Average True Range (ATR) (TA): A volatility measurement indicator developed by Welles Wilder. True Range is defined as the largest difference of:
- The current high minus the current low
- The absolute value of the current high minus the previous close
- The absolute value of the current low minus the previous close
Absolute Return Vehicles/Strategies: Investment strategies target a positive return in absolute terms rather than relative to an index or other benchmark. These strategies avoid construction limitations imposed by the measurement against a specific benchmark. Often also referred to as cash plus funds.
Acid Test Ratio: The value of cash equivalents and accounts receivable (the quick assets) divided by current liabilities. Also known as the quick asset ratio or liquidity ratio, it is a measurement of corporate liquidity.
Acquirer: Any individual/company/any other legal entity, which intends to acquire or acquires a substantial quantity of shares or voting rights of the target company or acquires or agrees to acquire control over the target company along with the persons acting in concert.
Active Portfolio Strategy: A strategy that uses available information and forecasting techniques to seek a better performance than a portfolio that is simply diversified broadly.
Active Risk: Risk measured in terms of volatility of a portfolio’s return compared with that of the benchmark return, arising from active management. Some level of active risk is necessary to achieve an active return.
Activism: Intervention by shareholders using their ownership rights to influence the actions of corporate management with a view to enhancing the value of the company.
Actuary: Professional who advises on financial issues relating to risks, probabilities, and mortality, most frequently in relation to the financing of pension plans and insurance companies.
Adhoc Margin: Margin collected by the Stock Exchange from the members having an unduly large outstanding position or the margin levied on volatile scrips based on an Adhoc basis keeping in view the risk perspective.
Adjustable Peg: Term for an exchange rate regime where a country’s exchange rate is pegged (i.e. fixed) in relation to another currency (normally the dollar), but where the rate may be changed from time to time.
Adjusted Beta: The estimation of a security’s future beta, which is derived from historical data, but is modified assuming that the security’s real beta has the tendency to move towards the market average of one
Active Market: Characterized by the frequent and large volume of trading of a particular share or shares in general. In such a market the gap between buying and selling prices is narrow. Also, in such a market the buying or selling activities of financial institutions tend to have a lower impact than in a Dull Market.
Accumulation: A situation that occurs when the supply of a security is less than the demand.
Active Shares: Shares in which there are frequent and day-to-day dealings, as distinguished from partly active shares in which dealings are not so frequent. Most shares of leading companies would be active, particularly those which are sensitive to economic and political events and are, therefore, subject to sudden price movements. Some market analysts would define active shares as those which are bought and sold at least three times a week.
Advance-Decline Index: It is also called as AD-Index. It helps in detecting bullish or bearish trends in the stock market in which one divides the number of traded shares that have risen in price by those which have fallen. For example, if 100 shares have advanced and 50 declined on a particular day, the AD-Index is 2 (100/50). Numbers more than 1 indicate a bullish trend and less than 1 is a bearish trend.
Advance/Decline Line: A technical analysis tool representing the total differences between advances and declines in security prices. The advance/decline line is considered the best indicator of market movement as a whole. Stock indices such as Dow-Jones Industrial Average only tell us the strength of 30 stocks whereas the Advance/Decline line provides much more insight.
Adviser: A financial planner or financial intermediary who offers advice on personal financial matters. Advisers may be paid upfront or an ongoing commission for the investments that they recommend.
ADR (American Depository Receipts) (U.S.): A certificate issued in the United States in lieu of foreign security. The original securities are lodged in Bank/Custodian abroad, and the American Depository Receipts (ADRs) are traded in the US for all intents and purposes as if they were a domestic stock. An ADR dividend is paid in US dollars, so it provides a way for American investors to buy foreign securities without having to go abroad, and without having to switch in and out of foreign currencies.
American Option: A put or call that can be exercised at any time prior to expiration. Most listed stock options, including those on European exchanges, are US-style options. Important exceptions are certain low strike price 3 options and options on shares with restricted transferability. Most listed options on other instruments are also US-style options, but a number of European-style options have been introduced in recent years, particularly on stock indices and currencies.
American Stock Exchange (AMEX): Stock exchange for certain US stocks not listed on the New York Stock Exchange (NYSE). AMEX stocks tend to be smaller than those listed on the NYSE
After-Tax: When one is investing in loan instruments like debentures or bonds or fixed deposits, and when one is an income taxpayer, it is the after-tax return that is the real return, not the rate of interest. The relevant rate of interest on the investor’s slab of income should be deducted from the earnings, and the actual return compared with returns from tax-sheltered instruments, such as tax-free bonds.
A group shares: Shares are classified into A-Group, B1-Group, and B2-Group:
A1 – Group Shares: Scripts has very high liquidity, the company has a large equity base and large public holding, and the company has consistently good performance over years.
B1 – Group Shares: Scripts have high liquidity. The company has equity above Rs. 30 million. The company has fundamentals and financial parameters in line with the industry.
B2 – Group Shares: Scripts have a low trading volume at the BSE indicating low investor interest. Scripts trading below par value at BSE. The company has equity below 30 million.
B1 and B2 groups are merged as a single Group B with effect from March 2008.
Annual General Meeting: Meeting held once a year where the directions of the company report to the shareholders on the year’s performance and any vacancies on the board of directors are filled by shareholder's consent. The chief of the company comments on the future outlook of the company and answers questions from shareholders. Notice of the meeting, along with a copy of the Annual Report has to be compulsorily sent to every shareholder, who may send a proxy to attend on his behalf. Shareholders can insist that 11 resolutions on company policy be voted upon by the equity shareholders of the company. This meeting also receives the auditor’s report, appoints auditors, and fixes their remuneration.
Annualised Return: Periodic rate of return converted into an equivalent one-year rate of return. For example, a return of 75% earned over five years converts to an average annualized return of 11.8% per year.
Alpha: Incremental return added by an investment manager through active management.
Alternative Investments: Investments that do not fit into the mainstream areas of equities, bonds, and property, and which would normally only form a small proportion of pension plan portfolios. Examples include private equity/venture capital, hedge funds, and commodities. They are typically brought into a portfolio to increase diversification.
Allotment of shares: After a company has issued a prospectus and application forms for shares, it receives applications from the investing public for varying numbers of shares. If the total number of shares applied for equals or is less than the number offered, a full allotment is made. If, however, more shares are applied for actual available, a basis of allotment is finalized in consultation with the stock exchange where the company is primarily listed.
Analyst: An investment professional in a journal, bank, a mutual fund, who studies the fundamentals and technicals of a company or a group of related companies, or an industry, and makes buy or sell recommendations. Successful analysts not only influence the fortunes of their employers but of the shares listed on the stock market as well.
Annual Report: Report made by the Directors of a company to its shareholders at the end of each accounting year, containing 1. Director’s report outlining a review of the company’s operations during the year, a summary of its financial results, and future projections, if any, (2) Auditor’s report, (3) Balance Sheet, (4) Profit and loss account, and (5) Schedules explaining items on the balance sheet and profit and loss account. Company law requires all companies to prepare such a report and mail it to the shareholders.
Annualized Basis: Statistical computation whereby company figures covering periods of less than a year are extended to cover a full year. The computations take into account seasonal variations if any.
Arbitrage: Profiting from the differences in the price of the same share traded on two or more exchanges. An arbitrageur makes money by buying in the lower market and immediately thereafter selling in the higher market, or vice versa, thereby making a profit.
Arbitration: An alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange.
Articles of Association: Drafted along with the Memorandum of association by the ‘promoters of the company, the Articles laid down the detailed rules and regulations for managing the company’s affairs. This has to be submitted to the Registrar of Companies for his approval for the incorporation of the company. The Articles are effectively the contracted terms between shareholders and directors.
Asset: Anything owned by a company, tangible or intangible which has market value and saleable value.
Asset Allocation: The process of determining the optimal division of an investor’s portfolio among different assets. Most frequently this refers to allocations between debt, equity, and cash.
Asset Allocation Fund: A mutual fund that splits its investment assets among stocks, bonds, and other vehicles in an attempt to provide a consistent return for the investor.
Asset-backed Securities: Securities backed by assets that are not mortgage loans. Examples include assets backed by automobile loans, credit card receivables, and others.
Asset-based Securitization: A process that creates a series of securities that are collateralized by assets mortgaged against loans, assets leased out, trade receivables, or assets sold on a hire purchase basis or installment contracts on personal property.
Asset Class: Broad category of assets of a similar type — for example, equities, bonds, property, and cash.
Asset Management: The function of managing assets on behalf of a customer, usually for a fee.
Asset Management Company: The company which handles the day-to-day operations and investment decisions of a unit trust.
Asset Stripper: A person who buys a company in order to make a profit by peeling off its assets bit by bit, and then selling them. These assets may be separate subsidiaries or plant and equipment or property. This process invariably involves the stripping of another sort of asset (the employees) of a number of jobs. This has been largely responsible for giving asset strippers a bad name. The asset stripper relies on there being a difference in the price of the business as a whole (as valued by a stock market, for example) and the sum of the amounts that can be raised from its parts sold separately. Such a possibility arises most commonly when a company is making losses or a much smaller profit than seems to be justified by its size.
Asymmetric Information: A situation where access to information by one party (or parties) to a transaction is better than access by another party (or parties). Asymmetric information can be used as a source of power in determining the outcome of the transaction.
AST: Automated Screen Trading (of equity shares, derivatives, and commodities).
At a Premium: At a price higher than that printed on the share certificates, i.e., above at par. When a well-established company issues new shares, either as rights or to the public, it may ask for a higher price. The difference between the face value and the price at which a share is now being issued is called the premium.
At the close: Customer’s order to buy or sell within the final 30 seconds of trading. Order not always fulfilled.
At the Market: Options trading term, meaning that a call option has a market price for the optioned stock, which is approximately the same as the call’s exercise price. Similarly with a put option.
At the Money: Option contract on a share whose current market price is the same as the strike price of a call or put option.
At the Open: An order to buy or sell at the opening of trading at the opening price. This has a much better chance of being executed if the order is not filled, and it is canceled.
Auditor’s Report: A report presented at the Annual General Meeting of the shareholders of a company, is a mandatory part of the Annual Report. The company auditor is independent and is employed annually by the reports, and the shareholders. He examines the company’s counts and inspects records and reports on the manner in which the company’s funds have been managed.
Authorised Share Capital: The maximum number of shares that a company may issue, stated in the memorandum and articles of association of the company. A company may initially issue fewer shares. The authorized capital can be increased with the consent of both the holders of the shares and the controller of Capital Issues.
Automated Screen Trading: Electronic Trading in Stocks through visual display units. The associates computer unit enters, matches, and executives deals. It makes possible a floorless exchange and brings transparency to deals.
Auction: When a seller is not in a position to deliver the securities he has sold, the buyer sends in his applications for buying-in, so that the securities can be bought from the market and delivered to him. This process by which the securities are procured on behalf of the defaulter is known as Auction. Auditor A person who is professionally qualified to examine and scrutinize accounts. He/she inspects records and reports on the profitability and financial position of the company.
Aunt Jane/Aunt Agatha: A passive long-term investor.
Authorized Assistants: Assistants or clerks of members who are authorized by them to do business on their behalf in the market. The member has to take responsibility of fulfilling all the transactions and business commitments of the authorized assistants entered into on behalf of the members.
Authorized Capital: The amount of capital that a company has been authorized to raise by way of equity and preference shares, as mentioned in the Articles of Association / Memorandum of Association of the company.
Automatic Reinvestment: A fund service giving unit holders/ shareholders the option to purchase additional units/ shares using dividend and capital gain distributions. Average Annual Growth Rate – AAGR The average increase in the value of a portfolio over the period of a year.
Average: Properly weighted and adjusted arithmetic means of certain significant shares to represent general market behavior or a particular class of shares.
Averaging: Buying a share at different times, in different quantities, and at different prices. So that an advantageous average price is obtained.
Averaging In/Averaging out: Buying or selling different prices in order to build up, or liquidate, a substantial holding over a long period.
Average Daily Volume of Portfolio: Weighted sum of the quantity of each asset to be traded divided by that asset’s average daily traded volume.
Away from the market: When a limit order to buy is lower than the current market price, or a limit order to sell is above the current market price, it is away from the market. The broker may hold such an order for a period of time, but if within this period he can’t fill it, he kills it.