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20 Important Capital Market Terms

Published on Friday, November 07, 2014
In a series of providing useful material for Banking awareness section, today I am explaining important capital market terms in an easy way :-

1. IPO: Initial Public Offer – when a listed company offers its shares to the public for subscription for the first time.

2. Listed Company: is any company listed with SEBI; Securities Exchange Board of India, which is a regulatory body for companies and their dealings with the public in the share market.

3. DEMAT or Dematerialisation: is the process of converting the physical share certificates into equivalent number of electronic holdings in the ‘Demat Account’ of the investor.

4. Blue Chip companies/stocks: are those companies and the stocks/shares of those companies which are very highly priced as they have very high earning capacities. Blue chip companies are high profit making companies which are expected to maintain their profitable performance in near future.

You will be amused to know that the term ‘blue chip companies’ comes from the casinos!

In casinos, and specifically in the game of Poker (traditional ones!), there are many different coloured chips – green, red, black, blue – the blue coloured chips have the highest value! Hence, someone decided to use the term, ‘blue chip’ to mean the high valued companies!

5. Bear/ Bear Market: When you say that an investor is expecting a bearish market, it means, that he expects the prices of stocks in the share/capital market to fall.

6. Bull/ Bullish Market: When an investor expect the prices to rise in the capital market.

7. Dawn Raiding: refers to buying of huge amount of shares immediately after the stock market open!

8. Gilt edged securities: are referred to those securities which are issued by the Government.

9. Jobber: is a member broker of a stock exchange who only deals in buying and selling of securities from and to other fellow brokers.

He does not deal with the public.

10. Kerb dealing: is the trading transactions done between members after official closing of the trading hours.

11. Insider trading: is when a person who has ‘privileged information’ or the ‘inside information’ of a company and its business- and uses this information to make transactions in the capital market to make huge personal profits.

It is illegal!

12. Spot trading: is when shares are bought and taken delivery of and paid for.

13. Derivatives Market: where the value of the instruments bought and sold is based on value of the underlying asset. The value of the instrument is ‘derived’ from the value of the underlying asset and hence it is known as Derivatives.

Derivatives Market is where trading in derivative instruments take place.

14. Speculation: is when a person, known as the speculator, tries to make money on the difference in prices of stocks, by purchasing at lower price and selling at higher price.

Since he does not know for sure what is going to happen, it is called ‘speculating’, which means theory/guesswork/supposing!

It is highly risky and very addictive and many people are known to go bankrupt and disrupt their lives when sucked into this addictive world!

15. Price Rigging: Where a person or a group of persons having knowledge expert knowledge of the working of a capital market – artificially increases or decreases prices of securities of a company to make money by cheating the investors. It can also be called as market manipulation.

16. Cum-dividend/rights/bonus – means that the share which the investor is buying comes with rights to dividend, or special rights attached with the shares or to bonus shares issued by the company to which the shares belong.

17. Ex-dividend/rights/bonus – means that the shares that an investor is buying does not have any right to dividend/bonus/special rights issued by the company.

18. Bottom Fisher: an investor who looks to buy those share, the price of which has recently fallen to a great extent.

19. Panic Buying: When investors buy large number of shares during price rise, thinking that the prices will keep rising!

20. Caveat Emptor: which means, ‘Let the Buyer Beware’. Which means the buyer, in our case the investor, needs to be knowledgeable about what he is doing and to be careful in his dealings. 
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ramandeep singh

Ramandeep Singh, your guide to banking and insurance exams. With 14 years of experience and 5000+ selections, Ramandeep understands the path to success, having transitioned himself from Dena Bank and SBI. He's passionate about helping you achieve your banking and insurance dreams.

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