Stock Market Terminologies
Some of the definitions and jargons which are used in the Pakistani stock markets are being provided hereunder for the education of beginners and potential investors.
A publication, including financial statements and a report on operations, issued by a company to its shareholders at the company's fiscal year-end.
The simultaneous purchase of a security on one stock market and the sale of the same security on another stock market at prices which yield a profit.
Ask or Offer
The lowest price at which someone is willing to sell the security. When combined with the bid price information, it forms the basis of a stock quote.
Everything a company or person owns, including money, securities, equipment and real estate. Assets include everything that is owed to the company or person. Assets are listed on a company's balance sheet or an individual's net worth statement.
Averages and Indices
Statistical tools that measure the state of the stock market or the economy, based on the performance of stocks, bonds or other components. Examples are the KSE-100, KSE-30 and ISE-10. On international level S&P Composite Indexes, the Dow Jones Industrial Average, Nikki, Sensex and FTSE are the renowned indexes of global markets such as USA, Japan, India and Japan etc.
Buying more of a security at a price that is lower than the price paid for the initial investment. The aim of averaging down is to reduce the average cost per unit of the investment.
A balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".
One-hundredth of a percentage point. For example, the difference between 10.25% and 10.50% is 25 basis points.
A market in which stock prices are falling.
A measurement of the relationship between the price of a stock and the movement of the whole market.
The highest price a buyer is willing to pay for a stock. When combined with the ask price information, it forms the basis of a stock quote.
Blue Chip Stocks
Stocks of leading and nationally known companies that offer a record of continuous dividend payments and other strong investment qualities.
Promissory notes issued by a corporation or government to its lenders, usually with a specified amount of interest for a specified length of time.
Broker or Brokerage Firm
A securities firm being member of any stock exchange and duly registered with Securities and Exchange Commission of Pakistan (SECP). Brokers are the link between investors and the stock market.
A market in which stock prices are rising.
Any day from Monday to Friday, excluding statutory holidays.
To an economist, capital means machinery, factories and inventory required to produce other products. To investors, capital means their cash plus the financial assets they have invested in securities, their home and other fixed assets.
Capital Gain or Loss
Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.
Capital Gains Distribution
A taxable distribution out of taxable gains realized by the issuer. It is generally paid to security holders of trusts, partnerships, and funds. Like all distributions, it may be paid in securities or cash. The amount, payable date, and record date are established by the issuer. The exchange that the issue is listed on sets the ex-dividend/distribution (ex-d) date for entitlement.
Any change in the issued and outstanding listed securities of an issuer. This change may involve the issuance, repurchase, or cancellation of listed securities or listed securities that are issuable upon conversion or exchange of other securities of an issuer.
Capitalization or Capital Structure
Total rupee amount of all money invested in a company, such as debt, preferred and common stock, contributed surplus and retained earnings of a company.
Cash Dividend / Distribution
A dividend/distribution that is paid in cash.
Central Depository Company of Pakistan Limited
The Central Depository Company of Pakistan Limited provides securities book entry depository services.
The physical document that shows ownership of a bond, stock or other security.
Clearing and Settlement
A process which the clearing company executes to effect trade clearing and settlement.
Closed-End Investment Fund
An investment trust that issues a fixed number of securities that trade on a stock exchange or in the over-the-counter market. Assets of a closed-end fund are professionally managed in accordance with the fund's investment objective and policies and may be invested in a wide range of financial instruments/assets. Like other publicly traded securities, the market price of closed-end fund securities fluctuates and is determined by supply and demand in the marketplace.
The fee charged by a broker or an investment advisor for buying or selling securities as an agent on behalf of a client.
Products used for commerce that are traded on the specifically authorized commodities exchange. Commodities include agricultural products and natural resources such as crude oil and metals. Commodities are the basis for futures contracts traded on these exchanges.
Common Shares or Common Stock
Securities that represent part ownership in a company and generally carry voting privileges. Common shareholders may be paid dividends, but only after preferred shareholders are paid. Common shareholders are last in line after creditors, debt holders and preferred shareholders to claim any of a company's assets in the event of liquidation.
A company's ongoing obligation to inform the public of significant corporate events, both favourable and unfavourable.
A security of an issuer (for example - bonds, debentures, or preferred shares) that may be converted into other securities of that issuer, in accordance with the terms of the conversion feature. The conversion usually occurs at the option of the holder of the securities, but it may occur at the option of the issuer.
Corporation or Company
A form of business organization created under provincial or federal laws that has a legal identity separate from its owners. The shareholders are the corporation's owners and are liable for the debts of the corporation only up to the amount of their investment. This is known as limited liability.
A trade that occurs when two accounts within the same Participating Organization/Member wish to buy and sell the same security at an agreed price and volume.
With dividend. The owner of shares purchased cum dividend is entitled to an upcoming already-declared dividend. The opposite of this is ex dividend.
With rights. The owner of shares purchased cum rights is entitled to forthcoming, already-declared rights. The opposite of this is ex rights.
A long-term debt instrument issued by corporations or governments that is backed only by the integrity of the borrower, not by collateral. A debenture is unsecured and subordinate to secured debt. A debenture is unsecured if there are no liens or pledges on specific assets.
The removal of a security's listing on a stock exchange. This is done when the security no longer exists, the company is bankrupt, the public distribution of the security has dropped to an unacceptably low level, or the company has failed to comply with the terms of its listing agreement.
The tender and receipt of the of the securities sold/purchased.
Limiting investment risk by purchasing different types of securities from different companies representing different sectors of the economy.
The portion of the issuer's equity paid directly to shareholders. It is generally paid on common or preferred shares. The issuer or its representative provides the amount, frequency (monthly, quarterly, semi-annually, or annually), payable date, and record date. The exchange that the issue is listed on sets the ex-dividend/distribution (ex-d) date for entitlement.
Equal to the indicated annual dividend rate per share divided by the security's price. For example, if the indicated dividend rate is 10% and the closing price is Rs.50.00, Re.1 divided by Rs.50.00 equals 2%.
A trade is on a downtick when the last trade occurred at a price lower than the previous one.
Common and preferred stocks, which represent a share in the ownership of a company.
The holder of shares purchased ex dividend is not entitled to an upcoming already-declared dividend, but is entitled to future dividends.
The holder of shares purchased ex rights is not entitled to already-declared rights, but is entitled to future rights issues.
Exchange-Traded Fund (ETF)
A special type of financial trust that allows an investor to buy an entire basket of stocks through a single security, which tracks and matches the returns of a stock market index. ETFs are considered to be a special type of index mutual fund, but they are listed on an exchange and trade like a stock.
Ex-dividend/distribution date. The date that the buyer of a stock is not entitled to the upcoming declared dividend/distribution, because the buyer will not be a holder of record. The ex-d date is two clearing days before the record date. The exchange that the issue is listed on sets the ex-d date.
The cash denomination of the individual debt instrument. It is the amount of money that the holder of a debt instrument receives back from the issuer on the debt instrument's maturity date. Face value is also referred to as par value or principal.
Fill or Kill (FOK) Order
is "an order to buy or sell a stock that must be executed immediately"—a few seconds, customarily—in its entirety; otherwise, the entire order is cancelled; no partial fulfillments are allowed.
The free float of a public company is an estimate of the proportion of shares that are not held by large owners and that are not stock with sales restrictions (restricted stock that cannot be sold until they become unrestricted stock).
An interruption in trading on a stock, triggered when an order violates parameters set by the Stock Exchange.
Contracts to buy or sell securities at a future date.
A strategy used to limit investment loss by making a transaction that offsets an existing position.
Also called income trusts. Income funds are mutual funds structured to own debt and equity of an underlying entity, which carries on an active business, or has royalty revenues generated by the assets of an active business.
A statistical measure of the state of the stock market, based on the performance of stocks.
An overall increase in prices for goods and services, usually measured by the percentage change in the Consumer Price Index.
Initial Public Offering (IPO)
A company's first issue of shares to the general public.
Non-public information pertaining to the business affairs of a corporation that could affect the company's share price should the information be made public.
All directors and senior officers of a company, and those who are presumed to have access to inside information concerning the company.
There are two types of insider trading. The first type occurs when insiders trade in the stock of their company. Insiders must report these transactions to the appropriate securities commissions. The other type of insider trading is when anyone trades securities based on material information that is not public knowledge. This type of insider trading is illegal.
A closed-end fund that offers investors the ability to buy a security that represents a portfolio of investments with a specific investment strategy. These products use funds raised through a public offering to invest in a portfolio of securities, which are actively managed to create income streams for investors, typically through a combination of dividends, capital gains, interest payments, and in some cases, income from derivative investment strategies.
Investor Protection Fund (IPF)
A fund established to protect investors in the event of insolvency of a member of any of the following sponsoring self-regulatory organizations.
Any of a company's securities or the act of distributing the securities. Issued shares refer to the portion of a company's shares that have been issued for sale. A company does not have to issue the total number of its authorized shares.
The debts and obligations of a company or an individual. Current liabilities are debts due and payable within one year. Long-term liabilities are those payable after one year. Liabilities are found on a company's balance sheet or an individual's net worth statement.
An order to buy or sell stock at a specified price. The order can be executed only at the specified price or better. A limit order sets the maximum price the client is willing to pay as a buyer, and the minimum price they are willing to accept as a seller.
An order to close out an existing open futures or options contract. A liquidating order involves the sale of a contract that has been purchased or purchase of a contract that has been sold.
This refers to how easily securities can be bought or sold in the market. A security is liquid when there are enough units outstanding for large transactions to occur without a substantial change in price. Liquidity is one of the most important characteristics of a good market. Liquidity also refers to how easily investors can convert their securities into cash and to a corporation's cash position, which is how much the value of the corporation's current assets exceeds current liabilities.
Shares of an issuer that are traded on a stock exchange. Issuers pay fees to the exchange to be listed and must abide by the rules and regulations set out by the exchange to maintain listing privileges.
The document that an issuer completes and submits to an exchange when it applies to list its shares on the exchange. The issuer must disclose its activities, plans, management and finances in the application.
A term that refers to ownership of securities. For example, if you are long 100 shares of XYZ, this means that you own 100 shares of XYZ company.
A client account that is used by the Broker to buy a security. A client needs to deposit a margin amount with the broker against collateral such as investments. The investment dealer can make a margin call, which means the client must deposit more money or securities if the value of the account falls below a certain level. If the client does not meet the margin call, the broker can sell the securities in the margin account at a possible loss to cover the balance owed. The broker also charges the client interest on the money borrowed to buy the securities.
The number of issued and outstanding securities listed for trading for an individual issue multiplied by the board lot trading price. Should a trading price not be available, a bid price, a price on another market, or if applicable, the price for an issue of the same issuer which the first issue is convertible into, may be used. Total market capitalization for a market is obtained by adding together all individual issue market capitalizations.
A trader employed by a securities firm/issuer who is required to maintain reasonable liquidity in securities markets by making firm bids or offers for one or more designated securities up to a specified minimum guaranteed fill.
An order to buy or sell stock immediately at the best current price.
A change in an issuer's affairs that could have a significant effect on the market value of its securities, such as a change in the nature of the business or control of the issuer. Under the principle of continuous disclosure, a listed issuer must issue a news release and report to the applicable self-regulatory organization as soon as a material change occurs.
Member means any individual or firm or a body corporate elected by the Exchange to undertake business of securities as a broker.
A fund managed by an expert who invests in stocks, bonds, options, money market instruments or other securities. Mutual fund units can be purchased through brokers or, in some cases, directly from the mutual fund company.
National Clearing Company of Pakistan Limited
The designated clearing company provides clearing and settlement services in support of trading in equity, fixed income, and money markets.
Over-The-Counter (OTC) Market
The market maintained by the Exchange for small and medium sized enterprises. In some jurisdictions it is also referred to as a market for dealing in issues not listed on a stock exchange. Mostly the bonds and debentures, as well as small sized stocks, are traded over-the-counter.
A security's nominal face value.
Low-priced speculative issues of stock selling at less than Re.1.00 a share.
Holdings of securities by an individual or institution. A portfolio may include various types of securities representing different companies and industry sectors.
A class of share capital that entitles the owner to a fixed dividend ahead of the issuer's common shares and to a stated dollar value per share in the event of liquidation. It usually does not have voting rights, unless a stated number of dividends have been omitted.
A session prior to regular opening of the market when orders can be entered into the Stock Exchange's trade systems. Tradable orders will be queued until after official opening of the market.
Price-Earnings (P/E) Ratio
A common stock's last closing market price per share divided by the latest reported 12-month earnings per share. This ratio shows you how many times the actual or anticipated annual earnings a stock is trading at.
The private offering of a security to a small group of buyers. Resale of the security is limited.
A legal document describing securities being offered for sale to the public. It must be prepared in accordance with provincial securities commission regulations. Prospectus documents usually disclose pertinent information concerning the company's operations, securities, management and purpose of the offering.
A brisk rise in the general price level of the market or price of a stock.
Real Estate Investment Trust (REIT)
Typically, a closed-end investment fund that trades on an exchange and uses the pooled capital of many investors to purchase and manage income properties. Equity REITs primarily own commercial real estate, such as shopping centres, apartments, and industrial buildings. By taking advantage of the trust structure, REITs offer tax advantages (beyond traditional common equity investments) to investors and provide a liquid way to invest in real estate, which otherwise is an illiquid market.
A security that carries a condition giving the issuer a right to call in and retire that security at a certain price and for a certain period of time.
Transferable certificates of ownership of investment products such as notes, bonds, stocks, futures contracts and options.
Securities and Exchange Commission of Pakistan (SECP)
The federal regulatory body that oversees the capital market. This body sets down the rules to regulate the markets.
An organization recognized by securities administrators as having powers to establish and enforce industry regulations to protect investors and to maintain fair, equitable and ethical practices in the securities industry such as stock exchange.
The process that follows a transaction when the seller delivers the security to the buyer and the buyer pays the seller for the security.
The date when a securities buyer must pay for a purchase or a seller must deliver the securities sold. Settlement must be made on or before the third business day following the transaction date in most cases.
A paper certificate that represents the number of shares an investor owns.
The selling of a security that the seller does not own but has borrowing arrangement for the delivery of the same.
Someone prepared to accept calculated risks in the marketplace for attractive potential returns.
Capital and preferred shares issued by a split-share corporation. A split-share corporation holds common shares of one or more companies. The corporation then issues two classes of shares - capital shares and preferred shares. The objective is to generate fixed, cumulative, preferential dividends for the holders of preferred shares and to enable the holders of the capital shares to participate in any capital appreciation (or depreciation) in the underlying common shares.
The difference between the bid and the ask prices of a stock.
Stock Index Futures
Futures contracts which have a stock index as the underlying interest.
A trading halt is imposed by the exchange, usually due to certain unavoidable circumstances.
As reported in exchange trading statistics, represents the total number of trades for a specified period.
A trust or a firm appointed by a listed company to keep a record of the names, addresses and number of shares held by its shareholders. Frequently, the transfer agent also distributes dividend cheques to the company's shareholders.
The agreement by investment bankers/brokers to purchase certain quantity of shares from the issuer in case of under subscription by the public.
Unique Identification Number (UIN)
The process that is used to uniquely identify investors/traders. It is based on the national identity cards for individuals and registration numbers for bodies corporate. The system for UIN registration is being maintained by National Clearing Company of Pakistan Limited.
This is the measure of the return on an investment and is shown as a percentage. A stock yield is calculated by dividing the annual dividend by the stock's current market price.