TERMS USED IN STOCK TRADING

Limit Order is an order to buy or sell securities in which you specify the maximum price per
unit in case of a Buy order and the minimum price per unit in case of a Sell order. The actual
transaction can be at a price more favourable than the price specified.

Market Orders: This is an order to buy or sell securities at the best price obtainable in the
market at the time it is matched by the exchange. Therefore, chances of its getting executed are
better

GTC/VTD/VTC stands for Good Till Cancel/Valid till date/Valid till Cancel Order: GTC is
a type of order that enables client to place buying and selling orders with specifying time interval
for which instruction of request remains valid. The maximum validity of a GTC order is 365
days.

Disclosed Quantity (DQ):-Normally, the order quantity is disclosed in full to the market. An
order with a Disclosed Quantity (DQ) condition/attribute allows the Trading Member to disclose
only a part of the order quantity to the market. For example, an order of 1000 with a disclosed
quantity condition of 200 will mean that 200 is displayed to the market at a time. After this is
traded, another 200 is automatically released and so on till the full order is executed. In NSE, the
DQ (Disclosed Quantity) should not be less that 10% of the Order Quantity and at the same time
should not be greater than or equal to the Order Quantity. In BSE, the DQ (Disclosed Quantity)
should not be less than either 10% of the Order Quantity or 1000 whichever is lower and at the
same time should not be greater than or equal to the Order Quantity

A Stop loss order allows the client to place an order which gets activated only when the market
price of the relevant security reaches or crosses a threshold price specified by the investor in the
form of 'Stop Loss Trigger Price'. When a stop loss trigger price (SLTP) is specified in a limit
order, the order becomes one which is conditional on the market price of the stock crossing the
specified SLTP. The order remains passive (i.e. not eligible for execution) till the condition is
satisfied. Once the last traded price of the stock reaches or surpasses the SLTP, the order
becomes activated (i.e. eligible for execution by being taken up in the matching process of the
exchange) and then on behaves like a normal limit order. It is used as a tool to limit the
maximum loss on a position. 

Examples :

Stop Loss Buy Order

'A' short sells Reliance shares at  1010 in expectation that the price will fall. However, in the
event the price rises above his buy price 'A' would like to limit his losses. 'A' may place a limit
buy order specifying a Stop loss trigger price of  1030 and a limit price of  1035. The stop loss
trigger price (SLTP) has to be between the last traded price and the buy limit price. Once the
market price of Reliance breaches the SLTP i.e.  1030, the order gets converted to a limit buy
order at  1035. 
Stop Loss Sell Order
'A' buys Reliance at  1010 in expectation that the price will rise. However, in the event the price
falls, 'A' would like to limit his losses. 'A' may place a limit sell order specifying a Stop loss
trigger price of  975 and a limit price of  970. The stop loss trigger price has to be between the
limit price and the last traded price at the time of placing the stop loss order. Once the last traded
price touches or crosses  975, the order gets converted into a limit sell order at  970.

Important
Please note that in a buy order the SLTP cannot be less than the last traded price. This is treated
as a normal order because the condition that the last traded price should exceed the stop loss
trigger price for a buy order is already satisfied. Similarly, in case of a stop loss sell order the
SLTP should not be greater than the last traded price for the same reason.

Price Bands/ Circuit filter: The exchanges have fixed price bands for all t securities within
which they can move within a day i.e +-20%. In case of scrips on which derivatives products are
available there is a price freeze of +/-20%.Orders outside the minimum and the maximum of the
range are not allowed to be entered into the system. However in case of few specific scrips, from
time to time the exchange has fixed price band of less than +/-20%.The previous day's closing
price is taken as the base price for calculating the price bands.

STT, or Securities Transaction Tax, is a tax levied on securities trades (not on commodities or
currency trades). Different STT rates are applicable for Equity (cash) and Futures and Options
(F&O) transactions. STT is levied on trades on the National Stock Exchange (NSE), Bombay
Stock Exchange (BSE), and other recognized stock exchanges. For commodities, CTT
(Commodities Transaction Tax) is levied.

Equity: If the trade is a equity delivery trade, than a tax of 0.1% on the turnover is levied on
both the buy side and sell sides of each trade. However, if the trade is squared off (closed) within
the same trading day, meaning it is a intra-day transaction, then the STT rate applicable is
0.025% on the sell-side trade(s) only.

Contract note is a statement of confirmation of trade(s) done on a particular day for and on
behalf of a client. A contract note is issued in the prescribed format and manner, establishing a
legally enforceable relationship between the member and client in respect to the trades stated in
that contract note. Contract notes are made in duplicate, where the member and client both keep
one copy each.
 Blue chip shares: Shares of large, well-established, and financially strong companies with an
impressive record of earnings and dividends.

Growth shares: Shares of companies that have a fairly entrenched position in a growing market
and which enjoy an above average rate of growth as well as profitability.

Income shares: Shares of companies that have fairly stable operations, relatively limited growth
opportunities, and high dividend payout ratios.

Cyclical shares: Shares of companies that are affected by general economic trends

Defensive shares: Shares of companies that are relatively unaffected by the ups and downs in
general business conditions. The opposite of cyclical shares.

What is Market Capitalization?

Market Capitalization, in simple words, is the market value of the company’s outstanding shares.
It is not the share price but the value of the share. Before we explain further, here is a question
for you:

The share price of Company A is Rs.25 and that of Company B is Rs.60. Which company has
more value? Which company will be more stable?
The answer to this question is not easy since the information provided is limited.
Now, if we say that Company A has 500,000 shares in the market and Company B has 100,000
shares in the market, then which company has more value?
This makes more sense now. So, the total value of the outstanding shares of both companies is:

 Company A – 500,000 x 25 = Rs.1.25 crore

 Company B – 100,000 x 60 = Rs.60 lakh

Hence, Company A has a higher market value than Company B. This is market capitalization or
market cap. The formula to calculate it is: 

Number of outstanding shares x share price

Based on the market cap, companies are classified as large-cap companies, mid-cap companies,
and small-cap companies. In order to ensure that equity schemes follow uniform norms for
defining large, mid, and small caps, the Securities and Exchanges Board of India (SEBI) has
defined them as follows:
 Large-cap companies – 1st to 100th company in terms of market capitalization

 Mid-cap companies – 101st to 250th company in terms of market capitalization

 Small-cap companies – 251st company onwards in terms of market capitalization

It is important to note that since the share price keeps fluctuating, the market cap of a company
keeps changing too. Also, when a company issues more shares to the public, it’s market
capitalization increases. On the other hand, in the case of a buyback, the market cap dips

A stock symbol is a unique code that is given to all participating companies in securities trading.
Once you know the stock code/symbol of the company (sometimes referred to as a ticker
symbol) you can easily obtain information about the company. This is important, as a wise
investor will always do a financial analysis before purchasing a stock.
For ex- tcs stands for Tata Consultancy Services Infy stands for Infosys 

An International Securities Identification Number (ISIN) uniquely identifies a security. Its

structure is defined in ISO 6166. Securities for which ISINs are issued include bonds,commercial
paper, stocks and warrants. The ISIN code is a 12-character alpha-numerical code that does not
contain information characterizing financial instruments but serves for uniform identification of
a security at trading and settlement

Block deal It is a single transaction, of a minimum quantity of five lakh shares or a minimum
value of Rs 5 crore, between two parties which are mostly institutional players.

A bulk deal is said to have happened if under a single client code and in a single or multiple
transactions more than 0.5 per cent of a company's equity shares are traded. A bulk deal can be
implemented within the trading hours at any point of time.

Squaring off is a trading style used by investors/traders mostly in day trading, in which a trader
buys or sells a particular quantity of an asset (mostly stocks) and later in the day reverses the
transaction, in the hope of earning a profit (price difference net of broker charges and tax). 

When a company declares a stock split, the number of shares of that company increases, but the
market cap remains the same. Existing shares split, but the underlying value remains the same.
As the number of shares increases, price per share goes down. 
Bonus shares are additional shares given to the current shareholders without any additional cost,
based upon the number of shares that a shareholder owns. These are company's accumulated
earnings which are not given out in the form of dividends, but are converted into free shares.

In margin trading, you take buy/sell positions in stock(s) with the intention of squaring off the
position within the same settlement cycle. If, during the course of the settlement cycle, the price
moves in your favour (rises in case you have a buy position or falls in case you have a sell
position), you make a profit. In case the price movement is adverse, you incur a loss. However,
you also have the option to take/give delivery of buy/sell position respectively if you have
sufficient cash/securities to do so. 

Normally to buy shares, you have to place (ensure availability of limit) 100% of the order value,
while to sell shares, you need to have shares in your demat account. However, margins are
blocked only to safeguard against any adverse price movement. With margin trading, you can
leverage on your trading limit by taking buy/sell positions much more than what you could have
taken in cash segment. However, the risk profile of your transactions goes up.

WHAT ARE STOCK INDICES?

From among the stocks listed on the exchange, some similar stocks are selected and grouped
together to form an index. This classification may be on the basis of the industry the companies
belong to, the size of the company, market capitalization or some other basis. For example, the
BSE Sensex is an index consisting of 30 stocks. Similarly, the BSE 500 is an index consisting of
500 stocks.

The values of the grouped stocks are used to calculate the value of the index. Any change in the
price of the stocks leads to a change in the index value. An index is thus indicative of the
changes in the market.

Some of the important indices in India are:

Benchmark indices – BSE Sensex and NSE Nifty
Sectoral indices like BSE Bankex and CNX IT
Market capitalization-based indices like the BSE Smallcap and BSE Midcap
Broad-market indices like BSE 100 and BSE 500