Stock Market Terminologies
Here is a list of common terminologies used while trading in the stock market:
Stock symbol: The stock exchanges create a stock symbol for accessible communication among market participants. It is simply a short form of the company name. For example, Kotak Mahindra Bank, the symbol is 'KOTAK BANK.'
Tick Size: Tick size is the smallest possible increment or change in the price of a security. It can also be thought of as the minimum spread between bid-ask rates. The tick size for all stocks listed NSE & BSE is fixed at ₹0.05. It means that the stock price will change in multiples of ₹0.05. To put in another way, stock can be bought/sold either at ₹100 or ₹100.05 but not at ₹100.02
Note – Mutual Fund Units, ETFs, Fixed Income Securities and Stocks priced less than ₹15 on the BSE have a tick size of ₹0.01.
Bid & Ask Spread: Bid price is the price at which buyers are willing to buy a particular stock
Ask price is the price at which sellers are ready to sell the stock.
Bid-ask spread is the difference between the best bid rate and the best ask rate.
Extreme bid-ask spreads signify lack of liquidity. Higher the liquidity in the market, lower the spread, better the price discovery and vice-versa.
LTP Price: This is the most meaningful information in a stock quote, i.e., the current market price, or you can call it last traded price (LTP), which means the price at which the latest trade is executed on an exchange between a buyer and a seller.
LTQ: The last traded quantity at a particular point in time during the market hours. Therefore, it constantly changes as it shows the latest information on traded quantity.
Open-High-Low-Close: The price at which the day's first trade gets executed and stocks start trading for the day in the exchange is the open price. High and the Low prices are the highest and the lowest price traded on the particular trading session. Finally, the closing price is the price at which the last trade got executed at the end.
Volume: The volume of a stock is the total number of shares traded on financial security during a given time period.
Volume figures are also displayed at the bottom of price charts.
The volume of a stock is perhaps the single most important factor tracked by technical analysts. If a stock rises with high volume, it indicates a lot of strength and it is likely that the momentum will continue on the upside & vice-versa. When we talk about higher or lower volume, it is relative to average volume over certain time periods.
Volumes are generally low when the stock is in a consolidation/ range-bound phase.
Delivery: Delivery Percentage is another important concept to take note of while we study volume.
Trades entered & squared off in the same trading session are intraday trades. However, if the investor decides to keep the position for more than one trading session i.e., carry forward the position & take delivery of the shares, the exposure becomes positional.
It is also important to check the delivery percentage of a stock along with its volume. Higher the delivery percentage of stock, the greater the strength of the underlying momentum.
52 Week High/Low: The 52-week high/low is the highest and lowest price level at which a stock quoted in the past one year. 52-week high lows act as a strong resistance/support level.
Market Depth: Market depth is the measure of demand & supply of an asset traded on the exchange. It is real-time data of open buy and sells orders for given security on the exchange. This is an electronic list split into those willing to buy and others ready to sell.
Say, if we want to buy a stock, there has to be a seller willing to sell the stock at a fair price, i.e., 'Ask price,' and the price a buyer is willing to pay is 'Bid price.' Market depth offers buyer/seller order quantity and price, time of placing the order, best 5 bid/ask prices. It is a helpful tool for traders or investors to get an idea of market participants in that stock who are willing to buy and eager to sell the stock and what prices they are quoting for any particular quantity. A market depth depicts liquidity on the specific security.
Circuit Breakers: The mechanism behind circuit breakers is intended to protect traders and investors from sudden surge/plunge in the price of the security.
Circuit breakers are predefined values in percentage terms, which trigger an automatic check when there is a runaway movement in the price of a security/index in either direction. The values are calculated from the previous closing level of the security or the index. The exchange, to avoid manipulation and erratic price movements, only allows stocks to change hands at a price equal to or less to the circuit limit.
For stocks trading in the Cash Market, the circuit limit ranges between 2% to 20% for different stocks.
For instance, the stock of ABC Corporation Ltd has a 10% circuit filter and closed at ₹100 the previous day. For the next trading session, the stock can only move in a range between ₹109.95 on the higher side & ₹99.05 on the lower end.
For stocks trading in the Cash Market, the circuit limit ranges between 2% to 20% for different stocks.
There are generally two types of circuit breakers:
- Upper circuit: The limit at which stocks cannot rise above for that day. Say stock of ITC is trading at 200 and the upper circuit of the stocks is at 240 (20%). Suppose on a particular day the price went to 240. ITC stock price cannot go higher than 240, however trading can take place at the same price or lower.
- Lower circuit: This is the limit below which the stock trading gets halted for the day. Similarly, let's say the stock of ITC has a lower circuit of 160. If the price falls from 200 to 160 in a single day, it can not trade lower than this value.
However, Stocks trading in the Futures & Options Segment do not have any circuit breakers. At the Index level, circuit filters are triggered at 10%,15% and 20% respectively .
Price Bands: There are price bands set for all securities by the exchange. The price bands serve as boundaries for the stock's trading; the exchange will not accept orders that are set outside the minimum and the maximum of the price range.
The purpose behind price bands and circuit breakers is to control mass buying or selling of shares and to avoid price rigging.
Insider trading: It refers to the buying & selling of financial securities by someone who is in possession of materially unpublished price-sensitive information about the company. Insider Trading can be legal or illegal depending upon the timing of the trade.
Bulk Deal: A bulk deal is a deal where the total quantity of shares bought or sold is more than 0.5% of the number of equity shares of the listed company. Bulk deals take place during the regular trading window provided by the broker. Thus, it is a market-driven deal. Everyone trading on the stock exchange can view the deal. The broker who executes the bulk deal is required to provide the details of the transaction to the stock exchanges. If a deal is via a single transaction, then the broker informs the exchange immediately, and if it’s done via multiple transactions, the broker informs the exchange within an hour from the close of the trading day. If 0.5% or more is bought and sold of the same stock during the same trading session, it would be deemed two separate bulk deals and require two separate disclosures.
Block Deal: A block deal is a deal in which trading is done for more than 5 lakhs shares or more than 5 crores value of a company. It takes place through a separate trading window from 9.15 am to 9.50 am for a duration of 35 minutes. The shares traded in this window should range within +1% to -1% of the current market price or the previous day’s closing price. A block deal will take place only when the two parties agree to buy or sell shares at an agreed-upon price.
Since block deals happen in a separate window, they are not visible to the regular market players. The broker needs to Inform the exchange regarding these deals too.
VIX: Volatility Index is a measure of the amount by which an underlying Index is expected to fluctuate, in the near term, (calculated as annualized volatility, denoted in percentage (e.g., 20%) based on the order book of the underlying index options. India VIX, based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days. The India VIX should be thought of as a fear gauge.
Pay In: The process of delivering shares sold by the client via the broker to the designated account of the clearing corporation is known as Pay in. The pay in of the securities should be done by 10.30 am on the pay in day.
Pay Out: The process by which the clearing corporations allocate and transfer the securities to be received by the clients who have purchased the securities via the broker.
Rolling Settlement: Rolling Settlement is a mechanism of settling trades done on a stock exchange. In the early days, NSE followed a weekly settlement cycle where the trades executed throughout the week were settled every Tuesday. However, as the financial markets evolved, the settlement time was then reduced, and it came down to T+3 days.
Today on NSE and BSE, the settlement of cash market trades is done on T+2 days. Here T is referred to as the day on which the transaction has taken place. + 2 refers to the working days. At the time of calculation of the settlement day - All holidays, like bank holidays, NSE holidays, Saturdays, and Sundays, are excluded. So ideally, trades taking place on Monday are settled on Wednesday, Tuesday's trades settled on Thursday, and so on. However, recently NSE has rolled out T+1 settlement for a few stocks and going forward this will be a common standard for stocks traded on the NSE. Example: TRIDENT INDIA.
Short-Selling: We can sell shares in stock exchanges if we anticipate that the stock price may fall going forward. So, the investor borrows a share from its broker & sells it.
Once the share price falls, we will buy the same share at a lower price and return it to the broker while pocketing a profit in the trade. The process is first to sell high and then buy low.
This helps traders make a profit from a declining stock or index. Usually, Short-selling is considered risky.
Suppose you expect shares of TCS to fall for whatever reason, then you place an order to sell shares of TCS at the current market price. After the share price falls adequately by tomorrow, you buy at a significantly lower rate.
The difference between the selling and buying prices is your profit.
However, if the share prices increase after you sell at a reduced price, then you end up with a loss.
Auction: In the stock market, trade is said to be complete between buyer and seller when the seller delivers the shares at the time of settlement (Its T+2). If the seller fails to deliver shares to the buyer, the transaction gets null & void and settled in cash. The process is called Auction.
In the Auction process- the exchange or broker decides a price on which the trade will be settled. A penalty is also imposed on top of the price for the seller & the same is passed on to the buyer.
GSM: Graded Surveillance Measure is a system that monitors stock with unusual price fluctuations or may be of poor financials. GSM comes into existence to improve market integrity and protect the interest of investors. The purpose of GSM is to alert and advise all investors to be more cautious while dealing in securities that are on the GSM list, as well as to conduct necessary due diligence before dealing in these securities. Accordingly, the market regulator SEBI & the stock exchanges have implemented this surveillance measure.
If you trade on any one of the exchanges, BSE or NSE, you may have noticed the text “GSM: Stage – 01” appears below the name of certain companies. There are a few criteria to be fulfilled before the stock is added to GSM: Stage -01 list. They are:
- Securities with a current net worth of less than or equal to 10 Crores.
- Securities with current net fixed assets of less than or equal to 25 crores.
- Securities with PE (Price to equity) greater than 2x the PE of the benchmark (Nifty 500) or Securities with negative PE.
ASM: Additional Surveillance Measure (ASM) is nearly identical to that of GSM, that is, to improve market integrity and protect investors’ interests by implementing various enhanced pre-emptive surveillance measures, but ASM is majorly focused on controlling security volatility.
Similar to GSM, ASM also has a few criteria to be fulfilled before adding the stock to the ASM list.
- High-Low Price variation
- Client concentration
- Close to close price variation
- Market capitalization
- Volume variation
- Delivery Percentage
- No. of unique PANs
Delisting: As the term suggests, the removal of publicly listed stock from the stock exchanges is known as delisting. There can be both voluntary & compulsory delisting; in case of voluntary delisting, the company internally decides to delist its shares from the exchanges. In compulsory delisting, securities are delisted from the exchanges as a penal measure for not complying with various listing agreements.
Mahurat Trading: In the Hindu calendar, Diwali is considered the 1st day of the new year. Hence, every year, the stock market is open for a few hours on the occasion of Diwali.
A trading session is conducted for an hour in the evening on the special occasion of Diwali.
This is called Mahurat trading that has been going on for over 100 years now on the Bombay Stock Exchange (BSE).
It marks the starting of a new financial year called 'Samvat.'
Finally here is a list of the stock market abbreviations that you should know while trading in the stock market.
- EQ : It stands for Equity
- BE : It stands for Book Entry. Shares falling in the Trade-to-Trade or T-segment are traded in this series and no intraday is allowed. This means trades can only be settled by accepting or giving the delivery of shares.
- BL: This series is for facilitating block deals. Block deal is a trade, with a minimum quantity of 5 lakhs shares or minimum value of Rs. 5 crores, executed through a single transaction, on the special “Block Deal window”. The window is open for only 35 minutes in the morning from 9:15 to 9:50AM.
- BT : This series provides an exit route to small investors having shares in the physical form with a cap of maximum 500 shares.
- BZ : Stocks that are blacklisted for violation of exchange rules. This series of stocks falls under Trade-to-Trade category and hence BTST (Buy Today Sell Tomorrow) and intraday is not allowed in such stocks.
- GC : This series allows Government Securities and Treasury Bills to be traded under this category.
- IQ : To facilitate QFI (Qualified Foreign Investors) to trade in companies without prior approval of the depositors where maximum permissible limit for FII’s is not breached.
- IL: This series allows only FIIs to trade among themselves. Permissible only in those securities where the maximum permissible limit for FIIs is not breached.
These abbreviations are helpful while trading on the NSE terminal.