Stock market glossary in plain English

Filter terms

390 terms.

A

Accounting manipulation: Bending accounting choices or recording false transactions to make a company's results or position look better than they are.
Accounting policies: The methods a company uses to prepare its accounts, such as when it records revenue and how it depreciates assets, set out in the notes.
Accrual accounting: The accounting method that records revenue when it is earned and costs when they are incurred, rather than when cash changes hands.
Accrued expense: A cost that has been incurred but not yet paid, such as this month's electricity bill. It is recorded as an expense and a liability.
Active fund: A fund whose manager tries to beat a benchmark index by choosing investments or timing, usually at higher cost than an index fund.
Adjusted price: A historical price rescaled for splits, bonus issues and sometimes dividends, so the price history is comparable over time.
Algorithmic trading: Using computer programs to decide and place orders according to set rules.
Amortisation: The cost of an intangible asset, such as software, a licence or a patent, spread over the years it is expected to be used.
Anchoring: Relying too heavily on a first number, such as the price you paid for a share, when making later decisions.
Annual report: A company's yearly report to shareholders, containing its audited financial statements, notes, auditor's reports and management's commentary.
Arbitrage: Profiting from a price difference between closely related things by buying the cheaper and selling the dearer at the same time.
Arbitration: A way of settling a dispute in which an independent arbitrator hears both sides and makes a binding decision, called an award.
ASBA: Application Supported by Blocked Amount, the method of applying for public issues in which money is blocked in your bank account and debited only on allotment.
Ask price: The lowest price any seller is currently accepting for a share; roughly what you would pay if you bought immediately.
Asset allocation: The split of a portfolio between asset classes such as equity, fixed income and cash, the main driver of how much it swings.
Asset turnover: Revenue divided by average total assets, showing how much revenue each rupee of assets produces.
Asset-liability mismatch: Funding long-term assets with short-term borrowing, so that debts fall due long before the assets produce enough cash to repay them.
Asset-light business: A business that needs little plant, equipment or inventory to grow, such as software, services or brand-led companies.
Assets: Everything a business owns or controls that has value, such as cash, receivables, stock, machinery and buildings.
Assignment: The requirement on an option seller to fulfil the contract when the buyer exercises.
Audit opinion: The auditor's conclusion on whether the financial statements give a true and fair view: unmodified, qualified, adverse or a disclaimer.
Average true range: The average over N periods of each session's true range, a measure of how much a share typically moves, including gaps.

B

Backtest: A test of how a set of trading or investing rules would have performed on past prices, as if they had been followed at the time.
Balance sheet: A statement of what a company owns, what it owes and what belongs to its shareholders, on a single date.
Barriers to entry: Whatever makes it hard for new competitors to enter an industry, such as scale, licences, brands, distribution networks or technology.
Base effect: A large percentage change caused mainly by an unusually small or unusual starting value, rather than by a large change in amount.
Base rate: How often something happens in general. A success rate means little until it is compared with the base rate.
Basis: The difference between a futures price and the spot price of its underlying.
Basis point: One-hundredth of a percentage point. A rise from 6.50% to 6.75% is 25 basis points.
Bear market: A long period in which share prices are generally falling and investors are pessimistic, often taken to mean a fall of 20% or more from a peak.
Benchmark: An index or other standard against which a fund or portfolio's performance is measured.
Beta: A measure of how much a share's returns have moved with the overall market's, used in the capital asset pricing model.
Bid price: The highest price any buyer is currently offering for a share; roughly what you would get if you sold immediately.
Bid-ask spread: The gap between the best ask and the best bid, a hidden cost paid every time you buy and then sell.
Bollinger Bands: A 20-period moving average with bands two standard deviations above and below it, widening and narrowing with volatility.
Bond: A loan to a government or company that pays agreed interest, called the coupon, and repays the face value at maturity.
Bonus issue: Free extra shares given to existing shareholders in a fixed ratio, paid for from the company's reserves rather than in cash.
Book value: The value of shareholders' equity as recorded in a company's accounts; book value per share divides it by the number of shares.
Breakeven: The price of the underlying at which a position neither gains nor loses, before costs.
Breakout: A move above a resistance zone (breakout) or below a support zone (breakdown), best defined by a written rule such as a close a set percentage beyond the zone.
Brokerage: The fee your stockbroker charges for carrying out a trade, either a flat amount per order or a percentage of the trade value.
BRSR: A report on environmental, social and governance performance that SEBI requires larger listed companies to include in their annual reports.
Bubble: A period when prices rise far beyond what the underlying businesses or assets can justify, driven by the crowd and easy credit, before collapsing.
Bull market: A long period in which share prices are generally rising and investors are optimistic.
Business model: How a company turns what it does into money, covering what it sells, who pays, how it reaches customers and what it costs to provide.
Buyback: A company buying back some of its own shares from shareholders, which reduces the number of shares in issue.

C

CAGR: The compound annual growth rate, the steady yearly rate that would take a starting value to an ending value over a period.
Call option: A contract giving the buyer the right, but not the obligation, to buy the underlying at the strike price.
Candlestick: A way of drawing a session's open, high, low and close, with a body between open and close and wicks reaching to the high and low.
Candlestick pattern: A named shape of one to three candles, such as a doji, hammer or engulfing pattern, describing how a session or sessions unfolded.
Capital adequacy: How much capital a bank or insurer holds relative to its risks, which decides how much loss it can absorb.
Capital allocation: How management uses the cash a business generates, across reinvestment, acquisitions, debt repayment, dividends, buybacks and retained cash.
Capital employed: The money provided to a business by shareholders and lenders, usually measured as shareholders' equity plus borrowings.
Capital expenditure: Money spent on long-lived assets such as factories, machines or software, recorded as an asset and then depreciated or amortised.
Capital gain: The profit from selling an investment for more than you paid for it; a capital loss is the opposite.
Capital intensity: How much plant, equipment and other capital a business needs for each rupee of revenue.
Cash conversion: Operating cash flow divided by net profit, showing how much of reported profit turns into cash.
Cash conversion cycle: Inventory days plus receivable days minus payable days. Roughly how long cash is tied up in each round of buying, making and selling.
Cash flow: The actual money coming into and going out of a business in a period, which can differ greatly from its reported profit.
Cash flow statement: The financial statement showing cash coming in and going out during a period, grouped into operating, investing and financing activities.
Chart pattern: A named shape formed by price swings, such as a head and shoulders, double top, triangle or flag, used to describe changes in market structure.
Cherry-picking: Choosing the data, dates or examples that support a claim while leaving out the ones that do not.
Circuit breaker: A rule that halts all equity trading for a set time when the Nifty 50 or Sensex moves by a very large set percentage in a day.
Circular trading: Related accounts repeatedly buying and selling the same shares among themselves, to create the appearance of heavy trading and demand.
Closing price: The official price at the end of a trading session, used to value holdings, calculate indices and set the next day's limits.
Combined ratio: A general insurer's claims plus expenses as a percentage of premiums; below 100% means an underwriting profit.
Commercial paper: Short-term unsecured borrowing by companies, usually repaid within a year, often within a few months.
Common-size statement: A financial statement with each line shown as a percentage of a base, such as revenue for the income statement or total assets for the balance sheet.
Compounding: Earning returns on your earlier returns as well as on the money you put in, so growth snowballs over time.
Concentration risk: The risk that a large share of a portfolio in one holding, sector or theme causes a large loss if that one thing goes wrong.
Concession: A right granted by a government body to build and operate an asset, such as a toll road or port, and collect revenue from it for a fixed period.
Confirmation bias: The tendency to seek, notice and believe information that supports what we already think, and to dismiss what does not.
Conflict of interest: A situation in which the person advising you gains more from one of your choices than from another, which can bend their advice.
Confounding factor: A hidden third factor that drives two things at once, making them look connected when neither causes the other.
Consensus estimate: The average of analysts' forecasts for a company's revenue, profit or earnings per share, or of economists' forecasts for a data release.
Consolidated results: Financial statements that combine a parent company with its subsidiaries as one business, unlike standalone results for the parent alone.
Consumer Price Index: An index of the retail prices of goods and services households buy. Its yearly change is India's headline inflation rate.
Contingent liability: A possible obligation, such as a lawsuit or disputed tax demand, that is not probable or cannot be measured. It is described in the notes, not recorded.
Contract note: The document your broker sends after a day of trading, listing each trade's price and quantity and every charge and tax on it.
Core inflation: Inflation measured without volatile items, usually food and fuel, to show the underlying trend in prices.
Corporate action: A company decision that changes what its shareholders receive or hold, such as a dividend, split, bonus issue, rights issue or buyback.
Corporate governance: The rules, structures and behaviour that make sure a company is run in the interest of all its shareholders, not just those in control.
Correction: A noticeable fall in prices, by convention around 10% from a recent peak, that is smaller than a bear market.
Correlation: A measure from −1 to +1 of how closely two things move together. It shows association, not cause.
Cost curve: A ranking of all producers in a commodity industry from lowest cost to highest, showing who stays profitable as prices fall.
Cost of capital: The return that lenders and shareholders require for providing money to a business, given its risk.
Cost of carry: The cost of holding the underlying until a futures contract's expiry, mainly interest, minus income such as dividends.
Cost of equity: The return shareholders require for owning a company's shares, given the risk, used as the discount rate for equity cash flows.
Credit risk: The risk that a borrower fails to pay interest or repay a loan in full.
Credit spread: The extra yield a riskier borrower's bond pays over a government bond of similar maturity, to compensate for the risk of default.
Current account deficit: The shortfall when a country's payments abroad for imports, services and income exceed what it earns from abroad.
Customer concentration: Dependence on a few customers for a large share of revenue.
Cyclical business: A business whose demand, prices and profits rise and fall with the economy or its industry's supply cycle, such as metals, cement or autos.

D

Dabba trading: Illegal betting on share or index prices, recorded by an operator outside any recognised stock exchange and settled in cash between the operator and the customer.
Debt: Money a business has borrowed and must repay with interest, such as bank loans and bonds.
Debt-to-equity ratio: Total borrowings divided by shareholders' equity. It shows how much a company relies on lenders compared with its owners' money.
Decision journal: A written record of each decision, its reasons, what you expect and what would prove you wrong, made before the outcome is known.
Defensive sector: An industry whose sales hold up in good times and bad, such as everyday food and household goods, medicines and utilities.
Deferred revenue: Cash a company has received for goods or services it has not yet delivered. It is a liability until the work is done.
Delivery volume: The shares bought for delivery into demat accounts in a session, as opposed to those bought and sold within the same day.
Delta: Roughly how much an option's price changes for a ₹1 change in the underlying. Calls have delta from 0 to 1, puts from −1 to 0.
Demat account: An account that holds your shares and other securities in electronic form, maintained with a depository through a depository participant.
Deposit insurance: Insurance that repays bank depositors up to a limit if a bank fails. In India it is provided by the DICGC, a subsidiary of the RBI.
Depository: An institution that holds securities in electronic form and maintains the official record of who owns them. India has two, NSDL and CDSL.
Depreciation: The cost of a long-lived physical asset, such as a machine or building, spread over the years it is expected to be used.
Derivative: A contract whose value depends on something else, called the underlying, such as a share, an index, a currency or a commodity.
Diluted EPS: Earnings per share calculated as if options, warrants and convertible securities had been turned into shares, so it is usually lower than basic EPS.
Dilution: The fall in existing shareholders' percentage ownership when a company issues new shares.
Discount rate: The rate used to convert future cash flows into today's value, reflecting the return required for waiting and for the risk.
Discounted cash flow: A valuation method that estimates a business's worth as the present value of the free cash flow it will generate.
Disposition effect: The habit of selling shares that have risen too early and holding shares that have fallen too long.
Diversification: Spreading money across many investments, so that a problem with any one of them does limited damage.
Dividend: A payment of part of a company's profits to its shareholders, declared by the board, with the same amount paid on every share.
Dividend yield: A year's dividends per share divided by the current share price, showing the cash income a share pays relative to its cost.
Drawdown: The fall in value of an investment or index from its most recent peak, usually expressed as a percentage.
DuPont analysis: Splitting return on equity into net margin, asset turnover and financial leverage to see how a company earns its return.
Duration: A measure of how sensitive a bond's price is to changes in yields. A duration of 7 means a loss of roughly 7% if yields rise by 1 percentage point.

E

Earnings call: A call held after results, in which management presents the results and answers analysts' questions.
Earnings per share: A company's net profit divided by its number of shares, showing the profit attributable to each share.
Earnings season: The weeks after each quarter ends when most listed companies publish their quarterly results.
Earnings surprise: The difference between a company's reported result and the consensus estimate.
Earnings yield: Earnings per share divided by the share price, the inverse of the P/E ratio, expressing profit as a percentage of the price.
EBITDA: Earnings before interest, tax, depreciation and amortisation, a rough measure of the profit from a company's operations.
Economic cycle: The pattern of expansion, slowdown, contraction and recovery that economies move through. Its phases vary greatly in length.
Economic moat: A lasting competitive advantage that lets a company earn returns above its competitors' for many years.
Effective tax rate: A company's tax expense divided by its profit before tax, which can differ from the headline tax rate.
Embedded value: For a life insurer, its net worth plus the present value of future profits from policies already sold.
Emergency fund: Money kept safe and easy to reach for job loss, illness or urgent costs, built before investing for growth.
Emphasis of matter: A paragraph in an auditor's report drawing attention to something disclosed in the statements that the auditor considers fundamental to understanding them.
Employee stock options: Options given to employees to buy company shares at a set price in future, a form of pay that adds to the share count when exercised.
Enterprise value: Market capitalisation plus debt minus cash, an estimate of the value of the whole operating business owed to lenders and shareholders.
Equity: Ownership in a business, or money raised by selling ownership, as opposed to money borrowed.
Equity risk premium: The extra return investors require for holding shares in general rather than risk-free government bonds.
EV/EBITDA: Enterprise value divided by EBITDA, a valuation multiple that compares companies with different debt and depreciation fairly.
Ex-date: The first trading day on which a share trades without the right to an announced dividend or other benefit.
Exceptional items: Unusual gains or charges, such as asset sales, restructuring costs or write-downs, that are unlikely to repeat every year.
Exchange rate: The price of one currency in terms of another, such as rupees per US dollar.
Exchange-traded fund: A fund, usually tracking an index, whose units trade on the stock exchange through a broker at market prices during the day.
Expectancy: The average result per trade, equal to win rate times average win minus loss rate times average loss, after costs.
Expected return: The average return an investment would deliver if the same situation could be repeated many times, weighting each outcome by its chance.
Expected value: The average result of a decision if it could be repeated many times, found by weighting each outcome by its probability.
Expense ratio: The yearly cost of running a fund as a percentage of its assets, deducted from its value a little every day.
Expenses: The costs a business incurs to earn its revenue, such as materials, salaries, rent, interest and tax.
Expiry: The last day a derivative contract exists, after which it is settled.
Exposure: The full market value of a position, which can be much larger than the money put up to hold it.

F

Face value: The nominal value printed on a share when it is created, such as ₹1 or ₹10, used in accounting and unrelated to its market price.
Factor investing: Investing based on characteristics, such as value, momentum, quality, size or low volatility, that research has linked to differences in returns.
False breakout: A move through a support or resistance level that quickly reverses back inside it, trapping traders who acted on it.
Finfluencer: A social media creator who posts about money, investing or trading, often to a large audience, and who may or may not be registered or paid to promote products.
Fiscal deficit: The gap between a government's total spending and its receipts other than borrowing. It equals how much the government must borrow.
Fixed and variable costs: Fixed costs stay the same when sales change; variable costs rise and fall with sales. The split drives operating leverage and break-even.
Fixed income: Investments in which you lend money in return for agreed interest and repayment, such as bonds, debentures, deposits and debt funds.
Foreign direct investment: Investment from abroad that takes a lasting stake in a business, such as building factories, setting up subsidiaries or acquiring control.
Foreign portfolio investment: Investment by foreign investors in listed shares, bonds and similar securities, which can be bought and sold quickly.
Forward contract: A private agreement to buy or sell something at a price fixed today, for delivery on a future date.
Free cash flow: Cash from operating activities minus capital expenditure. The cash left for lenders and owners after keeping the business running.
Free cash flow yield: Free cash flow divided by market capitalisation, showing the cash a business generates for its owners relative to its price.
Free float: The shares of a company that are freely available for trading, excluding blocks held by promoters and other long-term strategic holders.
Front-running: Trading ahead of orders you know are coming, such as buying a share before sending a tip that will make others buy it.
Fundamental analysis: Judging what a business is worth by studying its products, finances, management, industry and valuation.
Futures contract: A standardised, exchange-traded agreement to buy or sell an underlying at a fixed price on a set expiry date.

G

Gamma: How much an option's delta changes for a ₹1 move in the underlying.
GDP: The total value of the final goods and services produced in a country over a period. Its growth rate is the most common measure of how fast an economy is expanding.
Going concern: The assumption that a company will keep operating for the foreseeable future. Doubt about it is one of the most serious warnings an auditor can give.
Goodwill: The amount a company pays for an acquisition above the value of the acquired business's separate assets less its liabilities.
Grievance redress: The route for an investor's complaint against a regulated firm: first to the firm itself, then, if unresolved, to SEBI's complaint system.
Gross margin: Gross profit as a percentage of revenue. It reflects how much a company earns over the direct cost of what it sells.
Guaranteed returns: A promise of a fixed or certain profit from investing in shares, which no genuine intermediary can make and which is a classic sign of fraud.

H

Hedging: Taking an offsetting position, such as a forward contract, to reduce the effect of a price or currency move on future payments or receipts.
Herd behaviour: Doing what other investors are doing because they are doing it, rather than because of your own analysis or plan.
Hindsight bias: The tendency to believe, after an outcome is known, that it was predictable all along.
Holding company discount: The gap between a holding company's market value and the net value of the stakes and assets it owns.
Holding period: How long an investment was owned before it was sold. Tax law uses it to decide whether a gain counts as short-term or long-term.

I

IFRS: International Financial Reporting Standards, a set of accounting standards used in many countries, on which India's Ind AS are based.
Impact cost: The extra cost of a trade caused by the order itself moving the price, measured against the mid-price before the trade.
Impairment: A one-off reduction in an asset's value on the balance sheet when it is worth less than its carrying amount. It reduces profit but uses no cash.
Implied volatility: The volatility that, put into an option pricing model, gives an option's current market price. It reflects expected movement.
Income statement: The financial statement showing a company's revenue, expenses and profit over a period such as a quarter or a year.
Ind AS: India's accounting standards for most listed and larger companies, converged with International Financial Reporting Standards.
Independent director: A board member with no material relationship with the company or its controlling shareholders, meant to oversee management on behalf of all shareholders.
Index fund: A fund that aims to match an index's return by holding the same shares in the same proportions, at low cost.
Inflation: The general rise in prices over time, which reduces how much a given amount of money can buy.
Initial margin: The deposit required before taking a futures or option-selling position, set as a fraction of contract value.
Insider trading: Trading in a company's shares while holding unpublished price sensitive information about it, or passing that information to others who trade.
Insurance float: The money an insurer holds between collecting premiums and paying claims, which it invests meanwhile.
Interest coverage: Operating profit (EBIT) divided by interest expense, showing how many times over profits could pay the interest bill.
Interest rate: The price of money, paid by borrowers and earned by savers and lenders, usually expressed as a percentage a year.
Interest-rate risk: The risk that a bond or debt fund falls in value because interest rates rise.
Intraday trading: Buying and selling the same shares within a single trading day, closing every position before the market shuts.
Intrinsic value: An estimate of what a business is worth based on the cash it can return to its owners over its life, as opposed to its market price.
Invalidation point: The price or condition, set before a trade, at which the trade's idea is clearly wrong and the position should be closed.
Inventory: Goods a business holds to sell or to use in production, including raw materials, work in progress and finished goods.
Investment adviser: A person or firm registered with SEBI to give investment advice for a fee, whose registration you can check on SEBI's website.
Investment goal: A specific purpose for money, with an amount in today's rupees, a date and a priority, used to choose suitable investments.
Investment policy statement: A short written document recording an investor's goals, target allocation, rebalancing rules, allowed and forbidden investments, and review process.
Investment thesis: A short written statement of why a share may be worth more or less than its price, built on a few explicit, testable assumptions.
Investor: Someone who buys part-ownership of businesses, or other assets, intending to hold them for years and benefit from their growth and income.
Investor protection fund: A fund kept by a stock exchange or depository to pay eligible investors' claims when a member, such as a broker, defaults, up to set limits.
InvIT: A SEBI-regulated trust that owns infrastructure assets, such as roads, power lines or pipelines, and passes most of its cash flow to unitholders.
IPO: An initial public offering, a company's first sale of shares to the general public, after which its shares are listed on an exchange.

K

Key audit matters: The areas of an audit that needed the auditor's most significant attention, described in the auditor's report for listed companies.
Kill criteria: Specific evidence, written before investing, that would show an investment thesis is wrong.

L

Lakh and crore: The Indian units for large numbers. One lakh is 1,00,000 (one hundred thousand) and one crore is 1,00,00,000 (ten million).
Last traded price: The price at which a share most recently traded. It is a record of the last trade, not a price anyone is promising you.
Leading indicator: An economic measure that tends to change direction before the wider economy does, such as business survey orders, credit growth or share prices.
Leverage: Using borrowed money, or products such as futures and options, to take a bigger position than your own money allows, magnifying gains and losses.
Liabilities: What a business owes to others, such as loans, money owed to suppliers, salaries due and taxes due.
Limit order: An order to buy at or below a set price, or sell at or above it, which controls the price but may not be filled.
Limited liability: The rule that a shareholder can lose at most what they paid for their shares, and is not responsible for the company's debts.
Liquidity: How easily an asset can be bought or sold quickly, in meaningful amounts, without moving its price much.
Listing: The admission of a company's shares to trading on a stock exchange, which brings ongoing disclosure obligations.
Logarithmic scale: A chart scale on which equal distances represent equal percentage changes rather than equal rupee changes.
Look-ahead bias: An error in a backtest that uses information not available at the time of a trade, such as later results, revised data or the same day's close.
Loss aversion: The tendency to feel a loss more strongly than a gain of the same size.
Lot size: The fixed number of units of the underlying in one derivative contract.

M

MACD: An indicator built from the difference between a 12-period and a 26-period exponential moving average, with a 9-period signal line and a histogram.
Management discussion and analysis: The section of an annual report where management explains the year's performance, its industry, risks and outlook in its own words.
Margin call: A demand from a broker or lender for more money when a leveraged position falls, failing which the position can be sold.
Margin of safety: The gap between an estimate of a share's value and the price paid, giving room to be wrong without a large loss.
Mark-to-market: The daily settlement of gains and losses on a futures position, using that day's settlement price.
Market capitalisation: The total market value of a company's shares, calculated as the share price multiplied by the number of shares outstanding.
Market depth: The best waiting buy and sell orders for a share, usually five on each side, showing how much could trade near the current price.
Market efficiency: The idea that prices quickly reflect available information, so publicly known patterns cannot reliably earn profits after costs.
Market maker: A trader or firm that continuously quotes both buying and selling prices, earning the spread for providing liquidity.
Market manipulation: Deliberately distorting a share's price or trading activity, for example through misleading information or fake trades, to profit at others' expense.
Market order: An order to buy or sell immediately at the best prices currently available, which guarantees speed but not price.
Market risk: The risk that affects almost all shares at once, such as a recession or financial crisis, which diversification among shares cannot remove.
Mean and median: Two kinds of average. The mean adds values and divides by the count; the median is the middle value when they are put in order.
Momentum oscillator: An indicator that describes the speed or strength of recent price changes, usually swinging between fixed limits.
Monetary policy: The central bank's management of interest rates and the money supply to keep inflation in check while supporting growth.
Moneyness: Whether an option is in, at or out of the money, based on the underlying's price compared with the strike.
Moving average: The average closing price over the last N periods, recalculated each period, used to smooth price movements and describe trends.
Mutual fund: A pooled investment, run by an asset management company and regulated by SEBI, in which investors own units of a portfolio managed to a stated objective.

N

Net asset value: The value of a fund's holdings minus its liabilities, divided by the number of units, at which investors buy and redeem.
Net debt: A company's borrowings minus its cash and cash equivalents. A negative figure means it holds more cash than debt.
Net interest margin: A lender's interest earned minus interest paid, divided by its average interest-earning assets.
Net profit: What is left of revenue after every expense, including interest and tax. It belongs to the shareholders.
Network effect: When a product becomes more valuable to each user as more people use it, helping the largest network attract still more users.
Nifty 50: An index of 50 large companies listed on the National Stock Exchange of India, widely used as a benchmark for Indian shares.
Nominal return: The return on an investment measured in rupees, before allowing for inflation.
Non-controlling interest: The share of a partly owned subsidiary's profit and net assets that belongs to its other shareholders, not to the parent company.
Non-performing asset: A loan on which the borrower has stopped paying for longer than a period set by the regulator.
Normalised earnings: An estimate of what a cyclical company earns in an average year across a full cycle, used instead of peak or trough profit.

O

Offer for sale: The part of a share sale in which existing shareholders sell their own shares to the public, so the money goes to them, not the company.
OHLC: The open, high, low and close of a trading session, the four prices that bar and candlestick charts draw.
On-balance volume: A running total that adds each session's volume when the close rises and subtracts it when the close falls.
Operating leverage: The way high fixed costs make operating profit change by a larger percentage than revenue, in both directions.
Operating margin: Operating profit as a percentage of revenue. It shows how much of each ₹100 of sales is left after all operating costs.
Operating profit: Profit from a company's operations after all operating costs, including depreciation, but before interest, other income and tax.
Option premium: The price paid by an option buyer to the seller, quoted per unit of the underlying.
Order book: The live list of all waiting buy and sell orders for a share, with their prices and quantities.
Organic growth: Growth that comes from a company's existing business, as opposed to growth added by buying other companies.
Out-of-sample testing: Testing a strategy once on data that was kept aside and not used while building it, to see whether its results hold on new data.
Outcome bias: Judging a decision by how it turned out rather than by the information and reasoning available when it was made.
Overconfidence: Overrating your own knowledge, skill or ability to predict, which leads to trading too often and taking too much risk.
Overfitting: Tuning rules so closely to past data that they capture random noise rather than a lasting pattern, so they look excellent in tests and fail afterwards.

P

P/E ratio: The price-to-earnings ratio, the share price divided by earnings per share, showing how much investors pay for each rupee of yearly profit.
Payables: Money a business owes its suppliers for goods and services bought on credit.
Payoff diagram: A chart or table showing the profit or loss of a derivative position at expiry for each possible price of the underlying.
Payout ratio: Dividends divided by net profit, showing the share of profit paid to shareholders; dividend cover is the reverse.
Peer group: A set of companies similar enough in products, customers, growth, returns and risk that their valuations can be compared.
PEG ratio: The P/E ratio divided by the expected yearly growth rate of earnings, a rough attempt to adjust P/E for growth.
Percentage point: The unit for the difference between two percentages. A rate rising from 6% to 7% has gone up one percentage point, which is a 16.7% increase.
Phishing: Using a fake message, website or call that appears to come from a trusted organisation to trick someone into revealing passwords, OTPs or other details.
Physical settlement: Settling a derivative at expiry by delivering the underlying itself, rather than paying the difference in cash.
Portfolio manager: A person or firm registered with SEBI to manage an individual client's money in a separate account, with authority to invest it on the client's behalf.
Position size: The number of shares held in a trade, calculated so that the loss at the stop equals a fixed small share of capital.
Post-mortem: A review after an investment ends or its thesis breaks, comparing what happened with the written thesis and classifying the causes.
Pre-commitment: Deciding calmly in advance how you will act, and arranging things so that your future self follows that decision.
Pre-mortem: An exercise done before a decision, imagining that it has already failed and listing the most likely reasons why.
Pre-sales: For a property developer, the value of homes or offices sold during a period, often long before the revenue is recognised.
Prepaid expense: Cash paid in advance for goods or services that will be used later, such as rent or insurance. It is an asset until used.
Present value: What a future amount of money is worth today, found by discounting it at a rate that reflects the time value of money and risk.
Price band: Either the most a share's price may move in a day, set by the exchange, or the range of prices for bids in a book-built IPO.
Price chart: A picture of trading history, with time on the horizontal axis and the prices at which trades happened on the vertical axis.
Price gap: A jump between one trade and the next with no trades in between, often between one day's close and the next day's open.
Price-to-book ratio: The share price divided by book value per share, or market capitalisation divided by shareholders' equity.
Pricing power: A company's ability to raise prices without losing many customers, one of the clearest signs of a competitive advantage.
Primary market: The part of the market where companies sell newly created shares to investors and receive the money.
Probability: A number from 0 to 1 describing how likely something is. Over many repeats, it is roughly how often the event happens.
Profit margin: A profit expressed as a percentage of revenue, showing how much profit each ₹100 of sales produces.
Promoter: In India, the founders or controlling shareholders of a listed company, together with their family and related entities.
Promoter pledge: Promoters using their shares as security for loans, which lenders can sell if the share price falls too far.
Provision: A liability for a cost a company will probably have to pay but whose amount or timing is uncertain, recorded with a best estimate.
Pump and dump: A manipulation scheme in which operators inflate a share's price with hype and then sell their holdings to the buyers they attracted.
Purchasing power: How much a sum of money can actually buy. Inflation reduces it even when the number of rupees stays the same.
Put option: A contract giving the buyer the right, but not the obligation, to sell the underlying at the strike price.

Q

Quality of earnings: How far a company's reported profit reflects real, repeatable cash generation from its ordinary business.
Quantitative analysis: Making investment decisions with data, statistics and precise rules, tested on past data and checked on data not used to build them.

R

Real interest rate: An interest rate after allowing for inflation. It shows the gain in buying power.
Real return: The return on an investment after allowing for inflation, which shows how much more you can actually buy.
Rebalancing: Bringing a portfolio back to its target mix by selling some of what has grown and buying what has shrunk, or by directing new money to the underweight part.
Receivables: Money owed to a business by customers who have bought on credit and not yet paid.
Recency bias: Giving recent events too much weight and expecting them to continue.
Recession: A significant, broad fall in economic activity, often summed up by the rule of thumb of two consecutive quarters of falling real GDP.
Record date: The date on which a company checks its register to decide which shareholders receive a dividend or other benefit.
Recovery scam: A second fraud aimed at people who have already lost money, offering to recover it in return for an upfront fee.
Recurring revenue: Revenue earned again and again from the same customers, such as subscriptions, maintenance contracts or consumables, rather than from one-off sales.
Red flag: A pattern in a company's accounts or disclosures that may have an innocent explanation but is common before problems emerge.
Red herring prospectus: The offer document for an IPO, filed before the final price is fixed, setting out the business, risks, financials, the use of proceeds and who is selling.
Refinancing risk: The danger that loans fall due when lenders are unwilling to lend again, or will only do so at much higher rates.
Reinvestment rate: The share of after-tax operating profit a company puts back into the business as net new investment.
REIT: A SEBI-regulated trust that owns income-producing property, such as offices or malls, and passes most of its cash flow to unitholders.
Related-party transaction: A deal between a company and a party closely connected to it, such as a promoter, director, their relatives or a group company.
Relative strength index: A momentum oscillator from 0 to 100 that compares the size of recent gains with recent losses, usually over 14 periods.
Repo rate: The interest rate at which the RBI lends to banks for short periods against government securities. It is the main tool of monetary policy.
Research analyst: A person or firm registered with SEBI to publish research reports and recommendations on securities.
Research checklist: A written list of questions answered for every company researched, covering the business, financials, governance, valuation and risks.
Retained earnings: The profits a company has kept over the years instead of paying them out as dividends, recorded as part of shareholders' equity.
Return on assets: Net profit divided by average total assets, showing how much profit a company earns on everything it owns.
Return on capital employed: Operating profit (EBIT) divided by the capital provided by shareholders and lenders together, a measure of business quality little affected by debt.
Return on equity: Net profit divided by average shareholders' equity, showing how much profit a company earns on the money its shareholders have put in and left in the business.
Return on incremental capital: The extra operating profit a company earns divided by the extra capital it invested to earn it.
Revenue: The money a business earns from selling its goods or services in a period, before any costs are deducted.
Reverse DCF: Working backwards from the current share price to find the growth, margins or returns the market must be assuming.
Rights issue: An offer to existing shareholders to buy new shares in proportion to their holding, usually at a price below the market price.
Risk capacity: How much loss an investor can afford financially without damaging their goals or daily life.
Risk of ruin: The chance of losing so much capital that a trader cannot, or will not, continue.
Risk tolerance: How much loss an investor can bear emotionally without abandoning their plan.
Risk-adjusted return: A return judged against the risk taken to earn it, so that a higher return from a much riskier portfolio is not automatically counted as better.
Risk-free rate: The return on an investment with as little risk as possible, usually taken as the yield on long-term government bonds in the same currency.
Risk/reward ratio: The distance from entry to target divided by the distance from entry to stop, comparing a trade's possible gain with its possible loss.
Rule of 72: A shortcut for estimating how long money takes to double, by dividing 72 by the yearly return in percent.

S

Scenario analysis: Valuing a business under several complete, internally consistent futures, such as bear, base and bull cases.
SEBI: The Securities and Exchange Board of India, the regulator of India's securities markets.
Secondary market: The part of the market where investors buy and sell existing shares with each other, usually on a stock exchange.
Securities lending and borrowing: A system for borrowing shares from their owners for a period, for a fee, often used to sell short.
Securities transaction tax: A tax charged on the value of buying and selling shares and other securities on a stock exchange in India, collected through your broker.
Segment reporting: The breakdown in the notes of revenue, profit and assets by each separately managed part of a company's business.
Sensex: An index of 30 large, well-established companies listed on BSE, and India's oldest widely followed share index.
Sensitivity analysis: Recalculating a valuation for different values of key assumptions, such as the discount rate and growth, to see how much the answer moves.
Sequence-of-returns risk: The risk that bad returns arrive at the worst time, such as just before or just after withdrawals begin, leaving less money than the average return suggests.
Settlement: The process of actually delivering shares to the buyer and money to the seller after a trade, a set number of working days later.
Share: One equal unit of ownership in a company. Owning shares makes you a part-owner of the business.
Shareholder: A person or institution that owns one or more shares in a company, and so is a part-owner of it.
Shareholders' equity: The value left for a company's owners after subtracting all liabilities from all assets. Assets = liabilities + equity.
Shareholding pattern: A quarterly filing showing who owns a listed company, split into categories such as promoters, institutions and the public.
Shares outstanding: The total number of shares a company has issued and that are held by investors, including promoters.
Short selling: Selling first and buying back later, aiming to profit from a fall in price.
Short squeeze: A rapid price rise driven by short sellers buying back to limit their losses, which pushes the price higher still.
Slippage: The difference between the price you expected when placing an order and the average price you actually got.
Speculation: Taking a risky position mainly to profit from a hoped-for price move, rather than from the underlying value or income of the asset.
Spoofing: Placing large orders with no intention of letting them trade, to create a false impression of demand or supply, then cancelling them.
Stamp duty: A government duty on transferring securities, charged on share trades and collected through the exchange's clearing corporation.
Standard deviation: A measure of how widely values are spread around their mean. For investment returns, it is the usual measure of volatility.
Stochastic oscillator: A momentum oscillator showing where the latest close sits within the high-low range of the last N periods, on a scale of 0 to 100.
Stock exchange: An organised marketplace that lists companies' shares and matches buy and sell orders under common rules.
Stock market: The system of exchanges, brokers and record-keepers through which people buy and sell shares in companies.
Stock market index: A number that tracks the combined price movement of a defined basket of shares, to show the general direction of a market.
Stock split: Dividing each existing share into several shares with a proportionally lower face value and price, without changing the company's value.
Stockbroker: A SEBI-registered member of a stock exchange that sends investors' buy and sell orders to the exchange.
Stop-loss order: An order that waits until the price reaches a trigger you set, then becomes a live limit order (SL) or market order (SL-M).
Strike price: The fixed price at which an option's buyer may buy (call) or sell (put) the underlying.
Support and resistance: Price zones where falling prices have previously stopped (support) or rising prices have previously stalled (resistance).
Survivorship bias: The error of judging something by the examples that survived or succeeded, while ignoring the many that failed and dropped out of view.
Swing high and swing low: A swing high is a peak with lower highs on either side; a swing low is a trough with higher lows on either side.
Switching costs: The cost, effort or risk a customer faces in changing from one supplier to another, which can keep customers loyal.
Systematic investment plan: A way of investing a fixed amount in a mutual fund at regular intervals, often monthly.

T

Tail risk: The risk of rare but very large losses, which averages and everyday experience tend to understate.
Technical analysis: Studying past price and volume patterns to judge trends, timing and risk.
Terminal value: In a DCF, the value of all cash flows after the explicit forecast period, often the largest part of the valuation.
Theta: Roughly how much an option's price falls each day from the passage of time alone.
Time horizon: How long until you need the money you are investing. It decides how much short-term risk that money can sensibly carry.
Time value: The part of an option's premium above its intrinsic value, paying for the chance of a favourable move before expiry.
Timeframe: The period each bar or candle on a chart covers, such as one minute, one day or one week.
Total return: The complete gain or loss on an investment, combining the change in price with any dividends or interest received.
Tracking error: How much an index fund's return varies around its index's return; tracking difference is the average gap between them.
Trader: Someone who buys and sells frequently, aiming to profit from short-term price movements over minutes, days or weeks.
Trading account: The account with a broker that you use to place buy and sell orders, linked to your bank account and demat account.
Trading journal: A record of each analysis and decision written before the outcome is known, with results filled in afterwards.
Trading range: A period in which prices move sideways between roughly stable highs and lows, without a clear trend.
Trading volume: The number of shares traded in a period, shown as bars beneath most price charts.
Trend: The direction of prices over a period, defined by the sequence of swing highs and lows on a chosen timeframe.
Trendline: A straight line joining rising swing lows in an uptrend or falling swing highs in a downtrend; a parallel line through the opposite swings forms a channel.
Trigger price: The price at which a waiting stop-loss order is activated and sent into the market as a live order.
Two-factor authentication: A login that needs a second proof, such as a one-time password or an authenticator app code, as well as your password.

U

Underlying asset: The share, index, currency, commodity or other asset whose price a derivative's value depends on.
Unemployment rate: The share of the labour force that is without work and looking for it.
Upper circuit: The top (or, for the lower circuit, bottom) of a share's daily price band, where trading at more extreme prices is not allowed.

V

Value trap: A share that looks cheap on valuation ratios but stays cheap or falls further, because the business is declining or the ratios are misleading.
Vega: Roughly how much an option's price changes for a 1-percentage-point change in implied volatility.
Volatility: How much and how quickly a price moves up and down. Highly volatile shares swing sharply in both directions.
Volatility index: An index calculated from index option prices that measures the market's expected volatility over a coming period.
VWAP: The average price of all of a share's trades during the day, weighted by how many shares traded at each price.

W

WACC: The average return required by all of a company's providers of capital, weighting the cost of equity and the after-tax cost of debt.
Wholesale Price Index: An index of the prices of goods at earlier stages of production and trade, such as raw materials, fuel and manufactured products. It leaves out most services.
Working capital: Current assets minus current liabilities. Its operating part, receivables plus inventory minus payables, is the money tied up in day-to-day business.

X

XIRR: The yearly rate of return that accounts for the size and timing of every amount an investor put in or took out.

Y

Yield curve: A plot of the yields of similar bonds, usually government bonds, across different maturities.
Yield to maturity: The yearly return from buying a bond at today's price and holding it to maturity, assuming every payment is made.