Q) What is the difference between stocks and shares?
Ans: Stock s a genera term used to descrbe the shares of any company and "shares" refers to a specfc stock of a partcuar company. So, f nvestors say they own stocks, they are generay referrng to ther overa ownershp n one or more companes. If nvestors say they own shares - the queston then becomes - shares n what company? Stocks : A type of securty that sgnfes ownershp n a corporaton and represents a cam on part of the corporaton's assets and earnngs. Shares : A unt of ownershp nterest n a corporaton or fnanca asset. Whe ownng shares n a busness does not mean that the sharehoder has drect contro over the busness's day-to-day operatons, beng a sharehoder does entte the possessor to an equa dstrbuton n any profts, f any are decared n the form of dvdends. The two man types of shares are common shares and preferred shares. Caital !arkets : The capta market (securtes markets) s the market for securtes, where companes and the government can rase ong-term funds. The capta market ncudes the stock market and the bond market. It s a pace where nvestors come together to buy and se shares. "rimary !arkets: The rimary market s that part of the capta markets that deas wth the ssuance of new securtes. Companes, governments or pubc sector nsttutons can obtan fundng through the sae of a new stock or bond ssue. Ths s typcay done through a syndcate of securtes deaers. The process of seng new ssues to nvestors s caed underwrtng. In the case of a new stock ssue, ths sae s caed an nta pubc offerng (IPO). Deaers earn a commsson that s but nto the prce of the securty offerng, though t can be found n the prospectus. Secondary !arket: The secondary market s the fnanca market for tradng of securtes that have aready been ssued n an nta prvate or pubc offerng. #i$idend The perodc, usuay quartery, payment made by a corporaton to ts sharehoders, generay expressed as dvdend per share. Dvdends represent earnngs that are not renvested by the corporaton. Some stocks pay no dvdends and others, such as utty companes pay substanta ones that represent a arge porton of the tota return a sharehoder w get from hs nvestment. Dvdends are a type of dstrbuton and are usuay taxabe n year receved. %&'ity s, normay, ownershp or percentage of ownershp n a company. %&'ity Share s a) a share or cass of shares whether or not the share carres votng rghts, b) any warrants, optons or rghts enttng ther hoders to purchase or acqure the shares referred to under (a), or c. other prescrbed securtes. "reference Shares usuay, non-votng capta stock that pays dvdends at a specfed rate and has preference over common stock n the payment of dvdends and the qudaton of assets. #ebent're A bond ssued by a corporaton whch s secured by the genera credt or promse to pay of the ssuer. It s not backed by coatera such as tangbe assets. Exampe: 1. A certfcate or voucher acknowedgng a debt. 2. An unsecured bond ssued by a cv or governmenta corporaton or agency and backed ony by the credt standng of the ssuer. #eri$ati$es: Fnanca nstruments, such as futures and optons, whch derve ther vaue from underyng securtes ncudng bonds, bs, currences, and equtes. Equty dervatves are fnanca dervatve products whose vaue s dependent on the vaue of an underyng share or group of shares. (nderlyin) Sec'rity The securty that must be devered when another securty s exercsed. For exampe, f a ca opton s exercsed, then the underyng stock s devered to the ca owner. Warrants, rghts, optons, and convertbe securtes a have underyng securtes. For futures optons, futures are the underyng securty. F't'res Investment contracts whch specfy the quantty and prce of a commodty to be purchased or sod at a ater date. On contract date, the buyer must take physca possesson or make devery of the commodty, whch can ony be avoded by cosng out the contract(s) before that date. Futures can be used for specuaton or hedgng. Otion A contract that gves the owner the rght, f exercsed, to buy or se a securty or basket of securtes (ndex) at a specfc prce wthn a specfc tme mt. Usuay, they are traded as securtes themseves, wth buyers and seers tryng to proft from prce changes. They are generay avaabe for 1 to 9 months, wth some onger term optons (caed LEAPS) aso avaabe for seected securtes. Stock opton contracts are generay for the rght to buy or se 100 shares of the underyng stock (100 s the mutper). Tradng n optons shoud ony be undertaken by sophstcated nvestors. Call Otion A ca opton gves the owner the rght, but not the obgaton, to buy the underyng stock at a gven prce (the strke prce) by a gven tme (the expraton date). The owner of the ca s specuatng that the underyng stock w go up n vaue, hence, ncreasng the vaue of the opton. The purpose can be to specuate wth the opton (hope t goes up and se for a proft), to nvest n the underyng stock at a ocked n prce f the stock prce goes hgh enough, or to generate ncome. Each opton contract equas 100 shares of stock. For exampe, an AAA MAR 65 ca, woud gve the owner the rght to buy 100 shares of AAA at $65 (strke prce) per share between now and the thrd Frday n March (expraton date). "'t Otion A put opton gves the owner the rght, but not the obgaton, to se the underyng stock at a gven prce (the strke prce ) by a gven tme (the expraton date). The owner s specuatng that the opton w go up n vaue and the underyng stock w go down n vaue. The purpose can be to ether specuate wth the opton (hope t goes up and se for a proft) or trade the underyng stock at a ocked n prce f the stock prce goes down enough. For exampe, an AAA MAR 65 put woud gve the owner the rght to se 100 shares of AAA at $65 (strke prce) per share between now and the thrd Frday n March (expraton date). *ed)in) An nvestment strategy of owerng rsk by buyng securtes that have offsettng rsk characterstcs. A perfect hedge emnates rsk entrey. Hedgng strateges ower return snce there s a cost nvoved n hedgng. For exampe, a portfoo manager coud short a futures contract whch w perfecty offset any decrease n the vaue of the portfoo. Optons and short seng stock can aso be used for hedgng. Hedge funds are nvestment poos that are free to use any hedgng technques they desre and they often make arge bets n a reatvey sma number of dfferent hodngs. +ntraday Tradin) Intraday share tradng refers to the buyng and seng (or vse versa) of the same scrpt n the same tradng sesson ( on the same day). "ortfolio !ana)ement: Where assets are combned nto a portfoo that fts the nvestor's preferences (eg, eve of rsk) and needs (eg, reguar dvdends). The am of Portfoo Management s to acheve the maxmum return from a portfoo whch has been deegated to be managed by an ndvdua manager or fnanca nsttuton. The manager has to baance the parameters whch defne a good nvestment e securty, qudty and return. The goa s to obtan the hghest return for the cent of the managed portfoo. ,l'e Chi Comanies: A bue chp stock s the stock of a we-estabshed company havng stabe earnngs and no extensve abtes. Most bue chp stocks pay reguar dvdends, even when busness s farng worse than usua. They are vaued by nvestors seekng reatve safety and stabty, though prces per share are usuay hgh. ,ond A ong-term debt nstrument on whch the ssuer pays nterest perodcay, known as Coupon. Bonds are secured by COLLATERAL n the form of mmovabe property. Whe generay, bonds have a defnte MATURITY, Perpetua Bonds are securtes wthout any maturty. In the U.S., the term DEBENTURES refers to ong-term debt nstruments whch are not secured by specfc coatera, so as to dstngush them from bonds. -AS#AQ An acronym for Natona Assocaton of Securty Deaers Automated Ouotatons System, whch s a natonwde network of computers and other eectronc equpment that connects deaers n the over-the-counter market across the U.S. The system provdes the atest BID and ASKING PRICES quoted for any securty by dfferent deaers. Ths enabes an nvestor to have hs or her transacton done at the best prce. Due to NASDAO, the over-the-counter market n the U.S. s ke a vast but convenent tradng foor on whch severa thousand stocks are traded. -ational Stock %.chan)e /-S%) It s a natonwde screen-based tradng network usng computers, satete nk and eectronc meda that factate transactons n securtes by nvestors across Inda. The dea of ths mode exchange (traced to the Pherwan Commttee recommendatons) was an answer to the defcences of the oder stock exchanges as refected n settement deays, prce rggng and a ack of transparency. 0olatility The measure of the tendency of prces to fuctuate wdey. Prces of sma companes tend to be more voate than those of arge corporatons. Beta s a measure of voatty. 1i&'idity The abty to turn an asset nto cash. A hghy qud asset s easy to se because an actve market exsts that sets prces whch are contnuousy ad|usted for suppy and demand. An exampe s a sted stock or mutua fund. A ess qud asset s rea estate or a coectbe 1ot A group of dentca UNITS (for securtes) or neary dentca unts (for coectbes) of an nvestment that are traded at the same tme and prce. Open ots are the contents of open nvestments and can be ong (buys) or short (short se). Cosed ots are the contents of cosed nvestments and can be ong (se) or short (buy to cover). -et Asset 0al'e /-A0) The per share prce of a mutua fund. For a no-oad fund, NAV s the prce receved by both buyers and seers. For front oaded mutua funds, NAV s equvaent of the bd prce (what sharehoders can get for seng a share), whe the offerng prce s the prce buyers must pay per share (and ncudes front oad). The NAV s usuay cacuated at the end of each tradng day by takng the cosng prces of a securtes owned pus cash and equvaents and subtractng a abtes then dvdng by the number of shares outstandng, whch for open-end funds, fuctuates dependng on day number of redemptons and purchases. Many new funds are ssued at a NAV of $10. After a dstrbuton, the NAV fas by the amount equa to the dstrbuton. #eository A system of computerzed book-entry of securtes. Ths arrangement enabes a transfer of shares through a mere book-entry rather than the physca movement of certfcates. Ths s because the scrps are dematerazed or aternatvey, mmobzed under the system. ,ear A person who expects share prces n genera to decne and who s key to nduge n SHORT SALES. ,ear !arket A ong perod of decnng securty prces. Wdespread expectatons of a fa n corporate profts or a sowdown n genera economc actvty can brng about a bear market. ,'ll A person who expects share prces n genera to move up and who s key to take a ong poston n the stock market. Transfer a)ent: The person or frm that cances the shares n the name of the seer and The comlete lifecycle of a (2S e&'ity trade : Order Capture, ts executon n the market, affrmaton/confrmaton, foregn exchange, cearng, settement, and reportng. !'t'al F'nd Fund operated by an nvestment company that rases money from sharehoders and nvests t n stocks, bonds, optons, commodtes or money market securtes. The sum of the coected amount s caed Corpus. 3etained %arnin)s Net profts kept to accumuate n a busness after dvdends are pad. C'stodian A fnanca nsttuton that has the ega responsbty for a customer's securtes. Ths mpes management as we as safekeepng. ,on's Shares The ssue of shares to the sharehoders of a company, by captazng a part of the companys reserves. The decson to ssue bonus shares, or stock DIVIDEND as n the U.S., may be n response to the need to sgna an affrmaton to the expectatons of sharehoders that the prospects of the company are brght; or t may be wth the motve of brngng down the share prce n absoute terms, n order to ensure contnung nvestor nterest. Foowng a bonus ssue, though the number of tota shares ncreases, the proportona ownershp of sharehoders does not change. The magntude of a bonus ssue s determned by takng nto account certan rues, ad down for the purpose. For exampe, the ssue can be made out of free reserves created by genune profts or by share PREMIUM coected n cash ony. Aso, the resdua reserves, after the proposed captazaton, must be at east 40 percent of the ncreased PAID-UP CAPITAL. These and other gudenes must be satsfed by a company that s consderng a bonus ssue. )See aso MARKET CAPITALIZATION.) S'brime The term used for endng to borrowers at a hgher rate than the prme rate as they have a hgher rsk of defaut. Subprme borrowers typcay have ow credt scores due to pror bankruptcy, mssed oan payments, home repossesson etc. Settlement The process whereby obgatons arsng under a dervatve transacton are dscharged through payment or devery or both.