo Business Strategy:

A plan for managing a company with speed & agility
to reduce the effect of its competitors. It can be
deployed by small companies which can allow them
to steal market share
 11 J Curve:
It is an economic theory which states that the trade
deficit of a country will worsen if its currency
depreciates. This is due to higher import prices vs
static exports

Junior Securities
Securities which have low priority than others. Eg
shares are junior securities as they are settled last
after repayment of all debts of the company in case
of bankruptcy

Junk Bond:
Bond which has a very low credit rating and high
risk. Since they are riskier they offer higher yields
to investors
 CA Piyali Parashari

55 stock market
terms you must
know
(series K, L, M)
 01 K Ratio:
A valuation ratio that measures the consistency of
an equity's return over time. It not only considers
returns but also the order in which returns are
generated

Kanban
An inventory control system used in Just In Time to
track production and order new shipments of parts
and materials. It tries to avoid build up of excess
inventory

Key Currency
A currency which is stable and provides base for
exchange rates for international transactions.
 02 Keynesian Economics:
School of economics which advocates government
intervention and spending to manage the economy,
promote growth and control prices.

Key Employee:
An employee with major ownership or decision
making power.

Key Performance Indicators:

A set of quantifiable metrics used a guage a
company's overall long term performance. They
compare a company’s strategic, financial, and
operational achievements, vs other businesses
within the same sector.
 03 Kicker
A right or excercisable warrant attached to a debt
instrument to make it more attractive to investors.

Kiting:
Fraudulent use of a financial instrument to obtain
additional credit that is not authorised, In the
brokerage industry, kiting occurs when a securities
firm fails to settle buy and sell orders by the
proper settlement deadline.

Killer Bees
A company or individuals that avoid a takeover of
a target firm by an unwanted buyer
 04
Laddering
Investment strategies that aim to provide steady
cash flow by planning investments and creating a
flow of liquidity at a predecided time as per risk
profile

Laggard:
A stock that is underperforming as compared to its
benchmark or peers.

Leading/ Lagging indicators:

Lagging indicators are economic /technical
indicators in stock market that confirm a trend
after an event or major change has occurred.
Leading indicators indicate a trend before it occurs
 05
Large Cap Stocks:
A company whose market capitalisation is higher than
Rs 20000 crs

Last Trading Day

The final day of the month, as per the exchange's rules,
in which trading may take place in a particular futures
or options contract.

Leverage Ratio:
It determines how much capital comes in the form of
loans and assesses company's ability to meet its
financial obligations. Common leverage ratios are debt
to equity ratio, degree of financial leverage
 06
Leveraged Buyback
When
1/5 a company used debt to buyback its own

shares from the open market

Leveraged Buyout
When a company uses significant amount of
debt to buy out another company

Levered Free Cash Flow

Cash remaining after meeting all financial
obligations and paying for all debts. This cash
flow can be used for paying dividends.
 07
Limit Order:
1/5
An order to purchase or sell a security at a specified
price or better

Limited Company:
A company that limits the liability of its shareholders
to the extent of capital contributed by them

Liquidity Coverage Ratio:

The minimum amount of highly liquid assets that a
financial institution is required to hold to meet short
term obligations. It helps to ride over short term
liquidity crises.
 08
Liquidity Ratio
Financial
1/5 ratios which measure a company's ability
to pay current debt obligations without having to
raise more capital

Loan Grading:
Assigning a credit score to a loan based on a
borrower's credit history, quality of the loan and
the likelihood of repayment of the principal and
interest.

Loan Syndication
When a group of lenders come together to give a
loan to a single borrower. It is used when large
loans are raised by companies
 09
Lot:
The fixed
1/5 quantity of a particular security that must
be bought/ sold on the exchange

Long Hedge:
A futures contract entered into for the purpose of
removing price volatility. The buyer is making a bet
that price will rise in future.

Loss Leader Strategy

Selling a product or service at a price which does
not give profits in order to attract new customers
and sell additional products and services to them
 10
Macaulay Duration:
The1/5
weighted-average, term to maturity of the
cash flows from a bond. Here the weights is
found by dividing the present value of the cash
flow by the price.

Magic Formula Investing:

Developed by Joe Greenblatt, it refers to a rules-
based, disciplined investing strategy that guides
people for value investing.

Management Buyout
When someone from corporate management
team purchases the business from the
owner(s).
 11 Management Discussion & Analysis
A section within a company's annual report, where
the management analyses the company's
performance and future prospects

Margin Account:
A brokerage account where the trader's broker
lends them cash to purchase stocks. The broker
charges interest on the amount loaned

Margin of Safety:
An investment strategy n which an investor only
purchases securities when their market price is
significantly below their intrinsic value
 12 Market Breadth:
The number of stocks that are advancing to those
that are declining in a given index

Market Capitalisation
How much a company is worth as per the stock
market. It is the total market value of all
outstanding shares.

Market Depth:
Market's ability to absorb large market orders
without significantly impacting the prices. It refers
to the liquidity of a security based on the standing
orders at various price levels
 13 Market Indicators
They are quantitative measures to interpret a stock
or financial index price action data to forecast
market moves. Eg moving averages, market
breadth. advance- decline

Market Efficiency
The degree to which market prices reflect all
available & relevant information. If markets are
efficient, all information is already incorporated in
the prices,

Market Cycles:
Patterns that emerge in the stock market during
different business environment eg accumulation,
mark up, distribution, downtrend
 Market Order
14
Instruction to a broker to buy/ sell stocks at the price
available in the market

Market on close order

It is a market order, which traders execute as near to the
closing price as they can or slightly after the market close

Market Risk Premium:

It is difference between the expected return on a market
portfolio and the risk-free rate. It the higher return
expected due to taking additional risk

Mark to Market
Method of measuring fair value of assets & liabilities
based on current market prices
 15 Market Value Added
Difference between market value of a company and
the capital contributed by all investors (Equity &
Bond)

Marketable Securities
Financial instruments which are highly liquid i.e can
be converted to cash easily

Matching Orders
Process by which the exchange pairs buy orders with
sell orders to make the trades happen

Maximum Drawdown
Maximum loss from a peak to a trough of a portfolio.
It indicates downside risk over a period of time.
 16 Melt Up/ Melt Down
A sudden rise in the prices of securities as investors
start herding and dont want to miss out on a price
rise. Opposite is melt down

Merger Arbitrage
Simultaneous purchase of the shares of two merging
companies to create riskless profits

Mid Cap
Companies whose market capitalisation is more than
INR 5,000 crore and less than INR 20,000 crore.

Micro Cap
Companies with market capitalization less than Rs
3,500 crores
 17 Minsky Moment
Start of a market collapse due to reckless speculation
which takes the market to unsustainable heights

Momentum Investing
A strategy in which investors buy securities that are
on an uptrend and sell them when they look to have
peaked

Mosaic Theory
When an analyst uses various sources, public, non
public, non material, to determine value of a company

Money Flow Index

Technical indicator that uses price and volume to
measure money flowing in and out of a security
 CA Piyali Parashari

60 stock market
terms you must
know
(series N,O,P)
 01 Narrow Money:
If refers to physical money such as coins, currency,
demand deposits and liquid assets that are easily
accessible to central banks

NASDAQ
National Association of Securities Dealers Automated
Quotations. It is an online marketplace for buying
and selling securities. All worlds technology giants
are listed here. It operates 29 markets, 1
clearinghouse, and 5 central securities depositories
in the United States and Europe.

Nationalisation:
Action where Government takes control of a
company or industry
 02 Natural Hedge:
A strategy that seeks to lower risk by investing in
securities whose performance is inversely related to
the main security. Eg, Risk in equity can be hedged
by holding bonds

Natural Monopoly:
A monopoly which arises due to unique
circumstances eg high start up costs or high level of
economies of scale which act as natural barriers for
competitors to enter

Natural Unemployment
Unemployment that occurs due to voluntary
economic forces. eg unemployment due to change in
technology or lack of skills
 03
Near Money:
It refers to non-cash assets that can be easily
converted to cash.

Negative Arbitrage
It is the opportunity cost for the debt issuer when
he earns at a rate lower than the rate at which he
has to repay the debt

Negative Bond Yield

When the Investor receives less money on the
bond's maturity than the original purchase price
 04
Negative Carry:
When the cost of holding an investment exceeds the
income earned while holding it. It means
investment is losing money. Opposite is positive
carry

Negative Working capital

When current liabilities exceed current assets. It
can lead to bankruptcy.

Net Present Value

Difference between the Present Value of Cash
Inflows and Outflows over a period of time. It
determines profitability of an investment in terms
of money's worth today
 05
New Fund Offer:
An initial sale of fund shares by an investment
company

Non Operating Income

Portion of an organization income which is not
derived from its core operations

Non Performing Asset

It is a classification for loans or advances that are in
default or in arrears. i,e when the borrower has
been unable to meet his obligations of payment of
interest or repayment of capital on time
 06
Odd Lot
An order amount for a security that is less than the
normal trading unit. Eg if 100 shares is a lot, order
for 90 shares is odd lot

Off Balance Sheet

Assets and Liabilities that do not appear on the
Balance Sheet of a company as they are not directly
owned. Eg When Receivables from customers are
sold for a fee to a third party

Open Offer::
It is a secondary market offerring which allows
shareholders to buy shares or stocks at a price
lower than the market price.
 07
Open Position:
A trade which is taken but not closed with an opposite
trade. eg when you buy shares it means you have an
open position

Open Trade Equity

It is the unrealised gain/loss on an open position. Also
called as Paper Gains and Losses

Opening Cross:
It is a method of determing the opening prices of
individual shares of the exchange by analysing data on
the buy and sell interest. It is done few minutes before
market opens
 08
Opening Range
It is 1/5
the difference between the shares high and
low price in the first 15 mins of the trading day.
It is used to monitor the market sentiment

Operating Activities
Functions which directly relate to the core
business

Operating Ratio (Opex)

It is calculated as Operating Expenses/ Net
Sales. It indicates how efficient mamagement is
in keeping expenses low while generating sales
 09 Optimal Capital Structure:
The 1/5
best mix of debt and equity which maximises the
company's value and minimises the cost of funds

Options Chain:
A listing of all options contracts for a security at
different expiry dates, prices and volumes

Option Pool:
The Shares reserved for early employees or investors
of a private or startup company to attract talent.

Order Imbalance
A situation where there is an excess of buy or sell
orders making order matching impossible.
 10
Outcome Bias
Bias1/5
which arises when a decision is based only on
the outcome of previous events, without analysing
the factors leading to that event

Outside Days:
Days when the securities price is more volatile than
the previous day. Difference between open and
close of 2nd day is larger than the first

Oversubcription
When the demand for the securities is more than
that available. Shares are the allotted on pro rata
basis.
 11
Pac Man Defense:
A defensive
1/5 tactic used by a targeted firm in a
hostile takeover when the target firm tries to
acquire the company that made the takeover
attempt

Paid Up Capital:
The amount the company has received after
issuing the shares. It is created when shares are
sold in the primary market in an IPO

Parity Price
Price at which two securities are equal in value
to each other.
 12 Passive Investing
Investment strategy that maximize returns by
minimizing buying and selling. Eg Index investing

Payback Period
Time taken to recover the cost of an investment

Payout Ratio:
Percentage of company's earnings paid out as
dividend

Penny Stocks
stocks that trade at a very low price (less than Rs
10), have very low market capitalisation, are mostly
illiquid
 13 Phantom Stock Plan:
It is an employee benefit plan that gives selected
employees benefits of stock ownership without
actually giving them the stocks. Also called shadow
stocks

Plowback Ratio
How much earnings is retained in a business rather
than being paid as dividends

Poison Pill:
A defensive strategy used by directors of a company
to prevent acquirers from taking control by buying
large amounts of stocks themselves
14 Pre IPO
It is the sale of large blocks of shares in a company
before its listing on a public exchange at a discount
from the IPO price.

Pre Market
The period of trading that occurs before the regular
market session. It is used by traders to judge the
strength & direction of the regular market

Preemptive Rights:
They give a shareholder the right to buy additional
shares in any fu to buy addbefore the shares are
issued to general public
 Present Value
15
The current value of a sum of money or cash flows
receivable in the future at a specified rate of return

Price Action
Movement of a securities price plotted over time

Price Discovery:
The process of setting the SPOT price of a security based
on demand-supply, risk attitude, economic and
geopolitical conditions

Price/Earnings to Growth Ratio

It is the Price to Earnings Ratio (P/E) divided by the
growth rate of its earnings over time. PEG ratio lower
than 1 is good as it indicates company is undervalued.
 16 Price to Book Value Ratio
It compare a firm's market capitalization to its book
value so as to locate undervalued companies. It is
derived by dividing the Market Price by book value
per share

Price to Earnings Ratio (P/E)

It compared company's share price with the earnings
per share

Private Equity
An investment in shares of private companies.

Private Placement
Selling shares to a group of selected investors
privately rather than in open market
 17 Profit Centres
A branch of an organization that directly increases
the profits of the company

Profitability Index
A ratio between the Present Value of cash flows and
Intial Investment. If > 1 then profitable

PPE (Property, Plant & Equipment)

Long Term assets which are important for the
business operations. Eg land, building, machinery

Prospectus
A document filed with SEBI, by a company before
issue of shares providing details about the issue
 18 Proxy Vote
Vote cast by a person/firm on behalf of another
shareholder who was unable to attend the meeting

Public Private Partnerships

A collaboration between a government and private
enterprise on large infrastructure projects.

Purchasing Power
Value of a currency expressed in terms of the number
of goods and services that one unit can buy

Put Call Ratio

Ratio of number of Put Options to number of Call
Options. Helps to guage market sentiment.
 CA Piyali Parashari

40 stock market
terms you must
know
(series Q,R)
 01 Q Ratio:
Also called Tobin's Q, it is a valuation method that
divides the market value of a company by the
replacement value of the net assets.

Quadruple Witching
A date on which index futures, stock futures, index
options and stock options expire simultaneously. It
occurs once every quarter on the 3rd Friday of March,
June, Sept, Dec in US and witnesses heavy volume of
trading.

Qualified Institutional Buyers:

Institutions that have expertise to invest in capital
markets and include MFs, insurance cos and foreign
investors
 02 Qualified Institutional Placement:
A way in which listed companies raise money by
issuing securities to Qualified Institutional Buyers

Qualified Opinion:
A statement issued by the Auditor with the financial
statements which suggest that there was an
important issue in the statements and that they do
not follow the generally accepted accounting
principles

Quantitative Trading
It uses mathematical tools to identify trading
opportunities. Price and Volume are the major
inputs. High-frequency trading is an example of
quantitative trading at scale.
 03
Quarter on Quarter:
It refers to comparison of company's performance
of 1 quarter vs the previous quarter of same year.

Quick Assets
Assets owned by the company which can be quickly
converted to cash

Quick Ratio
It measures a company's ability to repay its current
debt without raising capital. It is obtained by
dividing the quick assets by current liabilities
 04
Quorum:
The minimum number of members that must be
physically present in a meeting for the proceedings
to be legally valid.

Quote Driven Market

An electronic stock exchange system where prices
are determined by the bid and ask quotations of the
market makers, dealers

Qualifying Stock Options

A benefit given by a company that allows employees
to purchase shares at a discounted price
 05
Rally
A period of rapid upside move in a securties price
within a short period of time.

Random Walk Theory

A theory that suggests that changes in share prices
are random and are unpredictable, so that past
prices cannot be used to predict future prices. It
implies that the stock market is efficient and prices
reflects all available information.

Range:
Difference between the high and low price of a
security for a given period
 06
Real Estate Investment Trusts:
A company that owns, finances and operates
income generating real estate properties

Real GDP
An inflation adjusted figure that reflects the value
of all goods and services produced in an economy in
a year

Real Income:
It is the income earned after accounting for
inflation.

Real Rate of Return:

Annual return adjusted for inflation
 07
Rebalancing
It is the buying or selling of assets in a portfolioto
maintain the original level of asset allocation

Record Date:
It is the cut off date established by the company to
determine which shareholders will receive dividend. To
be eligible for dividend you must be a shareholder as
on the Record date

Red Herring Filing

It is a preliminary prospectus filed by a company with
SEBI, with respect to an IPO, containing abridged
information of the IPO
 08 Related Party Transactions
They are contracts entered by a company with
1/5
related parties (directors, holding and subsidiary
companies, relatives of directors or key managerial
personnel etc)

Residual Dividend Policy

A policy where a company pays dividends only after it
has paid for capital expenditure and working capital
requirements

Relief Rally
A relief from a market sell off in which prices are
temporarily trading higher. Eg It occurs when
negative news is considered less impactful
09 Reserve Ratio:
The 1/5
percentage of a banks asset that must be kept in
cash as a reserve in case of mass withdrawals.

Resistance:
A price point or a zone where the securities price is
unable to cross as selling pressure increases and
pushes the price down from this point

Restricted Shares:
Award of shares to a person which have pre
conditions which must be met by him before he can
transfer them. (generally issued to officers and
directors)
 10
Return on Assets
A ratio
1/5 which indicates a company's profitability in

relation to its assets. It is calculated by dividing the

net income by total assets

Return on Capital Employed:

It measures a company's profitability vs its invested
capital (equity + debt)

Return on Equity
It measures the company's net income divided by
its shareholders equity. It measures the rate of
return for the shareholders
 11
Retained Earnings
Cumulative
1/5 net earnings from earlier periods after
dividend payments, which the companies have
retained in business for future growth

Retracement
A minor pull back and change in direction of the
prices of securities opposite to the main trend. They
are temporary and do not change the main trend

Risk Adjusted Returns

The investment returns after taking into account
the extent of risk that was taken to achieve it. It
measures whether the risk taken was worth the
expected reward. Eg Sharpe Ratio
 12 Risk Return Tradeoff
An investment
1/5
principle which states that higher
the risk, higher the reward. Investors have strike a
balance between risk tolerance and reward
expected to get optimum tradeoff

Risk Reward Ratio

It is used by traders and investors to manage their
capital and risk of loss. It helps to assess the
potential reward of an investment vs the risk taken
to achieve it

Rolling Returns
They are annualised average returns. It compares
returns over each of the years of the investment.
 13
Reverse Stock Split
It is1/5
a stock consolidation or stock merger which
consolidates the total number of shares issued to
public into fewer shares, to increase the market
price of the shares

Reverse Takeover
A takeover where a private company becomes a
public company by taking over control of another
public company

Roadshow
A series of presentations made at various locations
prior to an IPO for pitching to potential investors.
 CA Piyali Parashari

40 stock market
terms you must
know
(series S,T)
 01 S&P 500 Index:
Also called Standard and Poor's 500 Index, it was
launched in 1957 and is a basket of 500 leading piblic
companies of US based on market capitalization.

Safe Haven
They are instruments which are expected to increase
in value during times of market uncertainty. Eg
precious metals and currency

Scalping:
It is a trading strategy which aims to gain from minor
variations in stock prices. It uses large position sizez
 02 Scenario Analysis:
It is a process of analysing a portfolio's expected
value after a given period of time assuming likely
and unlikely worst case scenarios.

Scrip
It is an instrument which is a substitute to legal
tender and the bearer has the right to receive value
in return. Eg. Gift cards, reward points and coupons

Seasonally Adjusted Annual Rate

It is a rate adjustment used for sales or employment
data to remove the seasonal variations in the data
and enable better comparisons between different
time periods
 03
Securities and Exchange Commission:
It is an independent US government regulatory
agency responsible for protecting investors and
maintaining fair and orderly functioning of the
securities markets

Securities Lending
It is the practice of giving shares, commodities or
derivative contracts on loan to other firms. On
loaning, the title and ownership also passes to the
borrower in exchange for fees and interest.

Security
It is a negotiable financial instrument that has some
type of monetary value.
 04
Securitization
It pools debt to create portfolios which can then be
easily marketed. Investors who buy them get
interest and principal payments

Seed Capital
Capital raised to begin a startup. Funding is
provided by private investors eg friends and
relatives of the founders in return for equity

Sensex
The benchmark index of the Bombay Stock
Exchange comprising 30 largest capitalised
companies in India
 05
Shadow Banking System
It consists of lenders, intermediaries and brokers
who are not regulated by the fiancial system

Shadow Pricing
It is an estimated economic price of a good for
which there is no pricing done or whose price
cannot be determined easily.

Share Class:
Refers to different types of shares that carry
different previleges and voting rights
 06
Shareholders Equity Ratio:
The percentage of how much of the company's
assets are funded by shareholders capital rather
than by loans

Sharpe Ratio
It measures the risk adjusted returns of a portfolio.
It is the excess return over the risk free rate after
considering the standard deviation in rates.

Shell Corporation:
A company without active business operationa or
assets
 07
Shareholders Equity Ratio:
The percentage of how much of the company's
assets are funded by shareholders capital rather
than by loans

Sharpe Ratio
It measures the risk adjusted returns of a portfolio.
It is the excess return over the risk free rate after
considering the standard deviation in rates.

Shell Corporation:
A company without active business operationa or
assets
 08
Smart Beta Investing
It icombines the benefits of passive investing and the
advantages of active investing strategies to obtain
higher retuns

Stalking Horse Bid

It is an initial bid on the assets of a bankrupt company
which sets the lower end bid price so that others cant
bid below that price

Sweat Equity
Compensation received by a person or employee for
the contribution to a company's projects/work paid in
form of equity rather than in cash.
 09
Take Profit Order
A type1/5
of limit order that specifies the price at which
the profit will be booked

Tangible Net Worth

Total Value of a company's physical assets less
liabilities

Tax Loss Harvesting

Selling securities at a loss in order to reduce the net
gain and hence offset the amount of capital gains tax
payable
 10 Technical Analysis
A method
1/5 of predicting stock price movements based
on past market data of price and volume

Tier 1 Capital
It is the core capital held in a bank's reserves and is
used to fund business activities of the bank

Tier 2 Capital:
The additional capital which a bank must keep as
part of its required reserves to provide additional
liquidity to counter emergencies
 11
Top Down Investing
A strategy
1/5 that first focuses on the macro economic
factors such as GDP, employment, interest rates,
etc. before studying the micro factors such as
specific sectors or companies.

Total Enterprise Value

A valuation measurement used to compare
companies with varying measures of debt. Total EV=
market capitalization + debt+ preferred shares less
cash

Total Expense Ratio

The total costs associated with managing an
investment fund vs the total assets
 12
Total Returns Swap
It is
1/5a swap agreement which one party makes

payments based on a pre determined rate, while

the other makes payments based on the actual
return of an underlying asset,

Tracking Error
Difference between the actual return an investor
receives vs the benchmark that the fund was trying
to imitate

Trailing 12 months
It refers to the data from the past 12 consecutive
months used for financial reporting
 13 Trailing PE
It is a metric which compares a company's share
1/5
price vs its past years earnings per share

Trend Trading
It is a strategy used by traders to make gains by
capturing the momentum in a particular direction

Treynor Ratio
Also called the reward to volatility ratio. It
measures how much excess return was generated
for each unit of risk taken in a portfolio.

Triple Witching:
Simultaneous expiry of stock options, index futures
and index options on the same day
 CA Piyali Parashari

40 stock market
terms you must
know
(series U,V)
 01 U Shaped Recovery:
A type of economic recession and recovery which
resembles a U shape in a chart. It is similar to V
shape recovery except that economy lingers at the
lower end of the curve for a longer period

Ultra ETF
It is a class of exchange-traded fund (ETF) that uses
leverage (debt) to increase the return. They use
derivatives and debt to earn higher returns from
price movements.

Unadjusted Basis
It is the initial cost of an asset and includes expenses
and liabilities incurred in buying
 02 Unaffiliated Investments:
They are investment holdings of an insurance
company that is not under its control or joint
ownership

Unappropriated retained earnings

Portion of the retained earnings that are not set
aside for any specific purpose but for general use.

Unbundling
When a company having different businesses,
retains core businesses and sells of assets, products
lines or subsidiaries in order to create a better
performing company
 03
Unconstrained Investment:
It is a type of investment strategy that allows fund
managers to pursue investment themes without
tying them to a specific performance benchmark
such as the Nifty 50 Index

Uncovered Interest Arbitrage

An arbitrage which involves switching from a
domestic currency that has a low interest rate to a
foreign currency which has a high rate on deposits.
Since foreign exchange risk is not hedged it is called
uncovered.

Under Reporting
Intentionally reporting low income to avoid tax
 04
Underapplied Overhead
When overhead expenses are more than what a
company actually budgets. It creates an
unfavourable variance and increases cost of goods
sold

Undercapitalisation
When a company does not have sufficient capital to
run normal business and pay creditors

Underlying Profit
Profit which is calculated internally by a company to
show what it considers to be the actual profit
position after excluding one time charges or gains
 05 Undersubscribed
When the demand for the security is less than the
number of securities issued

Undervalued
When the market price of a security is below its true
intrinsic value

Underwater:
Refers to an asset which has a worth much less than
its face value or the loan taken to buy the asset.

Underweight Portfolio:
A portfolio which does not hold a sufficient amount
of security vs the proportion of the security in a
benchmark portfolio
 06
Undisclosed Reserves:
Also called hidden reserves which are not dislosed
in financial statements but which have real assets
backing them

Undivided or Eastern Account

In an IPO when each underwriter accepts
responsibility for selling any shares that remain
unsold by other members of the syndicate.

Unicorn:
Term used in Venture Capital industry to refer to a
startup with a valuation of over $1 billion
 07
Unlevered Beta:
Beta is a measure of market risk. Unlevered Beta
measures market risk without impact of debt

Unlevered Cost of Capital

An analysis to measure the cost to implement a
particular capital project when no debt is used.

Unlimited Liability:
Where business owners and partners assume full
responsibility to repay the debt even from their
personal property
 08
Unqualified Opinion
an independent auditor's opinion that a company's
financial statements are fairly and appropriately
presented as per generally accepted accounting
principles

Unregistered shares
Shares issued through private placement and ESOPS
which are not registered in an exchange

Unsecured Loan/ Debt

A type of loan that is secured only by the
creditworthiness of the company and does not have
any collateral backing it.
 09
Unsolicited Bid
Also a hostile bid, it is an offer made by an individual,
investor, or company to purchase a company that is
not actively seeking a buyer.

Unsubordinated Debt
It is a debt which has to repaid before any other debt is
paid

Up market capture ratio

An investment manager's relative performance during
bull markets. The ratio is calculated by comparing the
manager's returns in up-markets vs a benchmark
index.
 10
Valuation
The process
1/5 of determining the current (or projected)
value of an asset or a company. Methods used are
CAPM or Discounted Cash Flows

Value at Risk
A statistic that measures the extent of risk in a firm,
portfolio or investment over a specified time period

Value Averaging
Investment strategy that involves making regular
contributions to a portfolio over time where one
would invest more when the price or portfolio value
falls and less when it rises.
 11 Value Investing
Investment
1/5 strategy for picking stocks that appear
to be trading at lower than their intrinsic value. They
find stocks that the market is undervaluing

Value of Risk
Financial benefit that a risk taking actvity like a new
product or a new market or new technology will
bring to the shareholders

Value Trap:
Stocks which appear to be cheap and trading at low
levels and appear attractive to investors but which
are in fact misleading.
 12
Vanilla Option
A call/put
1/5 option that gives the holder the right, but
not the obligation, to buy or sell an underlying asset
at a predetermined price in a predetermined time.

Variance Swap
It is a derivative used to hedge or speculate on the
magnitude of the price movement of an underlying
asset.

Venture Capital
A form of equity financing provided to startup
businesses. it comes from well off investors,
investment banks and may also be in the form of
technology and managerial expertise
 13
Versioning
When
1/5a company produces different models of the

same product and charges different prices for each

model

Vertical Analysis
A method of financial statement analysis where
each line item is listed as a percentage of a base
figure

Vertical Merger
Merger between two companies that have different
supply chain functions for a common product or
service.
 14 Volatality
It measures how large an asset price swings around
1/5
the mean price

Volatality Swap
It is a forward contract where pay off is based on
the realised volatality of the underlying asset.

Volume Analysis
It involves analysing changes in the trading volume
of an asset to make conclusions about the
movement of asset prices
 CA Piyali Parashari

30 stock market
terms you must
know
(series W,X)
 01

W Shaped Recovery:
Also called double dip recession, the economy drops
twice before it recovers fully. They are painful as the
brief recovery fools investors to get back early

Wage Push Inflation

An overall rise in the cost of goods & services due to
rise in wages

Walk Through Test

Procedure used in an audit of an entity's accounting
system which traces the transaction in the system
step by step. It assesses the reliablity of the system
 02 Wall of Worry
It refers to the markets ability to show resilience in
the face of negative economic or corporate news

Wall Street
It is a street located in the lower Manhattan section
of New York City housing some of the largest US
brokerages and investment banking firms

Wallflower
Refers to an unpopular or neglected stock in which
investors have lost interest

Wallpaper:
Refers to stock and bonds which have become
worthless.
 03
Walmart Effect
The economic impact felt by local businesses when
a large company like Walmart opens a location in
the area. It forces small firms out of business and
reduces wages of competitors employees

Warrants
They are derivatives that give the holder the right
but not the obligation to buy a security at a certain
price before expiry date

Wash
It is a loss that is cancelled out by an equal gain
giving net result of zero
 04 Wash Out Round
A round of financing where new investors take
control of the company from existing equity holders
often associated with emergency funding

Wash Trading
An illegal type of trading in which a broker and
trader collude to make profits by feeding misleading
information to the market thereby manipulating
prices

Wasting Asset
An asset that continuously declines in value over
time
 05 Watered Stock
When shares of a company are issued at a much
greater value than the value implied by the
company's assets

Weak Currency
When the value of a currency declined as compared
to other currencies eg dollar vs euro. As a result
imports become expensive for the country and
exports become attractive for buyers

Weighted Alpha
It measures the performance of a security over a
certain period by giving more importance to the
recent activity as compared to earlier performance
 06
Weighted average cost of capital (WACC)
It is a company's after tax cost of capital from all
sources including equity and debt. It measures the
company's required rate of return

Weighted average cost of equity (WACE)

It calculates the cost of equity by giving different
weight to different types of equities as per their
proportion in the total capital

Whisper Stock
A public company may become a whisper stock
when there are rumours of a takeover. As a result
the trading volumes increase.
 07
White Knight:
a defense of a hostile takeover whereby a 'friendly'
buyer aquires company at a fair value when it is on
verge of takeover by a hostile company

Wide Economic Moat

A sustainable competitive advantage possessed by
a business that makes it difficult for competitors to
reduce its market share

Wide Ranging Day

When the high and low prices of a share are very
wide apart vs that of a typical day
 08
Widow and Orphan Stock
They are low-volatility yet high-dividend paying stocks.
They are normally blue chip stocks in sectors which are
non cyclical.

Windfall profits
They are large, unexpected gains resulting from lucky
circumstances. It may be due to unexpected positive
changes in industry or company

Window Dressing
When financial statements are reports appear to show
better returns than actuals. This is done by deferring
losses and charges
 09
Witching Hour
the last hour of trading on the third Thursday of each
month when options and futures expire. There are
heavy volumes as traders close positions

Wisdom of Crowds
It refers to the idea that large groups of people are
collectively smarter than individual experts. It explains
market movement due to herd mentality

Writer
He is an option seller who opens a position and collects
premuim from the buyer for providing the buyer the
right to buy or sell the underlying asset.
 10
X-Efficiency
The degree
1/5 of efficiency which firms demonstrate in
conditions of imperfect market condition eg in a
monopoly or duopoly

XD
Symbol used to signify that a security is trading ex
dividend

XRT
A ticker printed after the share indicating that the
stock is trading ex dividend.
 CA Piyali Parashari

30
Stock Market
terms you must
know
(series Y, Z)
 01
Y Shares:
They are a class of shares reserved for institutional
investors offered in open ended Mutual Funds. They
have high minimum investment and low charges

Year on Year
It is a method of comparing financial results of two
periods on a yearly basis

Year to Date
It is the period of time beginning the first day of the
current financial year up to the current date. It is
used for comparing performance data of a company
with its competitors
 02 Yearly rate of return
It refers to the annual percentage return earned on
a fund for a year. It includes capital appreciation and
dividends

Yellow Knight
A company that was trying a hostile takeover
attempt but later backs out of it and proposes a
merger of equals with the target company instead.

Yield
Earnings generated and realized on an investment
over a particular period of time. It's expressed as a
percentage based on the invested amount, current
market value, or face value of the security.
03 Yield-Based Option
A yield-based option is a contract that gives the
buyer the right, but not the obligation, to purchase
or sell at the underlying value, which is equal to 10
times the yield.

Yield Basis
It quotes the price of a fixed-income security eg a
bond as a yield percentage instead of a money
terms. It tells the trader whether the bond is at
trading at a discount or premuim

Yield Curve
It is a line that plots yields, or interest rates, of
bonds that have same credit quality but different
maturity dates.
 04 Yield Curve Risk
It is the risk that a change in interest rates will
impact fixed income securities. As interest rates go
up existing bonds having low coupon rates fall in
value

Yield on Cost
It measures the dividend yield by dividing the stocks
dividend by the original cost or purchase price paid
for the stock

Yield on Earning Assets

It is a solvency ratio that compares a financial
institutions interest income vs its earning assets. it
shows how well the assets are performing
 05 Yield Spread
It is the difference between the yield of different
debt securities of varying maturities, credit ratings
or risk levels

Yield Tilt Index

It is a type of fund that invests in stock or securities
that replicate the market index but higher
proportion of high yielding investments

Yield to Maturity
The total return expected on a bond if the bond is
held till maturity. It is a long-term bond yield but is
expressed as an annual rate percentage
 06
Zero Based Budgeting
A method of budgeting which does not consider
past expenses and justifies each expense for the
new period

ZEBRA (Zero Basis Risk Swap)

It is an interest rate swap between a municipality
and a financial intermediary where one party pays
the other party a fixed interest rate and receives a
floating rate in exchange.

Zero Beta Portfolio

A portfolio which has the same return as the risk
free rate. The risk is zero compared to high beta
portfolio and returns are lower
 07 Zero Coupon Bond:
It is a debt instrument which trades at a deep
discount and offers to pay full face value on
maturity

Zero Coupon Swap

It involves an exchange of cash flows where floating
interest rate payments are made regularly but the
fixed interest payment is made as a lumpsum at the
time of maturity

Zero Gap Condition

It exists for financial institutions when the interest
rate sensitive assets and liabilities are balanced and
a change in rates will not cause any surplus /
shortfall
 08
Zero Investment Portfolio
A portfolio where the net value of the securities is
zero. Eg when an investor short sells Rs 1000 worth of
stocks and uses the proceeds to purchase Rs 1000
stocks of another company

Zero Sum Game

A situation in which one person’s gain is equivalent to
another’s loss, so the net change in wealth or benefit is
zero. Eg Futures and Options are zero sum games

Zero Uptick
When a share is traded at a price which is the same as
the trade immediately prceeding it but at a price which
is higher than the transaction before that.
09 Zeta Model
A mathematical model that estimates the chances of a
public company going bankrupt within a two-year time
period

Zombies
Companies that earn just enough to continue
operating and service their debts but are unable to
repay the debts. They have no capital for growth

Zombie Bank
It is an insolvent financial institution that is still
continuing to operate due to support from the
government.
 10
Zero Coupon Convertible Security
A fixed
1/5 income security which combines features of

zero coupon bond and convertible bond. It does not

pay regular interest and bond holders have option to
convert bonds into shares at maturity

Zone of Resistance
It is upper range of a stock's price that shows
resistance and price tends to fall due to selling
pressure.

Zone of Support
The lower range of a stock's price that shows support
and price tends to to rise due to demand.