Glossary of Stock Market Terminology

Glossary of Stock Market Terminology
Operations in Stock Exchanges have very specific terminology that is different from
other financial institutions.
Bear
An investor who anticipates a falling market and, therefore, sells the security in the
hope of buying it back at a lower price.
Blue Chip
A large well-established company with a history of profitable operation.
Bonds
Fixed-income securities, which entitle the holder to a pre-determined return during
their life and repayment of principal at maturity.
Bull
An investor who anticipates a rising market and, therefore, buys the security in the
hope of selling it later at a higher price.
Capital Gains Tax
Tax payable on profit arising from appreciation in value of investment, realized at
the time of selling or maturity of investment.
Dividend
That part of a companys profits which is distributed among shareholders, usually
expressed in rupee per share or percentage to paid up capital.
Earnings per share (EPS)
A profitability indicator calculated by dividing the earnings available to common
stockholders during a period by the average number of shares actually outstanding
at the end of that period.
Equity
The owners interest in a companys capital, usually referred to by ordinary shares.
Floatation
The occasion when a companys shares are offered on the stock market for the first
time.
Fund managers
A company, which invests and manages investors money, with the aim of
maximizing capital growth.
Initial Public Offering (IPO)
The offering of equity shares of a company to the general public for the first time.
Insider trading
The purchase or sale of shares by someone who possesses inside information on a
companys performance which information has not been made available to the
market and which might affect the share price. In Pakistan, such deals are a
criminal offence.
Investment companies
A company, which issues shares and uses its capital to buy securities and shares in
other companies.
Listed company
A company whose securities are admitted for listing on a stock exchange.
Long position -
When an individual purchases securities of a company he is said to have a long
position in the companys shares. For example an owner of shares in PTCL is said to
be "long PTCL" or "has a long position in PTCL." If you are long, you would like the
share price to go up.
Market capitalization
The total value of a companys equity capital at the current market price.
Nominee
A person or company holding securities on behalf of others, but who is not the
owner of such securities.
Option
The right (but not the obligation) to buy or sell securities at a fixed price within a
specified period.
Ordinary shares
The most common form of shares, which entitle the owners to jointly own the
company. Holders may receive dividends depending on profitability of the company
and recommendation of directors.
Portfolio
A collection of investments is called portfolio. Portfolio is maintained to diversify
the risk.
Price/Earning ratio (P/E ratio)

The P/E ratio is a measure of the level of confidence (rightly or wrongly) investors
has in a company. It is calculated by dividing the current share price by the last
published earnings per share.
Primary market
Where a company issues new shares, either for the first time, or at the time of
issuing additional securities.
Privatization
Conversion of a state-owned company to a public limited company (plc) status.
Private company
A company that is not a public company and which is not allowed to offer its shares
to the general public.
Public limited company (plc)

A company whose shares are offered to the general public and traded freely on the
open market and whose share capital is not less than a statutory minimum.
Rights Issue
The issue of additional shares to existing shareholders when companies want to
raise more capital.
Securities
A broad term for shares, corporate bonds or any other form of paper investment in
capital market instruments.
Settlement
Once a deal has been made, the settlement process transfers stock from seller to
buyer and arranges the corresponding exchange of money between buyer and
seller.
Short Selling
The act of borrowing stock to sell with the expectation of price reduction with the
intention of buying it back at a cheaper price.
Stockbroker
A member of the stock exchange who deals in shares for clients and advises on
investment decisions.
Stock Market
The market place where shares of publicly listed companies are bought and sold.
Unit trust
An open-ended mutual fund that invests funds in securities and issues units for sale
to the public. It can repurchase these units at any time.
Yield
The aggregate return earned on an investment taking into account the
dividend/interest income and its present capital value.

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Price/Earning ratio (P/E ratio)

Public limited company (plc)

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