Explain the following terms used in connection with dealings of securities.

Arbitrage: Arbitrage is defined as buying goods in one market where the price is low and selling it in another market where the price is comparatively high. Such operations help in expanding the scope of operations of the stock exchange. Such operations help in bringing the divergent prices of different stock exchanges at a uniform or same level and confer all the benefits of’ a continuous market. Prices are equalized subject to cost of communication and transfer of funds from one place to another.

Forward and Delivery Contracts: A contract for purchase or sale of securities, the settlement of which can be postponed to the next settlement day. Buyer doesn’t carry transactions to take delivery and make payment but for speculation. He covers it by other transaction and earns or loses the difference in prices.

Bull: Bulls are the speculators who anticipate rise in the price of securities in future and so they buy securities in the present to sell them in future when the prices rise. He is also called tejiwala. He earns a profit, if his expectations come true. He has to bear a loss, if market goes against his expectation. He is given a name ‘bull’ because he has a tendency to raise the price artificially like a bull who throws his victim upwards.

Rigging: Rigging means the prices of particular shares are artificially forced up in the market. This situation is created by the bulls who undertake activities that raise the demand and push up the market price. Large shareholders often buy and sell in order to make the market active and then slowly unload their holdings at a profit.

Contango: Contango, are the badla charges paid by the buyer i.e. the bull for the postponement of transactions to the next settlement date. Amount of contango depends upon the class of securities, quantity, value and interest rates prevailing in the market at the transaction time. It is similar to the middle price of difference that lies between the agreed price and market price prevailing on the settlement date.

Cum-dividend: When the shares are’ quoted Cum—div, the buyers gets a right to receive the divided on such shares payable or declared after the sale of such securities. The amount of dividend due is included in the purchase price because the buyer, gets the dividend as and when the company declares it and becomes a registered shareholder. In securities, most of the transactions are cum-dividend.

Margin Trading: Margin means a deposit made by the customer with the broker to cover the anticipated loss. Margin Trading is the practice of buying and selling securities after depositing a particular percentage of values of securities involved in the transaction with the broker. The main purpose is to meet the loss, if it arises out of this deposit. Margin money deposit is a precondition that the client holds the securities on his account. Broker may inform the client to deposit extra amount in order to cover the shortfall, if margin falls short of loss amount suffered by the client on his securities. Broker has the right to sell off the securities and recover the amount of loss, if the client does not pa) the amount.

Authorized Clerk: An employee of the broker who is authorized to transact the business at the stock exchange on behalf of the broker is call& an authorized clerk.

Tags: B.Com

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