Knowledge Base / Investor Education
Glossary / Financial Lingos
ALL or NONE
A limit price order that instructs the broker/dealer to buy or sell the whole order at the stated price or not at all. If there is insufficient supply or demand to meet the quantity requested or offered for sale by the order then it is cancelled at the close of the market.
Alpha is a measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A positive alpha is the extra return awarded to the investor for taking a risk, instead of accepting the market return. For example, an alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4 %. -0.6 means a fund's monthly return was 0.6 % less than would have been predicted from the change in the market alone. It is thus a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.
AMERICAN DEPOSITARY RECEIPTS
Certificates issued by a U.S. Depositary Bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent one share or a bundle of shares of a foreign corporation. ADR's carry the same currency, political and economic risks as the underlying foreign share; the prices of the two, adjusted for the SDR/ordinary ratio, are kept essentially identical by arbitrage. American Depositary Shares (ADS) are a similar form of certification.
It is an option contract that can be exercised at any time between the date of purchase and the date of expiry. Most exchange-traded options are American style.
A professionally qualified and experienced person, normally an employee of a brokerage firm, an asset management company or an independent research firm who studies companies, commodities and capital markets, and makes buy and sell recommendations on stocks, commodities and financial instruments. Most analysts specialize either in a specific industry, sector or commodity.
An Annual Report is the yearly record of a company's financial condition that includes a description of the firm’s operations, its balance sheet and income statement.
Profiting from differences in the price of a single security that is traded on more than one market. Taking advantage of certain prices in different markets by the purchase or sale of any instrument and at the same time taking an equal and opposite position in a related market to profit from any small price differential.
The price at which a broker or dealer is willing to sell a stock, commodity or any other financial instrument.
Any order that is automatically executed by a computer without any human intervention based on pre-set terms and conditions.
Assignment is the receipt of an exercise notice by an option writer that requires him to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price. Assignment occurs when an option holder exercises his option by notifying his broker, who then notifies the Clearing System.
Using past data to predict future movement of market or financial instrument. As a general application it is using of past data or variable of interest to predict future values of the same variable.
The average time to maturity of securities held by a mutual fund is called average maturity. Changes in interest rates have greater impact on funds with longer average life.
The clerical or back office operations of a financial intermediary that supports, but do not include, the trading of stocks and other securities or marketing and sales of mutual funds and other financial instruments. It includes all communications and settlement of trades, record keeping and regulatory compliance.
BALANCE OF PAYMENTS
This is a summary of money flowing in and out of a country. If a country is spending more for imported goods and services than it receives for goods and services it exports, a deficit results. If the country received more money by selling goods, services and other
payments in foreign markets than it spent on imports and other outgoing payments, it will result in a surplus.
One hundredth of a percentage point (0.01%). Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change by very small amounts.
An investor who believes a stock or the overall market will decline. A bear market is a prolonged period of falling stock prices, usually by 20% or more.
Bear raid is phenomenon or a situation in which large traders sell positions with the intention of driving prices down.
It is a measure of non-diversifiable risk or the extent to which a firm’s (or asset’s) or stock return changes because of a change in the market’s return. It is a measure of the risk of a stock’s financial returns, as compared with the risk of the financial returns of the general stock market. b = 1 means that the stock is as risky as the general market; b < 1 means the stock is less risky, whereas b > 1 means that the stock is more risky than the overall stock market.
Beta (b) may be estimated by applying linear regression analysis to explain the relationship between the dependent variable, stock returns (Rj), and the independent variable, market returns (Rm). The intercept or constant term (also referred to as ‘alpha’) of the regression equation provides a measure of Stock Returns (Rj) performance as compared to the performance of the general market during the regression period.
Rj = α + bRm (regression equation formulation)
Rj = Rm + b(Rm – Rf)
= Rf + bRm - bRf
= Rf (1 - b) + bRm (CAPM formulation)
Beta is a measure of a stock's risk in relation to the market. A BETA of 0.7 for a stock means that a stock price is likely to move up or down 70 % of the market change; while a BETA of 1.3 means the stock is likely to move up or down 30 % more than the market.
BETA (MUTUAL FUNDS)
It is the measure of a fund's risk in relation to the market. A BETA of 0.7 for a mutual fund means that the fund's total return is likely to move up or down 70 % of the market change; while a BETA of 1.3 means total return is likely to move up or down 30 % more than the market.
A bid price is the highest price that a buyer (i.e., bidder) is willing to pay for a good. It is usually referred to simply as the "bid." In bid and ask. Thus it is the price at which a broker/dealer is willing to buy a stock, commodity or any other financial instrument.
“Blank Sale” means “a sale by a party that does not own shares or the sale does not constitute a sale with pre-existing interest or is a sale by a party that has not entered into a contractual borrowing arrangement to meet delivery requirements”. Blank sale is legally not permissible in Pakistan.
A steep and rapid increase in prices that immediately followed by a steep and rapid drop in price. This is an indicator seen in charts and used in technical analysis of stock price and market trends.
The term ‘bonus shares’ means dividend paid by a Joint Stock Company to its shareholdings in the form of shares from its accumulated profits; the free shares thus issued to existing shareholders are known as a bonus shares. These bonus shares are issued to the existing shareholders by the company by converting free reserves or share premium account to equity capital without taking any consideration from investors.
Bonus shares do not directly affect a company’s performance.
Issue of Bonus shares has following major implications/effects:
- Share capital gets increased according to the bonus issue ratio.
- Liquidity in the stock increases.
- Effective Earnings per share, Book Value and other per share values stand reduced.
- Markets take the action usually as a favourable act.
- Market price gets adjusted on issue of bonus shares.
- Accumulated profits get reduced.
Rises in a security’s price above a resistance level (commonly its previous high price) or drop below a level of support (commonly the former lowest price). A breakout is taken to signify a continuing move in the same direction. Can be used by technical analysts as a buy or sell indication.
In general a broker is an individual or a firm that matches buyers and sellers for a fee or a commission.
The business cycle has four phases: Expansion, Peak, Recession and Trough:
These cycles create price changes, which lead to changes in total spending in relation to the amount of goods and services being produced.
A market which is on a consistent upward trend is regarded a bull market.
Purchase of a controlling interest of a company's stock. A leveraged buyout is done with borrowed money.
An option contract that gives the holder of the option the right (but not the obligation) to purchase, and obligates the writer to sell, a specified number of shares, commodity or financial instrument at the given strike price, on or before the expiration date of the contract.
Amount used during a particular period to acquire or improve long term assets such as property, plant, or equipment.
When a stock, commodity or a financial instrument is sold for a profit, it's the excess of the net sales price over their net cost that is called Capital Gain.
When a stock, commodity or a financial instrument is sold at a loss, it is the excess of net cost over the net sales price that is called capital loss.
A dividend paid in cash to a company's shareholders. The amount is normally based on profitability and is taxable as income. A cash distribution may include capital gains and return of capital in addition to the dividend.
CASH AND EQUIVALENTS
The assets that can be converted into liquid cash immediately are regarded as cash equivalents. Usually this includes bank accounts and marketable securities, such as government bonds and Bankers Acceptances. Cash equivalents on balance sheets also include securities (e.g., notes) that mature within ninety days.
In investments, it represents earnings before depreciation amortization and non-cash charges. Sometimes it is called cash earnings. Cash Flow from operations (called Funds from Operations (FFO) by real estate and other investment trusts, is important because it indicates the ability to pay dividends.
CASH SETTLED FUTURES
It is a method of settling certain futures or options contracts whereby the seller and the buyer exchange the difference (profit or loss) in the cash value of the underlying assets like securities/indices/commodity/etc. At the time of settlement the difference in the contract value when traded according to a procedure specified in the contact.
CHANGES IN FINANCIAL POSITION
Sources and uses of funds provided from operations which alter a company's cash flow position.
Excessive trading of a client's account in order to increase the broker's commissions is called churning.
A system of harmonized trading halts and/or price limits on securities and derivative markets designed to provide a cooling-off period large intraday market movements.
Closing purchase is a transaction in which the purchaser's intention is to reduce or eliminate a short position in a stock, or in a given series of options.
It is a transaction in which the seller's intention is to reduce or eliminate his long position in a stock, options or commodity.
COLLECTIVE INVESTMENT SCHEME
Collective Investment Scheme (CIS) is an investment vehicle which allows investors to pool their assets into a single portfolio in order to gain access to the stock market generally or to specific markets or sectors. Collective investment scheme includes a closed-end fund and an open-ended scheme that provides control of the investments to the company (AMC) pooling and investing the money. The idea behind this is to maximize the returns by combining resources of the participants and making it possible to acquire a larger portion of the investment, thus generating more return that is distributed among the investors.
For small investors, CIS allows access to professional investment management and spreads the risk of investing in equities and other securities by giving investors a share of a much larger portfolio than they could invest in on their own. The investors also benefit from the lower dealing costs that a large fund can command.
COMMON STOCK EQUITY
Value of outstanding common/ordinary shares at par, plus accumulated retained earnings. It is also called shareholders equity.
Confidence indicator is a measure of investor’s faith in the economy and the securities market. A low or deteriorating level of confidence is considered by many technical analysts as a bearish sign.
The degree of assurance that a specified failure rate is not exceeded.
Confirmation is the written statement that follows any "trade" in the financial markets. Confirmation is issued immediately after a trade is executed. It spells out settlement date, terms, commission, etc. depending on the nature of trade.
CONSUMER PRICE INDEX (CPI)
This is the indicator of the change in prices of goods and services. Included in the index are food, transportation, medical care, entertainment and other items purchased by households and individuals.
The movement of the price of a futures contract toward the price of the underlying cash commodity. At the start, the contract price is higher because of the time value. But as the contract nears expiration, the futures price and the cash price converge.
CORNER a MARKET
To purchase enough of the available supply of a commodity or stock so as to be able to manipulate its price in future.
Counter party is any one of the participants in a transaction.
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually paid twice a year.
Covered call is primarily a short call option position in which the writer owns the number of shares of the underlying stock represented by the option contracts. Covered calls generally limit the risk the writer takes because the stock does not have to be bought at the market price, if the holder of that option decides to exercise it.
Covered person means persons associated with a broker, but not including an associated person that has no officers or employees in common with the broker and where the broker maintains and enforces written policies and procedures reasonably designed to prevent the broker or any of its controlling persons, officers, or employees from influencing the activities of research analysts and the content of research reports prepared by the associated person
Current assets of company are defined as sum total of all Value of cash, accounts receivable, inventories, marketable securities and other assets that could be converted into cash in less than 1 year.
Amount owed for salaries, interest, accounts payable and other debts due within 1 year.
Indicator of short-term debt paying ability that is determined by dividing current assets by current liabilities. The higher the current ratio, the more liquid the company is regarded.
For bonds or notes, the coupon rate divided by the market price of the bond is known as current yield.
An order to buy or sell stock that automatically expires if it cannot be executed on the day it is entered.
Debt/equity ratio is an indicator of financial leverage. The ratio compare assets provided by creditors to assets provided by shareholders and is determined by dividing long term debt by common stockholders’ equity.
The date on which a firm's directors meet and announce the date and amount of the next dividend.
It is a non-cash expense or income that provides a source or application of free cash flow. Deferred tax is an accounting concept (also known as future income taxes), meaning a future tax liability or asset, resulting from temporary differences or timing differences between the accounting value of assets and liabilities and their value for tax purposes.
Deflation is a decline in prices, where production exceeds demand. Deflation normally occurs during recessions and leads to a rise in unemployment.
It is a non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of long term assets over the useful life of the assets.
It is a financial instrument, such as an option, or future, whose value is derived in part from the value and characteristics of the underlying security. Some of the common forms of the derivative instruments are forwards, futures, options, swaps etc.
DIRECT TRANSFER UNDER VPS
It is the movement of tax-deferred retirement assets from one plan directly to another. A direct transfer is not a withdrawal and does not incur any taxes or penalties. This allows a person to move his/her retirement assets as many times as he/she wants to plans that might be more suitable for him/her at that point in time.
The payments from fund or corporate cash flow that may include dividend from earnings, capital gains from sale of portfolio holdings and return on capital. Distributions can be made by cheque or by reinvesting in additional shares/units.
When the price of an asset and an indicator, index or other related asset moves in opposite directions, this is called divergence. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators, such as the money flow index (MFI), are moving in opposite directions.
Dividend is the distribution of a portion of a company's earnings, cash flow or return of capital to shareholders, in cash or through issuance of additional stocks.
DIVIDEND YIELD (STOCKS)
Dividend Yield represents annual dividend divided by current stock price.
DIVIDEND YIELD (FUNDS)
Dividend Yield (funds) represents return on a share of a mutual fund held over the past 12 months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not ± 98 redemption charges.
DIVIDENDS PER SHARE
Dividends paid for the past 12 months divided by the number of common shares outstanding, as reported by a company. The number of shares often is determined by a weighted average of shares outstanding over the reporting period.
It is a classic negative change in ratings for a stock or other rated security of a company by a credit rating company.
Earnings reflect the amount of profit that a company produces during a specific period.
EARNINGS PER SHARE (EPS)
EPS is also referred to as Primary Earnings per share of common stock. It is computed by dividing the net income for the past 12 months by the number of common shares outstanding as reported by a company. The company often uses a weighted average of shares outstanding over reporting period. It is an important variable to determine the market value of a share
The ratio of Earnings per Share after allowing for tax and interest payments on fixed interest debt, to the current share price and is the inverse of the Price/Earnings ratio. It's the Total Twelve Months Earnings divided by number of outstanding shares, divided by the recent price, multiplied by 100. The end result is shown in percentage.
An order to enter a position in the market at a specified price is regarded as Entry Order.
The value of the common stockholders’ equity in a company as shown on the balance sheet is called Equity.
It is an option contract that can only be exercised on the expiry date only.
An exchange is the marketplace in which shares, options and futures, stocks, bonds, commodities and indices are traded.
EXCHANGE TRADED FUND
An Exchange Traded Fund is an open-end investment instrument issued by an asset management company that trades on a stock exchange. By investing in the units the Exchange Traded Fund makes available to small investors to invest in the index or the commodity. For example, a Tola of gold may cost Rs 35000, but a unit/share in the Exchange Traded Fund may cost only Rs 5000, making it viable for more people to invest.
The first day of trading when the seller who owned the stock at the start of the day, rather than the buyer, of a stock will be entitled to the most recently announced dividend payment. After the ex-date has been declared, the stock will usually drop in price adjusting for the expected dividend.
The process of completing an order to buy or sell securities is called the execution of a trade. Once a trade is executed, it is reported by a Confirmation Report and settlement (payment and transfer of ownership) occurs usually 2 days after an order is executed depending on the system of the exchange where it is traded.
Exercise is to implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.
EXPENSE RATIO (FUNDS)
Expense Ratio (of funds) is the percentage of the assets that were spent to run a mutual fund. An expense ratio is determined through an annual calculation, where a fund's operating expenses are divided by the average value of its assets under management.
Foreign Currency Exchange
A Person or a firm who buys and sells foreign currencies to make a profit or acts on behalf of customers to meet their needs of foreign currencies
It refers to various mutual funds offered by an Asset Management Company to achieve different investment objectives. Usually, investors can move assets between different funds of a fund family at little or no cost, and can receive a single statement describing their holdings in all the funds in the fund family. It is also called family of funds or mutual fund family.
Agreement to buy or sell a set number of shares of a specific stock in a designated future month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures market. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction.
GOOD TILL CANCELED
Sometimes simply called "GTC", it means an order to buy or sell stock or any tradable financial instrument that is good until cancelled by the client.
GROSS DOMESTIC PRODUCT (GDP)
Total value of products and services produced within the territorial boundary of a country
GDP = consumption + investment + (government spending) + (exports − imports).
GROSS NATIONAL PRODUCT (GNP)
GNP is an indicator of national economy that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents. In other words it is the total value of Goods and Services produced by all nationals of a country (whether from within or outside the country)
GNP = GDP + NR [Net income from assets abroad (Net Income Receipts)]
This typically represents the compounded annualized rate of growth of a company's revenues, earnings, dividends and even macro concepts - such as the economy as a whole.
In calculating the value of assets for purposes of capital, segregation or margin requirements, usually a percentage reduction from the stated value (e.g. book value or market value) to account for possible losses in value that may occur before assets can be liquidated.
HEAD and SHOULDERS
In technical analysis, a chart formation in which a stock price reaches a peak and then declines, rises above its former peak and again declines and rises again but not to the second peak and then again declines. The first and third peaks are shoulders, while the second peak is the formation's head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.
The use of derivatives instruments to protect against price risks. A hedging transaction has the specific intent of protecting and existing or anticipated physical market exposure from unexpected or adverse price fluctuations.
In practical terms it is a strategy designed to reduce investment risk using "call" options, "put" options, "short" selling, or futures contracts. A hedge can help lock in existing profits. The purpose of hedging is to reduce the potential volatility of a portfolio, by reducing the risk of loss.
For stocks the highest (intraday) price of a stock over the past 52 weeks, adjusted for any stock splits. The same applies for commodities and other financial instruments.
A holding company is a corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
IMMEDIATE FAMILY MEMBERS
Spouse, parents and grandparents, children and grandchildren, brothers and sisters, mother in law and father in law, brothers in law and sisters in law, daughters in law and sons in law. Adopted and step members are also included in immediate family.
It is a category of business that describes a company's primary line of business. This usually is determined by the largest contribution towards the revenue of the company.
The overall general upward price movement of goods and services in an economy (often caused by an increase in the supply of money), which is usually measured by the movements in Consumer Price Index and the Producer Price Index is denoted as inflation. Over time, as the cost of goods and services increase, the value of a Rupee is going to fall because an individual is not able to purchase as much with that Rupee as he/she previously could. It is an opposite of deflation.
INITIAL MARGIN REQUIREMENTS
When buying securities on margin, the proportion of the total market value of the securities that the investor must pay for cash /collateral.
INITIAL PUBLIC OFFERING (IPO)
IPOs are the company's first sale of stock to the public. Securities offered in an IPO are sometimes those of young, small companies seeking outside equity capital and a public market for their stock and/or by large privately owned companies looking for a public market for their shares/stock.
Any information that can have effect on the price of the share of a company and that has not yet been made public. It is illegal for holders of this information to make trades based on the information that is not in public knowledge irrespective of the fact that how this information has been received.
For companies: Raw materials, items available for sale or in the process of being made ready for sale. These can be individually valued by several different means, including cost or current market value, and collectively by FIFO, LIFO or other methods of valuations. The lower value of alternatives is usually used to preclude overstating earnings and assets. For security firms the inventory means the securities bought and held by a broker or dealer for resale.
The ratio of annual sales to inventory of a company is referred as Inventory Turnover. Low turnover is in most cases considered an unhealthy sign, indicating excessive stocks and/or poor sales.
INVESTMENT ADVISORY RELATIONSHIP
A relationship by which a person or organization employed by an individual or mutual fund to manage assets or provide investment or financial advice is called investment advisory relationship.
The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment is termed as Leverage.
Leverage also refers to the amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.
LIMIT ENTRY ORDER
Limit Entry orders are entry orders to enter the market at a more favorable price. When buying a stock, the limit entry order will be placed below the current market price. When placing a limit entry order to sell, the order will be placed above the current market price.
Limit entry orders are often conducive to strategies pertaining to range-bound markets, where clients can place orders to buy at the bottom of the range and sell at the top.
An order to a broker to buy a specified quantity of a security at or below a specified price or to sell it at or above a specified price (called the limit price). This ensures that a person will never pay more for the stock than whatever price is set as his/her limit. This is one of the two most common types of orders, the other being a market order. It is an opposite of no limit order.
The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value, or in other words a position which gives profit from an increase in price is called Long Position. It occurs when an individual owns securities or financial instruments. For example, an investor holding 1000 shares of stock with expectations that the price of stock will rise is said to be "Long in the Stock” or possessing Long Position for those specific shares.
LONG TERM ASSETS
The value of property, equipment and/or other capital assets less accumulated depreciation is known as Long Term Assets. These assets are recorded in the books of accounts of a company, usually on a “cost” basis and thus do not necessarily reflect the market value of the assets.
LONG TERM DEBT
The loans and obligations with a maturity of longer than one year; usually accompanied by interest payments are referred to as Long Term Debts.
LONG TERM DEBT/CAPITALIZATION
Long term debt is the indicator of financial leverage which shows long term debt as a proportion of the capital available. It is determined by dividing long term debt by the sum of long term debt, preferred stock and common stockholders equity.
LONG TERM LIABILITIES
Amount owed by a company for loans, leases, bond repayment and other liabilities due for payment after 1 year.
For stocks the lowest (intraday) price of a stock over the past 52 weeks, adjusted for stock bonus. The same applies for commodities and other financial instruments.
It is an order that is entered or executed by a person.
Is a deposit that allows to open a position i.e. a 1% margin gives you the right to open a Rs.100,000 worth of a position with a Rs. 1,000 deposit.
Margin Call is a requirement by the broker to deposit more funds in order to maintain an open position. Sometimes a "margin call" means that the position which does not have sufficient funds on deposit will simply be closed out by the broker. This procedure allows the client to avoid further losses or a debit account balance.
The client's instruction to a broker to buy or sell the item immediately, at the current best price available is called Market order. In contrast, a limit order is executed within a specified range of prices, and a stop order when a specified price is reached. Market order is the most common way of executing orders and is also called ‘at the market’.
It allows an in investor to trade with small -- mini -- lot sizes.
MARGIN ACCOUNT (STOCKS)
It is an account in which stocks can be purchased for a combination of cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. Margin rules are regulated by the SECP.
MARGIN REQUIREMENT (OPTIONS)
The amount of cash an uncovered (naked) option writer is required to deposit and maintain to cover his daily position valuation and reasonably foreseeable intra- day price changes.
The total rupee value of all outstanding shares is called Market Capitalization. It is computed as shares times’ current market price. It is a measure of corporate size.
Market maker is a dealer who makes a market, i.e. quotes bid and offer prices to counterparties and is prepared to deal at those prices.
For mutual funds, the amount required to open a new account (Minimum Initial Purchase) or to deposit into an existing account (Minimum Additional Purchase). These minima may be lowered for buyers participating in an automatic purchase plan.
MONEY MARKET FUND
A mutual fund that invests only in short term securities, such as bankers acceptances, commercial paper, and government securities.
This is the total amount of available money and credit in a country. The Central Bank attempts to control money and credit to create a stable, growing economy.
Used in charts and technical analysis, the average of security or commodity prices constructed in a period as short as a few days or as long as several years and showing trends for the latest interval. As each new variable is included in calculating the average, the last variable of the series is deleted.
Mutual Fund is an open end fund operated by an Asset management/investment company that pools investor’s money and invests it in a variety of stocks, bonds, or other securities. Mutual Fund raises money by issuing units to the public, while redeems these depending on the demand.
The sale of a call or put option without holding an equal and opposite position in the underlying instrument is called Naked Option.
NET ASSET VALUE (NAV)
It is the value of a mutual fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. It is calculated by dividing the total net asset value of the fund or company by the number of shares outstanding. It is also referred to as "book value per share". For a closed end fund, the market price may vary significantly from the net asset value as per demand and supply.
The company's total earnings, reflecting revenues adjusted for costs of doing business, depreciation, interest, taxes and other expenses.
The difference between the open long contracts and open short contracts held by a trader in any one commodity is called Net Position.
NO LOAD MUTUAL FUND
No load mutual fund means that the funds which do not charge any type of sales load. A no-load mutual fund may charge other fees that are not sales loads, such as purchase fees, redemption fees, and account fees etc.
OBJECTIVE (MUTUAL FUNDS)
The fund's investment strategy and the categorization as stated in the prospectus. There are more than 20 standardized categories of funds.
Is a contract that grants the buyer the right, but not the obligation, to buy (a call option) or sell (a put option) commodity or financial security at a specified price on or before a given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock’s price will go down below the price set by the option.
OTHER CURRENT ASSETS
Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year.
Amount of funds generated during the period from operations by sources other than depreciation or deferred taxes such as funds generated from changes in working capital and these forms are part of Free Cash Flow calculation.
OUT OF THE MONEY
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.
The indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to reaction are referred to as Overbought/ Oversold position.
The date on which a declared stock dividend or a bond interest coupon is scheduled to be paid is termed as Payment Date.
A security that shows ownership in a corporation and gives the holder a claim, prior to the claim of common stockholders, on earnings and also generally on assets in the event of liquidation are known as Preferred Stock. Mostly preferred stock pays fixed dividend as a percentage of a par value. This stock does not usually carry voting rights.
It is the price of a share of common stock on the date shown. Highs and lows are based on the highest and lowest intraday trading price.
The ratio that compares a stock's market value to the value of total assets less total liabilities (book value) is called Price/Book Ratio. It is determined by dividing current price by common stockholder’s equity per share (book value), adjusted for stock splits. It also called Market-to-Book.
Shows the "multiple" of earnings at which a stock sells. It is determined by dividing current price by current earnings per share. Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher "multiple" means investors have higher expectations for future growth, and have bid up the stock's price. The Price Earnings Ratio is calculated as per following formulae:
It is determined by dividing stock's current price by revenue per share. Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.
The first buyer of a newly issued security buys that security in the primary market. All subsequent trading of those securities is done in the secondary market.
Profit Margin is an Indicator of being profitable. It is determined by dividing net income by revenue for the same 12-month period. Result is shown as a percentage.
Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system and executed automatically.
Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, which an investor needs to, make an informed decision. Prospectuses are used by Mutual Funds to describe the fund objectives, risks and other essential information.
Public appearance means any participation by a research analyst in a seminar, forum (including an interactive electronic forum), or radio or television or other interview, in which the research analyst makes a specific recommendation or provides information reasonably sufficient upon which to base an investment decision about a security or an issuer.
An option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date (expiration date of the contract); here it is also called ‘put’.
The actual price or the bid or ask price of either cash commodities or futures contracts.
It is an indicator of a company's financial strength (or weakness). It is calculated by taking current assets less inventories, divided by current liabilities. It also called Acid Test.
The difference between the high and low price during a given period is termed as Range.
The commission charged by a mutual fund when redeeming shares. For example, a 2% redemption charge (also called a "back end load") on the sale of shares valued at 1000 will result in payment of 980 (or 98 % of the value) to the investor. This charge may decrease or be eliminated as shares are held for longer time periods.
A stock's price movement over the past year as compared to a market index (e.g. KSE 100). Value below 1.0 means the stock shows relative weakness in price movement (underperformed the market); a value above 1.0 means the stock shows relative strength over the 1-year period. Equation for Relative Strength: [current stock price/year-ago stock price] minus (KSE 100 current value – KSE 100 one year ago).
Sum of direct benefits (such as salary, allowances, bonus, and commission) and indirect benefits (such as insurance, pension plans, vacations) that an employee receives from an employer
Research analyst means any natural person who is primarily responsible for the preparation of the content of a research report
Research report means a written communication (including an electronic communication) that includes an analysis of a security or an issuer and provides information reasonably sufficient upon which to base an investment decision
The price movement in the opposite direction of the previous trend is called retracement.
The percentage gain or loss for a mutual fund in a specific time period is referred to as Return. This number assumes that all distributions are reinvested.
RETURN ON ASSETS (ROA)
It is an Indicator of profitability. It is determined by dividing net income for the past 12 months by total assets. Result is shown as a percentage.
RETURN ON EQUITY (ROE)
ROE is the most important indicator of profitability. Determined by dividing net income for the past 12 months by common stockholder’s equity (adjusted for stock splits).
Result is shown as a percentage.
The issuance of "rights" to existing shareholders allowing them to purchase additional shares, usually at a discount to market price is known as Rights Offering. Shareholders who do not exercise these rights dilute their holdings in the company by the offering. Rights are transferable, allowing the holder to sell them on the open market to others who may wish to exercise them.
The fee charged by a mutual fund when purchasing shares, usually payable as a commission to a marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It represents the difference, if any, between the shares purchase price and the share net asset value.
A market that provides for the purchase or sale of previously owned securities. Most trading is done in the secondary market. The Stock Exchanges and the bond markets, etc., are examples of secondary markets.
It is the date on which payment is made to settle a trade. For stocks traded on exchanges, settlement is currently 2 business days after the trade (T+2). For mutual funds, settlement usually occurs the day following the trade. In some regional markets, foreign shares may require longer period to settle.
These are certificates or book entries representing ownership in a corporation or similar other entity.
It is a programme by which a corporation buys back its own shares in the open market. It is usually done when shares are undervalued. Since it reduces the number of shares outstanding and thus increases earnings per share, it tends to elevate the market value of the remaining shares held by stockholders.
"Short Sale" means a sale by a Member of the Stock Exchange, on his Proprietary Account or on Client’s Account, not owning securities at the time of sale or the sale without constituting a Pre-Existing Interest but is a sale on Proprietary Account or Client’s Account entered into on the basis of Prior Contractual Borrowing Arrangement to meet delivery requirements on the settlement date. Short Selling is regulated by “Regulations for Short Selling under Ready Market, 2002”.
Slippage is the difference between estimated transaction costs and actual transaction costs. The difference is usually composed of revisions to price difference or spread and commission costs.
The term ‘spread’ has different meaning depending on the products being dealt. It is the difference between the current bid and the current ask (in over-the-counter trading) or offered (in exchange trading) of a given security; it is also called bid/ask spread.
The purchase of one option and the simultaneous sale of a related option, such as two options of the same class but different strike prices and/or expiration dates. It is also called spread option. More generally, spread is the difference between any two prices.
STOCK DIVIDEND/ BONUS SHARES
The payment of a corporate dividend in the form of stock rather than cash is the stock dividend (also called Bonus shares). It may be additional shares in the company, or it may be shares in a subsidiary being spun off to shareholders. Stock dividends are often used to conserve cash needed to operate the business. Unlike a cash dividend, stock dividends are not taxed until sold.
STOP (-LOSS) ORDER
The order to sell a stock when the price falls to a specified level is known as Stop (Loss) Order.
It is the stated price per share for which underlying stock may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.
A market indicator based on the number of stocks whose last trade was an uptick or a downtick. Used as an indicator of market sentiment or psychology to try to predict the market's trend at a certain point in time and also relevant in context of “Regulations for Short Selling under Ready Market, 2002”..
The portion of the premium that is based on the amount of time remaining until the expiration date of the option contract, and that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value.
A verbal (or electronic) transaction involving one party buying a security from another party is called Trade. Once a trade is consummated, it is considered "done" or final.
It is the date on which a trade occurs. Trades generally settle (are paid for) 2 business days after a trade date.
The difference between the high and low prices traded during a period of time; with commodities, the high/low price limit established by the exchange for a specific commodity for any one day's trading.
Mutual Funds: A measure of trading activity during the previous year, expressed as a percentage of the average total assets of the fund. A turnover ratio of 25 % means that the value of trades represented one-fourth of the assets of the fund. Finance: The number of times a given asset, such as inventory, is replaced during the accounting period, usually a year. Corporate: The ratio of annual sales to net worth, representing the extent to which a company can grow without outside capital. Markets: The volume of shares traded as a percent of total shares listed during a specified period, usually a day or a year.
VALUE AT RISK (VaR)
It is the maximum loss that can occur with a specified confidence over a specified period. VaR is the statistical measure that uses distribution analysis and sensitivity analysis to determine how much value of a portfolio may be lost given certain market conditions.
These are the costs that change as the level of output changes.
It is an average value of squared deviations from mean. It is a measure of volatility.
The number of transactions in securities and futures made during a specified period of time and is also called turnover.
WANTED FOR CASH
A statement displayed on market tickers which indicates that a bidder will pay cash for same day settlement of a block of a specified security.
A security entitling the holder to buy a proportionate amount of stock at some specified future date at a specified price, usually one higher than current market. This "warrant" is then traded as a security, the price of which reflects the value of the underlying stock. Warrants are usually issued as a "sweetener" bundled with another class of security to enhance the marketability of the latter.
A list of securities selected for special surveillance by a brokerage, exchange or regulatory organization; firms on the list are often takeover targets, companies planning to issue new securities or stocks showing unusual activity.
The ability to establish automatic periodic mutual fund redemptions and have proceeds mailed directly to the investor.
The seller of an option contract is known as a Writer.
The percentage annualized rate of return paid on a stock in the form of dividends, or the interest paid on a bond or a note.
YIELD TO CALL
Yield to call is the percentage rate of return on a TFC/bond or a note, if the investor has to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price.
YIELD TO MATURITY
The percentage rate of return paid on a TFC/bond, note or other fixed income security if it is held to its maturity. The calculation for YTM is based on the coupon rate, length of time to maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate.
The term refers to a debt instrument that does not make coupon payments, but, rather, is issued at a discount to par and redeemed at par at maturity.