Trading Glossary

Arbitrage is the purchase and sale of the same product in the different markets to take the advantage of price disparity between the two markets.

A call or put option is at-the-money when its strike price is the same / closest to the current underlying price.

Bank Nifty (CNX Bank Index) is comprised of the most liquid and large capitalized Indian Banking stocks. The index includes 12 banking stocks listed on the National Stock Exchange (NSE)

A bar chart is a type of chart that is used frequently by technical analysts. Price data is represented on a vertical bar. The top of the bar is the highest price and the bottom of the bar the lowest. A dash on the left-hand side of the bar denotes the opening price, while conversely a dash on the right-hand side the closing price.

A benchmark is a standard for measuring the performance of an investment. For example, the CNX Nifty index is a popular benchmark for judging the performance of Indian Stock Market. The goal of most mutual funds and investors is to outperform their respective benchmark.

Beta is a volatility measurement of a stock, ETF or portfolio versus a comparable benchmark like the CNX Nifty stock index. A stock or ETF with a higher beta than the Index will rise or fall to a greater degree than the Index. In contrast, a stock or ETF with a low beta will rise or fall less. The Beta factor describes the movement in a stock's or a portfolio's returns in relation to that of the market returns.

Black-Scholes formula is the first widely used model for option pricing. It is used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility.

A debt instrument issued by governments and corporations to raise capital. Interest on the outstanding debt is paid to bondholders at specific intervals, with the principal amount of the loan paid on the bond maturity date.

A contract between the buyer and the seller, whereby buyer acquires the right but not the obligation, to purchase the underlying contract at a fixed price on or before the specified date. The seller of the call option assumes the obligation to deliver the underlying contract should the buyer wishes to exercise the option.

Any measure used by a stock or commodity exchange to stop trading after a security or an index has fallen by a certain amount. Circuit breakers are designed to prevent panic selling.

A clearing house is the administrative center of a market through which all transactions are cleared. In addition to administering trades, the clearing house guarantees the performance of contracts. The clearing house becomes the counter party to both the buyer and the seller of a contract when a trade has been matched, thereby reducing counter party risk.

The CNX Nifty Index is one of the best-known icons of Indian economy and among stock market observers around the world. The CNX Nifty Index (preferably Known as NIFTY) is a weighted average of most liquid and top capitalized 50 stocks listed on the National Stock Exchange (NSE) that covers 23 sectors of the Indian economy. It is a broad based benchmark that offers exposure to the Indian market in one efficient portfolio.

First In First Out (FIFO) is a tax lot-matching method. This is the default method for matching tax lots. Under FIFO, sales are paired with the earliest purchases sequentially. FIFO assumes that assets remaining in inventory are matched to the most recently purchased or produced assets.

Free-float Methodology refers to an index construction methodology that takes into consideration only those shares issued by the company that are readily available for trading in the market (generally excludes promoters' holding, government holding, and other locked-in shares that will not come to the market for trading in the normal course)

The margin or difference between the actual Market value of a security and the value assessed by the lending side of a transaction).

A call option is in-the-money when its strike price is less than the current underlying future price. A put option is in-the-money when its strike price is greater than the current underlying future price.

An option whose underlying asset is an index. Generally, index options are cash-settled.

The international standard that is used to uniquely identify securities. It consists of a two-character alphabetic country code specified in ISO 6166, followed by a nine-character alphanumeric security identifier (assigned by a national security numbering agency), and then an ISIN check-digit.

Mark-to-market is an important safety measure where each trading account is credited or debited by the day’s profits or losses on each futures position to ensure that the trading account maintains the sufficient capital to meet the appropriate margin requirement on daily basis for all open positions.

NiftyBees in an index ETF owned by GolmanSacs. The Nifty Bees fund holds all of the CNX Nifty50 index stocks and seeks to match the performance and yield of the CNX Nifty50 Index before fees and expenses.

As per Indian Income Tax Act, 1961, any Indian person staying outside India more than 182 days is considered as NRI (Non-Resident Indian).

A NRE bank account is Non-Resident External Account. Since it is an external Account, any monies lying in NRE account can be taken outside the country or in other words, the monies lying in NRE account are fully repatriable. This money can be converted into any foreign currency at the behest of the account holder and can be remitted outside the country. Money can be freely transferred from NRE account to NRO account.

A NRO bank account is Non-Resident Ordinary Account. Monies lying in NRO account cannot be taken outside the country or in other words, it is non repatriable. This money cannot be converted into foreign currency and hence cannot be remitted outside the country. Money cannot be transferred from NRO account to NRE account. Erroneously transferred money from NRE account to NRO account, cannot be transferred back to NRE account.

Pairs trading is a market-neutral trading strategy that matches a long position with a short position in a pair of highly correlated instruments. The strategy’s profit is derived from the difference in price change between the two instruments, rather than from the direction in which each moves.

A citizen of any country (other than a citizen of Bangladesh or Pakistan) is deemed to be a Person Of Indian Origin (PIO), if, I. He, at any time, held an Indian passport, or II. He or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of India or Citizenship Act, 1955, or III. A spouse (not being a citizen of Bangladesh or Pakistan or Sri Lanka) of an Indian citizen or of a person of Indian origin is also deemed to be PIO.

Portfolio Investment Scheme (PIS) is a scheme of the Reserve Bank of India (RBI) (defined in Schedule 3 of Foreign Exchange Management Act 2000) through which NRIs and PIOs can purchase and sell shares and convertible debentures of Indian companies on a recognized stock exchange in India by routing all such purchase/sale transactions through their account held with a Designated Bank Branch.

A put option is a right to sell or take a short position in a given asset at a fixed price on or before a specified date.

A market where securities are bought and sold after their initial purchase (IPO) by public investors.

The vertical spread is an option spread strategy whereby the option trader purchases a certain number of options and simultaneously sell an equal number of options of the same class, same underlying security, same expiration date, but at a different strike price. The spread can be created with either all calls or all puts, and can be bullish or bearish. The strategy limits the risk involved in the options trade but at the same time reduce the profit potential.