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Glossary - L
Brokerage house in charge of IPO.
Any means of increasing value and return by borrowing funds or committing less of one's own money. For corporations, it refers to the ratio of debt (in the form of bonds and preferred stock outstanding) to equity (in the form of common stock outstanding) In the company's capital structure.
The more long-term debt there is, the greater the financial leverage. Shareholders benefit from this financial leverage to the extent that the return on the borrowed money exceeds the interest costs of borrowing it. The market value of the company rises and so do its shares. Because of this effect, financial leverage is popularly called ‘trading on the equity'. For individuals, leverage can involve debt, as when an investor borrows money from his broker ‘on margin' and so is able to buy more stock than he otherwise could. If the stock goes up, he repays the broker the loan amount and keeps the profit himself. By borrowing money he has achieved a higher return on his investment than if he had paid for all the stock himself. Rights, warrants, futures and option contracts also provide leverage, not through debt but by offering the prospect of a high return for little or no investment.
The downside: most individuals pledge existing stocks with their bankers or brokers for the loan, which is a percentage of the market value of the stocks pledged. Say you have pledged stocks worth Rs.100 on the market against which you are given a loan of Rs.50 (50 per cent). Now suppose the market value of the pledged stocks goes down to Rs.75. The lender is immediately going to ask you to pledge more stocks (or pay cash) to bring the level up to 200 per cent of the loan.
Multiply this instance by thousands and you can imagine the margin pressure that is exerted on the market. This is when the market falls and we have what is known as a ‘bear' market.
Take over of a public corporation using borrowed funds.
A financial obligation or debt.
A market order that specifies the highest or lowest price at which the customer is willing to trade securities. An order to a broker to buy a certain stock (future, etc.) only if the price rises to a specified level. This decision-making is necessary to cut losses due to lower prices or sudden reverses in rising share prices.
A measure of the number of shares, or money value of shares traded daily. Mutual funds and other institutional buyers prefer high liquidity stocks so they can easily move in and out of positions. Depth of market to absorb buy and sell activity of even large orders at prices appropriate to supply and demand. The market must also adapt quickly to new information and incorporate that information into the stock's price. Liquidity is one of the most important characteristics.
A sales commission paid when you buy (front-end) or sell (back-end) a mutual fund.
Mutual funds that carry a sales commission.
A bull position in a security. To buy or hold a long position is the state of actually owning a stock, security, contact, or commodity. It is the opposite of a short position.
A gain on the sale of a capital asset where the holding period was twelve months or more and profit was subject to the long-term capital gains tax. The legal definition of short term and long term capital gains varies from country. So is taxation based on those classifications? This is one of the reasons investors buy and sell stocks around the world. A U.S. investor (FII), today, can make more money on an investment on the BSE than the U.S. bourse. The day-even minute - the FII sees a better opportunity elsewhere in the world. That's where the money will go.
Balance sheet item reflecting investments in other companies, etc.
A fixed minimum number in which shares are bought and sold. Trading lots can comprise 5, 10, 50 or 100 shares depending on the face value of shares. Such number makes round lots, anything less makes odd lots.
The lowest price a security or commodity has reached in a certain period of time such as a daily low or annual low. This can be expressed daily, weekly, monthly, or for a 52 week period. For example, the low for the day can be 10, but the low for the year can be 5, Helps you understand whether today's price is an aberration or a logical extensive of a trend.