Key Terms in the Stock Market

Entering the securities market can be daunting without understanding some important terminology. Many people feel left behind when they enter the stock market without grasping the basics. Here, we provide explanations of some key terms related to the securities market, which will be useful for anyone looking to enter or enhance their knowledge of the stock market.

Dividend and Bonus Shares

• Dividend: The profit distributed to shareholders from a company's earnings is called a dividend. If given in cash, it is called a cash dividend, and if given in the form of shares, it is called a bonus share.

Merchant Bank

• Merchant Bank: An institution that handles the primary issuance of securities, underwriting, collecting applications, and providing other related services.

Stockbroker

• Stockbroker: A professional who buys and sells securities on behalf of clients.

Securities Trader

• Securities Trader: A professional who buys and sells securities issued in the primary market and manages investments and agreements with clients.

Market Maker

• Market Maker: An institution that buys and sells securities, such as debentures or mutual fund units, listed securities to provide liquidity in the market.

Share Registrar

• Share Registrar: An institution that keeps records of securities transactions, processes transfers, and updates shareholder details for organized institutions.

Debenture

• Debenture: A type of debt instrument issued under a specified rate and repayment terms, including principal and interest payments.

Warrant

• Warrant: A type of security issued allowing the holder to buy ordinary shares at a specified number and price within a certain time frame.

Blue Chip Shares

• Blue Chip Shares: Shares of well-established and financially sound companies that have consistently generated profits and gained investor trust over a long period.

Central Securities Depository (CSD)

• Central Securities Depository: A system that manages the custody of securities, facilitates buying and selling records, and assists with name changes and transfers.

Underwriting

• Underwriting: The commitment to purchase unsold securities in the primary market issuance.

Prospectus

• Prospectus: A document published by an issuer before public offering, detailing information about the issuing institution and the securities being offered.

Over-Subscription and Under-Subscription

• Over-Subscription: A situation where the number of applications for securities exceeds the number of securities available for sale.

• Under-Subscription: A situation where the number of applications for securities is less than the number of securities available for sale.

Premium

• Premium: The difference between the issue price and the nominal value of the security.

Bid and Ask Price

• Bid Price: The price at which a potential buyer is willing to pay for a security.

• Ask Price: The price at which a seller is willing to sell a security.

Paid-Up Value of Listed Securities

• Paid-Up Value: The total value of all listed securities paid up by shareholders.

Market Capitalization

• Market Capitalization: The total market value of all listed securities on the stock exchange.

Market Index

• Market Index: The ratio of the total market value of listed securities today compared to a base year.

Per Share Market Price

• Per Share Market Price: The current market price of a share.

Earnings Per Share (EPS)

• Earnings Per Share: The company's net profit divided by the total number of shares, representing the profit earned per share.

Net Worth

• Net Worth: The total value of a company's paid-up capital and reserves.

Price Sensitive Information

• Price Sensitive Information: Information that could directly impact the market price of securities, such as dividend announcements, bonus share issues, management changes, expansion plans, financial results, and significant agreements.

Insider Trading

• Insider Trading: The trading of securities based on non-public information that should be disclosed to investors.

Bull and Bear Market

• Bull Market: A market condition where securities prices are rising or expected to rise.

• Bear Market: A market condition where securities prices are falling or expected to fall.

Directors and Board of Directors

• Directors: Individuals responsible for managing the entire operations of a company, exercising powers, and fulfilling duties.

• Board of Directors: A group of individuals elected to represent shareholders and oversee the management and direction of the company.

Annual General Meeting (AGM)

• Annual General Meeting: A yearly gathering of a company's shareholders to discuss the company's activities, achievements, problems, and future plans, and to approve important matters.