Glossary, Stock Market Basic, Share Market Basic

Whether you are a beginner at investing or seasoned investor being familiar the basic term of the stock market is essential. Expanding your stock market vocabulary will enable you to be a better investor, so that you can trade successfully. Given below is a basic glossary of terms that 

you must know as an investor:-

•     Agent: In the stock market, an agent refers to a brokerage firm which buys or sells shares on behalf of the investor.
•     Ask/Offer:Lowest price at which an owner agrees to sell the shares.
•     Assets:Assets refers to the property owned by the company such as cash, equipment, land, technology etc.
•     Bear Market: It is a market situation where the stock prices fall consistently.
•     At the money:A situation at where the options strike price is same as the price of the underlying securities.
•     Beta: It is a measurement of relationship between stock price of any particular stock and the movement of whole market.
•     Bid: The highest price that a buyer is willing to pay for a particular stock.
•     Blue Chip Stock: Stock of well-established and financially sound companies that have a market capitalization in thousands of crores.
•     Board Lot:A standard trading unit which is defined by a particular exchange board. The Board lot size depends on the per share price. Some common board lot sizes are 50, 100, 500, 1000 units.
•     Bonds: It is promissory note issued by the government or a company to its buyers. It illustrates the specified amount held for a specified time period by the buyer.
•     Book: It is an electronic record that is used to manage all the pending buy and sell orders of particular stocks.
•     Bull Market: A market situation where the price of the stocks increases rapidly.
•     Call Option: It is an option given to investor the right to buy a particular stock at a specified price and time which is not an obligation.
•     Close Price:The final price at which the stock is sold or traded on a particular trading day.
•     Convertible Securities: A security (bonds, debentures, preferred stocks) by an issuer that can be converted into other securities of that issuer are known as convertible securities.
•     Debentures: A form of debt instrument which is not secured by physical assets or collateral.
•     Defensive Stock:A type of stock that provides a constant rate of dividends even in the periods of economic downturn.
•     Delta: The ratio that compares the change in the price of the underlying asset to the corresponding change in the price of a derivative.
•     Face value: It is the cash value or the amount of money the holder of a security is going to earn from the issuer of the security at the time of maturity.

    One-side

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Share Market Basic, Dividends

Important Facts to Know about Dividends

As discussed, shares comprise a certain portion of an organization. Several profit-making companies listed on the share market share their profits among shareholders, which is the primary objective of paying dividends. Companies distribute a small component of their profits as dividends to the investors. This becomes an important source of earnings for investors who stay involved in the share market for a longer period of time.

Because dividends are a minor portion of company profits that are returned to the investors, they provide additional incentive for individuals to hold on to their stocks even if the company is not growing at high rates. This is an important share market basic, which all investors must remember.

Companies utilize dividends to share the annual profits directly with the shareholders. Generally, it is paid as cash; the organization pays a small percentage of the earned profits to every shareholder. Sometimes, this profit share could be in the form of offering additional stocks to the investors.

• Important Facts to Know about Dividends

    Periodic Payments: Most companies pay an annual dividend based on the total profits made during the year. In certain instances, organizations may pay quarterly dividends or special one-time dividends if exceptional profits have been earned through unique events.
    Taxable: Investors need to bear in mind that income earned from dividends is taxable as per the Income Tax Act, 1961. An accountant should ideally be consultant for clarifications and more details on this.

• Types of Dividends
  

Companies can either pay fixed rate, referred to as preferred dividends, or they can pay variable dividends based on the earnings, known as common dividends.

Investors should remember one thing about share market investment — companies are not obliged to make these payments by any regulatory guidelines. However, preferred shareholders are more likely to receive these pay-outs, unless the companies are going through exceptional financial difficulties.

• Dates to Remember
  

    Declaration Date: This is the date when the company determines the payment date for the dividend, the ex-dividend rate, and the dividend amount.
    Record Date: The companies compile the list of all the shareholders as on the record date. All these investors are eligible to receive the declared dividends.
    Ex-Dividend Date: This is often a few days before the record date. The primary objective of this date is to ensure pending transactions, if any, are completed prior to the record date. Any investor who does not own company shares before the ex-dividend date will be ineligible to receive the dividends for the said period.

• Benefits of Dividends
  

    For Companies: Organizations on the share market pay dividends to retain investors by keeping them happy. It is often perceived that dividend-paying organizations have progressed from the growth stage, which means they cannot keep pace with the rate of growth expected by the markets. Organizations that do not reinvest their profits to grow their companies pay dividends to shareholders. Regular dividends make the stock appealing to investors, which, in turn, helps in increasing the price of the share.
    For Investors: Dividends provide investors a stable return on their investments, which is low risk. Individuals who are risk-averse can be assured of investing their money in stable companies with low growth but with almost no risk of a fall in share prices, which can then risk their capital investments. In addition, as the organizations continue to grow, the dividends increase, which raises the value of the stock for the investors.

Investors need to bear in mind that bigger dividends do not always mean better. It is generally seen that companies paying high dividends are unable to sustain these rates in the longer period. Thorough research and exercising caution while choosing dividend-paying companies will help sustain periodic returns on investments in the share market.

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