Back Office: The part of a firm that is responsible for post-trade activities. Depending upon the organizational structure of the firm, the back office can be a single department or multiple units (such as documentation, risk management, accounting, or settlements). Some firms have combined a portion of these responsibilities, usually found in the back office, particularly those related to risk management, into what they term a middle office function.

Back Testing:  A method commonly used in developing a trading system. A trading strategy is tested and optimized based on historical data. It is then applied to current data to determine predictive value. Back testing  is based on the notion that a strategy that worked in the past will continue to work in the future.

Backwardation/Ulta Badla/Undha Badla: The payment of money charges made by a seller of shares that he borrows to deliver against his sale. These charges become payable only when there are more sellers who are not in a position to deliver against their sale. These charges become payable to the buyer when the seller is not in a position to deliver the documents to the buyers who demand delivery.

Bad Debt: Debt that is viewed as unlikely to be recovered by the creditor and may be written off as worthless.

Badla: Carrying forward transactions from one settlement period to another without effective delivery. This is permitted only in specified securities and is done at the making up price which is usually the closing price of the last day of settlement.

Badla Charge/ Contango: Consideration or interest paid to the seller by the buyer for carrying over a transaction from one settlement period to another.

Badliwalas: A financier who lends money to both buyers and sellers of shares when they are not able to pay or deliver.

Bail Out of Issue: When the public issue does not get a good response from the public or fails to garner a minimum subscription, the issuer or promoters approach the financiers or some persons to arrange a subscription to bail out the issue for consideration of buy-back shares subsequent from the financiers at a higher price or compensating the financier by payment of interest on the amount of the subscription money paid in the public issue.

Balance Sheet: An accounting statement of a company’s assets and liabilities, provided for the benefit of shareholders and regulators. It gives a snapshot, at a specific point of time, of the assets that the company holds and how the assets have been financed.

Balanced Fund: Funds that aim to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents.

Balance of Trade: Difference in value, over a period of time between a country’s imports and exports of merchandise. When export exceeds imports, the country has a favorable balance of trade, and when imports exceed exports the balance is unfavorable.

Balance Sheet: State of the Financial Position of a company on a particular date, showing the nature and amount of a company’s assets and liabilities on a particular date. The assets and liabilities must balance.

Bankruptcy: Legally declared state that is usually triggered by a company’s failure or impaired ability to meet its contractual debt obligations. Usually results in the restructuring of the company’s debt or liquidation of the company.

Bar Chart (TA): A chart that compares the price with time. The vertical axis indicates the price; time intervals are marked on the horizontal axis. For each time period, a vertical line denotes the high and low price of the security; a short horizontal protrusion to the right of the vertical line shows the closing price.

Barbell Strategy: Investment technique, typically related to a bond portfolio, under which a manager holds a combination of both shorter-dated and longer-dated bonds relative to the benchmark, but where overall duration is broadly in line with the benchmark.

Bargain: Another word for transaction or deal. It does not imply that a particularly favorable price was obtained.

Bank Rate: The rate of interest at which the Central Bank of the Country, i.e., the Reserve Bank of India, as a lender of last resort refinances other banks in the country’s banking system. It is also known as the minimum lending rate or the base rate.

Bancassurance: The phenomenon whereby a financial institution combines the selling of banking products and insurance products through the same distribution channel. Popular in the early 1990s bancassurance rested on the premise that it is easy to cross-sell banking and insurance services because customers feel confident buying insurance from the same institution where they keep their savings.

Band Ke Bhao: Unauthorized trading in securities done outside official hours.

Bankers Acceptance: A short-term credit investment created by a non-financial firm and guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in the secondary market.

Bank Investment Contract: A security with an interest rate guaranteed by a bank. It provides a specific yield on a portfolio over a specified period.

Banker to an issue: A scheduled bank carrying on all or any of the issue-related activities namely acceptance of application and application monies; acceptance of allotment or call monies; refund of application monies; and payment of dividend or interest warrants.

Basis: In a futures market, the basis is defined as the cash price (or spot price) of whatever is being traded minus its futures price for the contract in question. It is important because changes in the relationship between cash and futures prices affect the values of using futures as a hedge. A hedge, however, will always reduce risk as long as the volatility of the basis is less than the volatility of the price of whatever is being hedged.

Basis Point: One-hundredth of a percentage point. Basis points are used in currency and bond markets where the size of trades means that large amounts of money can change hands on small price movements. Thus if the yield on a Treasury bill rose from 5.25% to 5.33% the change would have been eight basis points.

Basis Risk: The risk that the relationship between the prices of a security and the instrument used to hedge it will change, thereby reducing the effectiveness of the hedge. In other words, risk of varying fluctuations of the spot and the futures price between the moment at which a position is opened and the moment at which it is closed.

Basis of Allotment: An allotment pattern of an issue among different categories of applicants.

Bar Charts: A tool of Technical Analysis, these have vertical bars representing each day’s price movement. Each bar covers the distance between the day’s highest price to the day’s lowest price, with an X to mark the closing price.

Bear: A stock market operator who expects share prices to fall and keeps selling, (to pick up the shares later at a lower price for actual delivery), causing selling pressure and lowering the prices further. A term derived from the attacking posture of the bear, pushing downwards.

Bear Market: Prolonged period of falling share prices dominated by selling pressure in the marketplace, brought about by Bears, or adverse socio, economic and political factors.

Bear Trap: An erratic movement of share prices downwards, encouraging investors to sell short. When the market corrects itself and prices go up, unwary investors get caught in the bear trap.

Beauty Parade: Competitive review of investment managers, custodians, consultants, or other service providers, usually involving written submissions and presentations.

Bear Hug: A variety of takeover strategy that seeks to hurry target company managements to recommend acceptance of a tender offer in a short period of time.

Bear Market: A weak or falling market characterized by the dominance of sellers.

Bear Trap: A false signal indicating that the rising trend of a stock or index has reversed when in fact it has not. This can occur during a bear market reversal when short sellers believe the markets will sink back to their declining ways. If the market continues to rise, the shorters get trapped and are forced to cover their position at higher prices.

Bearer Securities/Bearer Bonds: Securities that do not require registration of the name of the owner in the books of the company. Both the interest and the principal whenever they become due are paid to anyone who has possession of the securities. No endorsement is required for changing the ownership of such securities.

Behavioral Economics: A combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications (i.e. irrational behavior). Bellweather A security that is seen as a significant indicator of the direction in which a market’s price is moving.

Bench Mark: Security is used as the basis for interest rate calculations and for pricing other securities. Also denotes the most heavily traded and liquid security of a particular class.

Benchmark Index: Indicators are used to provide a point of reference for evaluating a fund’s performance.

Beneficial Owner: The true owner of a security. The registered holder of the shares may act as a nominee to the true shareholders/owners.

Benefit Cost Ratio: A ratio attempting to clearly identify the relationship between the cost and benefits of a proposed project. This ratio is used to measure both quantitative and qualitative projects, as sometimes benefits and costs cannot be measured exclusively on financial terms.

Beta: A measure of the volatility of a stock relative to the market index in which the stock is included. A low beta indicates relatively low risk; a high beta indicates a high risk. Alt.  A statistical measure of risk or volatility. Indicates the sensitivity of a security or portfolio to movements in the market index. Securities/portfolios with a beta greater than one are expected to be more volatile than the market as a whole, outperforming in rising markets and underperforming in falling ones.

Bellwether: Stock or bond that is widely believed to be an indicator of the condition of the overall market.

Below par: Having a current price below face or par value.

Benchmark: Measure against which a portfolio’s performance, risk, and construction are assessed. The benchmark may take the form of a market index for portfolios focusing on a particular market — for example, MSCI World Equity Index — or be a peer group average or median.

Benchmark Portfolio: Theoretical portfolio of assets against which the performance of an actual portfolio is monitored.

Beneficial Owner: A person who enjoys the benefits deriving from security or property. May be different from the legal owner in whose name the title is registered.

Best Execution: Execution of a securities transaction at the best price available in the market at the time of the transaction.

Bid: An offer of a price to buy as in an auction. Business on the Stock Exchange is done through bids. Bid also refers to the price one is willing to pay for a security.

Bid Spread: The difference between the stated and /or displayed price at which a market maker is willing to sell a security and the price at which he is willing to buy it.

Bid-Ask Spread: The difference between the bid price and the asking price.

Bilateral Netting: An arrangement between two parties in which they exchange only the net difference in their obligations to each other. The primary purpose of netting is to reduce exposure to credit/settlement risk.

Black-Scholes Model: A mathematical model that provides a valuation technique for options. The model was adapted to provide a framework for valuing options in futures contracts.

Blank Transfer: Where the name of the transferee is left blank on the share transfer form, it constitutes a blank transfer. A person depositing shares with a stockbroker for immediate or eventual sale has to sign a blank transfer form. It is also done when shares are mortgaged so that in the event of non-payment the mortgager can fill in his own name in the transferee column and sell the share.

Block Trading: Buying and selling a block of securities usually takes place when restructuring or liquidating a large portfolio.

Blow Out: A security offering that sells out almost immediately.

Blue Chip Companies: The best-rated shares with the highest status as investment based on return, yield, safety, marketability, and liquidity.

Beta Shares: Shares that are listed, but infrequently trade shares of companies with generally low equity capital.

Boiler Room (U.S): It is a practice of using high-pressure sales tactics. This practice is sometimes used by stockbrokers who try to sell investors the firm’s house stock. A broker using boiler room tactics only gives customers promising information about the company and discourages them from doing any outside research.

Bottom(TA): The low point for a security or the overall market.

Bollinger Bands (TA):  An indicator developed by John Bollinger which consists of a moving average and two standard deviations, one above the moving average and one below. 

Bond: A negotiable certificate evidencing indebtedness - debt security or IOU, issued by a company, municipality or government agency. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on specified maturity date. The issuer usually pays the bondholder periodic interest payments over the life of the loan. Bond Trust Public unit trust which invests in government fixed interest or corporate fixed interest securities and investments.

Bonus Shares: Shares issued by companies to their shareholders free of cost by the capitalization of accumulated reserves from the profits earned in the earlier years.

Book Building Process: A process is undertaken by which a demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.

Book Closure: The periodic closure of the Register of Members and Transfer Books of the company, to make a record of the shareholders to determine their entitlement to dividends or to bonuses or right shares, or any other rights pertaining to shares.

Book Runner: A Lead Merchant Banker who has been appointed by the issuer company for maintaining the book. The name of the Book Running Lead Manager will be mentioned in the offer document of the Issuer Company.

Book Loss: Loss not actually sustained, as the investor has not sold when the price has fallen. Book loss induces some depression of mind but does not actually pinch the investor’s pocket unless, of course, the book loss keeps mounting and the investor is forced to sell a considerable loss if he can sell at all.

Book Profit: Making profit by selling a share that has gone above its purchase price. When shares, which an investor holds, go up in price, the investor has made only a notional profit, which is meaningless, except in a dry run portfolio. Only when he actually sells them does he make any tangible profit.

Book Value: The net amount shown in the books or in the accounts for any asset, liability, or owners’ equity item. In the case of a fixed asset, it is equal to the cost or revalued amount of the asset less accumulated depreciation. Also called carrying value. The book value of a firm is its total net assets, i.e. the excess of total assets over total liabilities.

Boom: A condition of the market denoting increased activity with rising prices and a higher volume of business resulting from greater demand for securities. It is a state where enlarged business, both investment and speculative, has been taking place for a sufficiently reasonable period of time.

Bootstrapping: Method of interpolating government bonds of differing maturities to gain exposure evenly across the whole yield curve.

Bottom-up Approach: to active investment management that gives priority to the identification and selection of companies (with less emphasis accorded to sector and geographical region) to build up an investment portfolio. This is the opposite of a top-down approach.

Bourse: Another name for a stock exchange; usually applied in a Continental European context.

Boutique Investment Manager: Firm, generally relatively small in the scale of operations, which has as its sole purpose the management of investments for third parties for a fee and which does not participate in other activities such as banking or life assurance. breakeven inflation The rate of inflation that will equalize the returns between fixed interest and inflation-linked securities of the same maturity. For example, if the yield on a 10-year fixed interest gilt is 5% and the real yield on a 10-year index-linked gilt is 2%, then the breakeven inflation rate is 3%. Also known as implied inflation and can be derived from swaps as well as bonds.

Breadth (TA): The number of stocks that are advancing minus those that are declining. When the number of advancing issues exceeds the number of declining issues, the breadth of the market is viewed as bullish. On the other hand, when the number of advancing issues is less than the number of declining issues, the breadth of the market is viewed as bearish.

Breadth of the Market: Indicated by the percentage of shares involved in an upward or downward movement of the stock market. If two-thirds of the shares listed in a stock exchange participate during a trading session, the market is said to have a good breadth, i.e. the trend it shows is representative and is not influenced by the price of a few heavily traded shares.

Break out (TA): A substantial rise in price above a resistance level or a decline in price below a support level. When a breakout occurs, a price trend is likely to continue.

Break Even Point: The stock price (or price) at which a particular strategy of transaction neither makes nor loses money. In options, the result is at the expiration date of the strategy. A dynamic break-even point changes as time passes.

Broker: A member of a Stock Exchange who acts as an agent for clients and buys and sells shares on their behalf in the market. Though strictly a stockbroker is an agent, for the performance of his part of the contract both in the market and with the client, he is deemed as a principal, a peculiar position of dual responsibility.

- Full Service Brokers: usually offer more types of investments, may provide you with investment advice, and are typically paid in commissions. 
- Discount Brokers: do not usually offer any advice or research; they just execute the trades that you request, without all of the bells and whistles. 

Brokerage: Commission payable to the stockbroker for arranging the sale or purchase of securities. The scale of brokerage is officially fixed by the Stock Exchange. Brokerage scales fixed in India are the maximum chargeable commission.

Broker Dealer: Any person, other than a bank engaged in the business of buying or selling securities on its own behalf or for others.

Bubble: A speculative sharp rise in share prices which like the bubble is expected to suddenly burst.

Bucket Shop (U.S): A fraudulent brokerage firm that uses aggressive telephone sales tactics to sell securities that the brokerage owns and wants to get rid of. The securities that they sell are typically poor investment opportunities, almost always penny stocks. A brokerage that makes trades on a client’s behalf and promises a certain price. The brokerage, however, waits until a different price arises and then makes the trade, keeping the difference as profit. A stock brokerage operation in which the broker accepts the client’s money without ever buying the stock ordered. Instead, the money is used for another purpose, the broker gambling that the customer is wrong and that the market price will decline and the stock can be bought at a lower price.

Bucketing: A situation where, in an attempt to make a short-term profit, a broker confirms order to a client without actually executing it. If the eventual price that the order is executed at is higher than the price available when the order was submitted, the customer simply pays the higher price. On the other hand, if the execution price is lower than the price available when the order was submitted, the customer pays the higher price and the brokerage firm pockets the difference. It also means directly or indirectly taking the opposite side of the client’s order into the broker's own account or into an account in which the broker has an interest, without open and competitive execution of the order on an exchange.

Bull: A stock market operator who believes that share prices are going to rise, and keeps buying to sell later at a profit, from the attacking posture of the bull, giving an upward thrust.

Bull Market: A rising market with an abundance of buyers and relatively few sellers. A market in which prices generally rise faster than their historical average over a period of months or years. Some analysts require a market to rise 20% from a major low for a sustained period of time before using the term ‘bull market.’ Buyers are often referred to as  ‘bulls.’ A bull market is the opposite of a bear market.

Bulldog Bond: A bond denominated in sterling but issued by a non-British borrower.

Buoyancy: A rising trend in prices.

Business Day: A day on which the Stock Exchange is open for business and trading in securities.

Butterfly Spread: An option strategy involving the simultaneous sale of an at-the-money straddle and purchase of an out-of-the-money strangle. Potential gains will be seen if the underlying remains stable while the risk is limited should the underlying move dramatically. It’s also the simultaneous buying and selling of call options at different exercise prices or at different expiry dates.

Buy Back: The repurchase by a company of its own stock or bonds.

Buyer’s Comparison Memo/Objection Statement: Since normally comparison memos are only issued to the seller, the buyer figuring in the memo may not have any idea about the rejection by the computer of that transaction till the seller contacts him. Therefore, he is issued a Buyers Comparison Memo.

Buying - In: When a seller fails to deliver shares to a buyer on the stipulated date, the buyer can enforce delivery by buying - in against the seller in an auction.

Buying climax (TA): A sharp price run-up accompanied by extremely high volume which is created by investors rushing to buy securities. A buying climax often occurs at the end of an up price movement and typically represents a good time to sell.

Buy on Margin: To buy shares with money borrowed from the stockbroker, who maintains a margin account for the customer.

Bull Market: Prolonged rise in the price of shares, sustained by buying pressure of actual investors or Bulls.

Bull trap: An erratic movement of share prices upwards encouraging investors to buy in anticipation of further rise in prices. When the market corrects itself, the prices come down trapping unwary investors.

Business Cycle: A period of time during which the general economic activity expands and contracts with effects on inflation, productivity, and employment. Thus one recovery and one recession complete a business cycle.

Buy and Hold Analysis: Technique of investment performance measurement which compares a portfolio and its related characteristics (return, income, yield, volatility) at the end of a period with the portfolio as it would have been had no transactions occurred during the period. This separates the effects of market movements and manager decisions.

Buy and Hold Strategy: Accumulating shares of a company over the years for long-term growth benefits and favorable capital gains tax on profits. This requires far less of the investor’s time, than Buy and Sell Strategy, which is frequent trading in shares.

Stock Market Reference (A-Z)


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