Markets and instruments

143 terms · each links to a full explanation with a worked example and the exam traps

5 Cs in creditThe five factors — Capacity, Character, Capital, Collateral and Conditions — a bank weighs when deciding whether to sanction a loan.
Active orderAn order to buy or sell at the prevailing market price, which matches immediately against an order already resting in the order book — draining liquidity rather than adding to it.
ADR, GDR and IDRDepository receipts represent shares of a company in one country but trade on an exchange in another — American inside the US, Global outside it, Indian for foreign shares listed here.
Agriculture loanA loan provided to farmers for farming operations such as horticulture and sericulture; a farmer who takes one is compulsorily brought under the Pradhan Mantri Fasal Bima Yojana crop insurance scheme.
Annualised traded valueA liquidity filter used in index construction: the median of monthly median daily traded values over six months, scaled up to a full year, used to exclude the least-traded eligible stocks.
Anti-dilution rightsA special shareholder right to buy a proportional number of new shares when a company issues fresh securities, so the shareholder's existing percentage ownership does not shrink.
Approved userAn individual, certified under a SEBI-approved programme, whom a trading member appoints to operate its derivatives trading terminal — the only person actually allowed to key in orders on it.
Asset classA grouping of investments with similar characteristics. The workbook names four broad asset classes — real estate, commodities, equity and fixed income — each with its own sub-categories.
Authorized IntermediaryThe SEBI-approved platform, run by the Clearing Corporations of NSE and BSE, that both sides of a Stock Lending and Borrowing trade must deal through — and which steps in if a borrower defaults.
Base valueThe starting level an index is set to on its base date — often 100 — from which every later index value is expressed as a change, so the percentage move matters more than the number.
Bid-ask spreadThe gap between the best buy (bid) price and the best sell (ask) price in the order book — the cost a trader bears for buying and immediately selling a small quantity.
Block dealA single large trade of at least Rs 25 crore, executed in a special exchange window within 3 per cent of a reference price, settled by delivery and disclosed after market hours.
BorrowingTaking money and paying it back over a period, usually through Equated Monthly Instalments, used to meet a financial goal when savings alone are not enough.
Broad based indexA stock index representing an entire market segment and a significant share of that market — e.g. NIFTY 500 — used as the practical proxy for the market portfolio and as a benchmark for equity funds.
Bulk dealAll transactions in a listed stock where the total quantity bought or sold exceeds 0.50 per cent of the company's listed equity shares — in one trade or several in a day — reported and disclosed the same day.
Business CorrespondentA representative of a bank, also called a Bank Mitra, who goes to customers in remote places and villages to open accounts, take deposits, transfer funds and give small loans.
Capital appreciationThe gain made when the market value of an investment rises above what you paid for it — as distinct from income, which is the interest or dividend the investment pays you along the way.
Capital marketThe market in which companies and governments raise long-term funds — for periods longer than a year — through shares and bonds, together with the secondary market where those securities later trade.
Cash and equivalentsThe asset class investors use to park money they may need at very short notice — near-zero volatility, near-zero risk of loss to principal, and ready availability.
CIBILIndia's first credit information company, licensed by the RBI, which collects lenders' monthly payment records to produce individuals' credit scores and Credit Information Reports.
Classes of InvestorThe workbook's three-way split of who buys securities — institutional, non-institutional and retail — sorted by the size of the cheque and the sophistication of the strategy.
Closely held companyA company whose equity is held only by promoters and a handful of other investors, with no shares offered to the public — it stays free of the disclosure duties a listed company carries.
CollateralA property or other asset a borrower pledges as security for a loan, which the lender can seize if repayments stop; the lender's claim to it is called a lien.
Co-locationA stock exchange facility, offered to trading members for a fee, to place their computer servers in the same premises as the exchange's servers so their orders reach the exchange faster.
Commercial bankA regulated deposit-taking institution supervised by the Reserve Bank of India, inspected and audited at intervals, offering savings, current, fixed and recurring deposit accounts.
Conversion RatioThe number of equity shares received for each convertible security, or the share-exchange rate fixed in a merger. It is fairly priced when the shares receivable are worth exactly what is given up.
Convertible preference shareA preference share that gives its holder the right to convert it into a fixed number of equity shares, turning a fixed, dividend-paying instrument into ordinary equity ownership.
Corporate ManagerThe highest user level on a trading firm's F&O terminal — the only user who can set branch exposure limits and see every branch and dealer's orders, trades and reports.
Counter-cyclical businessA business whose products stay in demand, or even do better, when the broader economy is in a downturn — the opposite of one that rises and falls with the business cycle.
Credit cardA card that lets the holder pay using a lender's credit line rather than their own account balance, with interest charged if the outstanding amount is not paid on time.
Credit Information ReportThe document a credit bureau such as CIBIL produces from a borrower's loan and credit-card payment history, used by lenders to evaluate a loan application alongside the credit score.
Cumulative preference shareA preference share whose unpaid dividend is not lost: it is carried forward to later years and paid when there are profits, if the terms of issue allow.
Defensive and offensive strategyTwo opposite competitive strategies a company can follow — defensive, protecting its existing position from rivals, or offensive, using its strengths to actively take ground from them.
Defensive stocksShares of companies whose product demand and revenues barely respond to the business cycle — such as medicines and health services — used to reduce a portfolio's unsystematic risk.
Deposit insuranceThe Central Government scheme that insures every bank deposit up to Rs 5 lakh per customer in a bank, so depositors get that much back even if the bank itself fails.
Descending weight structureA SEBI prudential norm requiring a non-benchmark index used for derivatives to weight its constituents in strictly falling order, so no smaller stock outweighs a larger one.
Differential Voting RightsEquity shares that carry less than one vote each, letting a company raise capital without diluting control — and letting an investor who does not want the vote buy the same economics at a discount.
Direct investmentBuying a security or commodity directly from its issuer or a dealer, without going through a pooled investment vehicle such as a mutual fund, AIF or portfolio manager.
Dividend yieldDividend per share divided by the share's market price — the cash income a share pays relative to what it costs today. It falls as prices rise and rises as they fall.
Dollar denominated indexAn index built to measure returns on Indian equity in US dollar terms — NIFTY50 USD restates the NIFTY 50 by the ratio of the base-date exchange rate to the current one.
Downward biasA weakness of price-weighted indices: high-growth stocks that split to keep their price accessible steadily lose index weight, so the index understates the return of its best-performing constituents.
Education loanA loan for higher education, requiring an admission offer before it can be applied for, which can also be applied for through the government's Vidyalakshmi Portal using one common application form across multiple banks.
Electronic Gold ReceiptAn electronic receipt issued against physical gold deposited under SEBI regulations, declared a "security" by the Central Government in 2021 — so buying and selling one is regulated the same way as trading a share.
Electronic Trading PlatformA screen-based venue for OTC rupee interest rate derivative transactions, regulated as part of RBI's 2019 Rupee Interest Rate Derivatives Directions, sitting alongside — but outside — recognised stock exchanges.
Equal weighted indexAn index where every constituent starts with the same weight; as prices move the weights drift apart, so the portfolio must be rebalanced by selling winners and buying losers.
Equilibrium priceThe single uniform price at which a call auction matches the maximum quantity of shares, used to open trading or set the closing price when orders are batched instead of matched continuously.
Equity capitalMoney put into a company by its owners — promoters and shareholders — in return for ownership, votes and a claim on residual profits. It is never repaid and ranks last in a winding up.
Equity Linked DebentureA debt instrument whose interest is tied to the return on an equity index or basket — the issuer parks most of the principal in bonds to protect capital and spends the rest on options to buy the equity upside.
Equity sharesOwnership in a company entitling holders to a share in profits and a vote on its affairs; equity holders are residual owners after all contractual claims, rewarded by dividend and capital appreciation.
Face valueThe denomination a company's capital is divided into and carried in its books — fixed, printed on the certificate, and the base on which dividend percentages and stock splits are computed.
Fair Game ModelEugene Fama's 1970 framing of the efficient market hypothesis: current price fully reflects available information, so no investment strategy can consistently earn above-average risk-adjusted returns.
Financial assetsClaims on future cash flows such as shares, debentures, bank deposits, PPF and mutual fund units, as opposed to real or physical assets like gold, diamonds, infrastructure and real estate.
Financial disintermediationThe shift of borrowing away from banks and towards the securities markets, where a company raises money directly from investors by issuing paper instead of taking a bank loan.
Financial marketThe market in which financial assets such as equities, bonds, currencies and derivatives are created or transferred — a mechanism for dealing in financial securities and commodities at low cost.
Financial systemThe whole set of institutional arrangements that move funds from surplus units (households) to deficit units (companies and governments) — made up of financial markets, instruments and intermediaries.
Fixed rate or plain vanilla bondA bond with a fixed coupon paid at set intervals and the principal returned only at maturity — the plain, unmodified structure every other bond type in the workbook is defined against.
Foreign Portfolio InvestorAn entity established or incorporated outside India that proposes to invest in India, registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019 as Category I or II.
Free floatThe part of a company's shares readily available for trading — broadly, what is not locked up with promoters. Indices, position limits and MWPL are all measured on it.
Free-float market capitalisationAn index-weighting method using only the shares actually available to the public — excluding promoter, government and strategic locked-in holdings — so a stock's index weight tracks its tradeable size.
Fundamental weighted indexAn index weighting constituents by company fundamentals such as sales, profits, book value, cash flow or dividends rather than market value — built to avoid overweighting overvalued stocks.
GDP weighted indexA global index that weights each country by the size of its economy (GDP) rather than its stock market, correcting the tilt of market-cap indices towards developed countries.
Good-Till-Date and Good-Till-CancelledTwo time-related order types: a GTD order lives until a date the trader names, and a GTC order lives until it executes, the trader cancels it, or the contract expires, whichever is earlier.
Good-Till-TriggerA broker-side resting instruction that sits outside the exchange until a chosen trigger price is touched, at which point it is converted into an ordinary order and pushed to the exchange.
Growth stockA share the market expects to grow faster than its peers — typically high P/E, high P/B and low dividend yield, bought for capital gain rather than income.
HeadroomFor an Indian Depository Receipt, the number of IDRs originally issued minus the number outstanding, adjusted for redemptions — the room available to convert underlying shares back into IDRs.
Housing Finance CompanyA company whose primary business is lending for the purchase of property or real estate, regulated by the Reserve Bank of India after that role moved from the National Housing Bank.
Housing loanA loan for construction, renovation, extension or purchase of property, whose principal qualifies for a Section 80C deduction and whose interest qualifies for a Section 24 deduction on loans taken after 1 April 1999.
Hybrid instrumentA security that combines features of both debt and equity in one instrument — the workbook's two examples are convertible debentures and preference shares.
Ideal priceThe average of the best bid and the best offer price in the order book — the benchmark against which impact cost is measured, and the price you would get in an infinitely liquid market.
Impact costThe percentage by which a market order's actual execution price degrades against the ideal price — the mid-point of the best bid and the best offer — and so the real cost of trading in size.
IMPS — Immediate Payment ServiceAn instant electronic fund transfer between two bank accounts, usable through internet banking with an IFSC code or through mobile banking with a 7-digit MMID.
IndexA statistical indicator that tracks a portfolio of securities representing a market or part of it, expressed as a change from a base value — so the percentage move matters, not the number itself.
Index CommitteeThe specialised committee that generally takes the final decision on including or removing a security from a stock index, once the stock has met the index construction managers' eligibility criteria.
Index constructionChoosing an index's constituent stocks and deciding its calculation methodology — a trade-off between diversification and liquidity, with the final inclusion call taken by an Index Committee.
Index divisorThe number an index total is divided by — set at inception so the index starts at a convenient 100 or 1,000, then adjusted so splits and constituent changes do not move the index level.
Index maintenanceAdjusting an index for corporate actions — bonus issues, rights issues, stock splits, consolidations, mergers — so the index stays comparable across time; triggered by the corporate action itself.
Index revisionA continuous exercise changing an index's composition — replacing existing constituents with new ones because the trading paradigm has shifted — distinct from maintenance, which reacts to a single corporate action.
Indian Financial System CodeA unique code assigned to each bank branch in India, used together with the beneficiary's account number to route NEFT, RTGS and IMPS internet-banking transfers to the correct branch.
Information signallingThe function of secondary-market prices that reveals what investors believe about a listed company, pushing prices up on good news and down on bad — a constant monitor pressuring issuers to perform.
International assetsShares listed outside India, bonds in other currencies or real estate abroad — investments that carry the asset's own risk plus the effect of exchange-rate movements against the rupee.
InvestmentThe current commitment of savings for a defined period, in the expectation of receiving back more than was committed — savings put to work, as distinct from savings merely held.
InvITAn Infrastructure Investment Trust: a SEBI-regulated trust that pools investor money into infrastructure assets such as roads, power transmission lines and renewable energy projects.
Last Traded PriceThe price at which the last contract of the session was traded — one print, and therefore routinely different from the Daily Settlement Price or Final Settlement Price, which follow a documented methodology.
Limited liabilityThe rule that an equity shareholder's exposure to a company's debts is capped at what they invested — creditors who cannot recover their dues from the company cannot come after the shareholder personally.
Limited trading memberA special category of trading member, offered by some exchanges, who is not a member of the cash market segment and whose net worth requirement is decided by the exchange, not SEBI.
Limit orderAn order to buy or sell a contract at a specified price or better — lower for a buy, higher for a sell — which waits in the order book if it cannot be matched at once.
LiquidityThe degree of ease with which you can turn an investment back into cash at a fair value — one of the three pillars of investing, alongside safety and return.
Market anomalyA pattern of returns that departs from what an asset's fundamentals and risk — as measured by CAPM or another pricing model — say it should earn, and so contradicts market efficiency.
Market capitalizationThe market value of a company: total shares outstanding multiplied by the current market price. It sets index weights and underpins derivatives eligibility and position limits.
Market depthThe quantity of buy and sell orders resting at each price level in the exchange order book — shown up to five price levels a side — that tells a trader how much can be traded before price moves.
Market-linked return instrumentsInvestments whose return is not known in advance because it depends on the issuer's performance and on market prices — equity shares, mutual funds and listed bonds, in the workbook's own list.
Market makerA market participant who continuously quotes both buy and sell prices for a security, providing liquidity so that other traders can deal without waiting for a matching counter order.
Market orderAn order to buy or sell a contract at the best price currently available in the market — no price is specified, so it trades immediately against the opposite side of the order book.
Market value of a bondThe price at which a debt instrument actually trades before maturity — distinct from its fixed face value, and driven by demand-supply conditions and the prevailing level of market interest rates.
MMID — Mobile Money IdentifierA 7-digit number a bank issues to its customer, needed — along with a mobile number — to receive money through IMPS mobile banking.
MSCI India IndexMSCI's index of the large and mid-cap segments of Indian equity — 86 constituents covering about 85% of market capitalisation per the workbook — built for consistent cross-country comparison.
NIFTY50 USDThe dollar-linked variant of NIFTY 50: the NIFTY 50 close multiplied by the base-date exchange rate and divided by the day's exchange rate, so foreign investors see Indian equity returns in dollars.
NIFTY Hybrid Index seriesA family of 6 NSE indices blending NIFTY 50 total return with an aggregate fixed income index in fixed proportions, reset monthly, to benchmark portfolios that hold both equity and debt.
Open outcry marketA trading method where members communicate buy and sell orders by shouting or hand signals in a physical trading pit — the historical alternative to today's screen-based electronic trading.
Operational EfficiencyHow cheap it is to transact in a market — the cost of carrying out trades — as distinct from informational efficiency, which asks whether prices already reflect all available information.
Order driven marketA market where buy and sell orders are matched automatically by the trading system on a price-time priority basis, rather than through a designated dealer or market maker quoting prices.
OverdraftA bank facility that lets a customer take a short-term loan to meet urgent needs, and repay it within the timeline agreed with the bank. PMJDY accounts carry one, limited to one account per household.
Ownership rightsThe rights an equity shareholder gets as a part-owner of the company: ownership in proportion to shares held, one vote per share, and a claim on the residual profits after all expenses and provisions.
Participating preference shareA preference share that pays the holder a specified fixed dividend plus an additional dividend on pre-specified conditions — unlike a non-participating preference share, which gets only the fixed rate.
Participatory NoteAn instrument issued by a SEBI-registered Foreign Portfolio Investor to overseas investors, giving them exposure to Indian securities without registering with SEBI themselves.
Passive orderAn order lying unmatched in the order book — a buy priced below, or a sell priced above, the market. Passive orders add depth and liquidity; active orders at the market price consume it.
Payment BankA new category of bank that offers savings and current accounts, debit cards and remittances, but cannot give loans, issue credit cards, or accept fixed or recurring deposits.
Personal loanAn unsecured loan from a bank that can be used for any purpose — such as paying off debt, a marriage, or a vacation — with no collateral required.
Pradhan Mantri Mudra YojanaA government scheme offering business loans to small and medium enterprise proprietors, in three tiers — SHISHU, KISHOR and TARUN — sized by the loan amount.
Preference shareA share carrying a pre-defined rate of dividend, paid before any equity dividend, with priority over equity in return of capital on winding up — but normally no voting rights.
Price-time priorityThe order-matching rule on Indian F&O platforms: the best price is matched first, and among orders at the same price, the one entered earliest gets priority.
Price-weighted indexAn index in which each stock counts in proportion to its share price — the sum of prices divided by the number of stocks — so a high-priced share moves it most, whatever the company's size.
Proprietary tradeA trade a stockbroker executes for its own account with its own funds, not on behalf of a client — distinct from the client orders it routes through its exchange terminal.
Residual claimThe equity shareholder's place at the back of the queue: entitled only to profits and assets left after government, lenders, employees and preference shareholders have been paid.
Retail Individual InvestorUnder the SEBI ICDR Regulations, 2018, an individual investor who applies or bids for specified securities for a value of not more than Rs 2 lakh.
Screen Based Trading SystemThe nation-wide automated trading platform on which commodity derivatives are traded, matching orders anonymously on strict price-time priority rather than by negotiation.
Secondary marketThe market where securities already issued are traded between investors — the money goes to the selling investor, not to the company, and the issuer's capital is unchanged.
SecuritiesFinancial instruments — shares, bonds, derivatives, mutual fund units, government securities and more — issued to raise funds, as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956.
Securities marketThe market in which securities are issued, purchased by investors and subsequently transferred among investors — the regulated channel that moves household savings to businesses.
Securities under the SCRAThe statutory list in Section 2(h) of the SCRA, 1956 that decides what counts as a "security" in India — shares and debentures, but also derivatives, mutual fund units and zero coupon zero principal instruments.
Semi-strong-form EfficiencyThe hypothesis that prices reflect all historical and publicly available information and adjust rapidly to news — so neither technical nor fundamental analysis earns above-average risk-adjusted returns.
SensexBSE's benchmark index of 30 large companies, the oldest and best-known bellwether of Indian equity markets, based at a value of 100 in 1979.
Small Finance BankA category of bank introduced by the RBI that takes small deposits and gives small loans, mainly to people and small businesses the banking system does not reach well.
SpeculationTaking on risk not commensurate with the return sought, in the hope of a large gain, with minimal research into what the asset is actually worth — the opposite of investing, and not merely the short-term version of it.
Sponsored depositary receiptA depositary receipt that the issuing company itself creates by delivering its own shares to a depository, which lets it list on the exchange of the country where the receipt is issued.
Sponsored DR issueA depository receipt issue built from existing shares bought back from current shareholders, rather than from fresh shares issued by the company — the alternative being an unsponsored or fresh-share DR issue.
Spot priceThe price at which the underlying asset trades in the cash market for immediate delivery — the anchor from which futures prices, basis, moneyness and final settlement are all measured.
Stock exchangeA body of individuals, or a body incorporated under the Companies Act, that assists, regulates or controls the business of buying, selling or dealing in securities.
Stock Lending and BorrowingA screen-based scheme under which an investor lends securities to a borrower through an Authorized Intermediary for a fee — and, under section 47(xv), it is not a transfer.
Strong-form EfficiencyThe most extreme form of the efficient market hypothesis: prices reflect all historical, public and insider information, so no group of investors can earn above-average risk-adjusted returns.
Style indexAn index of value stocks (low P/E, low P/B, high dividend yield) or growth stocks (the reverse), built to benchmark style managers — with far higher turnover than broad market indices.
Surrogate (pseudo) indexA closely correlated substitute index on another exchange that lets derivatives continue on an index that has itself failed the eligibility review, subject to overlap and correlation conditions.
Trading accountThe account you open with a SEBI-registered stock broker to buy and sell securities on a stock exchange. You get a Unique Client Code, a contract note within 24 hours of each trade, and alerts.
Trading memberA member of a stock exchange who trades on behalf of clients or on his own account, under a trading member ID shared by all his registered users — and who must clear through a clearing member.
Trigger priceThe price at which a stop-loss order is activated and enters the market as a market or limit order — set between the last traded price and the order's own limit price.
Turnover ratioThe value of shares traded in a market divided by its market capitalisation, a liquidity gauge for the market as a whole, distinct from a mutual fund's Portfolio Turnover Ratio.
Two-way fungibilityThe ability to convert a company's home-market shares into depositary receipts for trading abroad, and to convert those receipts back into the underlying shares, subject to both countries' rules.
Unsponsored depositary receiptA depositary receipt an investor sets up by delivering their own shares to a depository, rather than the company — it cannot be listed on a stock exchange and trades only over the counter.
Value weighted indexAn index weighting each stock by its market capitalisation, or free-float market capitalisation, divided by the total — the most popular method, and the natural basis for index funds and derivatives.
Vesting dateThe date, or series of dates, on which an employee under an Employee Stock Ownership Plan becomes entitled to exercise the right to buy the company's shares at the plan's pre-agreed terms.
WarrantAn option issued by a company giving the holder the right, not the obligation, to subscribe to its shares at a fixed price on or after a set date. SEBI requires 25 per cent of the price upfront.
Wash SaleA US tax rule, cited by the workbook to explain the January Effect: it disallows a loss deduction when an investor sells a security at a loss and buys back a substantially identical one within 30 days before or after.
Weak-form EfficiencyThe hypothesis that current prices already reflect all historical market information — past prices, returns and volumes — so technical analysis cannot earn above-average risk-adjusted returns.