NCFM Capital Market (Dealers) key terms

An account with a depository participant that holds securities in electronic form instead of paper certificates. Buying and selling on an exchange settles by debiting or crediting this account.

A SEBI-registered intermediary, usually a broker or bank, that opens demat accounts for investors and links them to the central depository, NSDL or CDSL, for settlement of trades.

A settlement cycle in which trades are settled on a fixed number of days after execution, now T+1 in Indian equity markets, with pay-in of funds and securities followed by pay-out.

The two legs of settlement: pay-in is when buyers deliver funds and sellers deliver securities to the clearing corporation, and pay-out is when the clearing corporation transfers securities to buyers and funds to sellers.

An entity that guarantees settlement of trades on an exchange by acting as central counterparty, novating trades and managing margins and the settlement guarantee fund.

A corpus maintained by a clearing corporation from member contributions and exchange resources to meet shortfalls when a defaulting member fails to honour settlement obligations.

An exchange mechanism that halts trading in a stock or the whole market when price moves beyond preset percentage limits, giving participants time to absorb information.

The maximum permitted percentage movement in a security's price from its previous closing price on a trading day, set by the exchange based on the stock's liquidity category.

A broker service allowing clients to buy shares by paying only a part of the value, with the broker funding the rest against collateral and charging interest on the funded amount.

The minimum quantity of shares, or in derivatives the fixed contract size, that can be bought or sold in one order on an exchange. Equity lots are now one share in the cash segment.

A price discovery process for a public issue where investors bid within a price band over several days; the issuer and lead managers then fix the cut-off price based on demand.

The final issue price determined after book building, at or below which bids are accepted. Bids above it receive allotment, and retail investors may bid at the cut-off without quoting a price.

The first sale of shares by a company to the public, raising fresh capital or enabling existing holders to exit, after which the shares list and trade on an exchange.

The portion of a company's shares available for public trading, excluding holdings of promoters, governments and strategic locked-in investors. It drives index weights and liquidity.

An index construction method where each constituent's weight is proportional to its market value, often using free-float adjusted market capitalisation rather than total shares outstanding.

The periodic review and adjustment of an index's constituents and their weights to keep it representative of the target market, effective on a pre-announced date.

Exchange-traded derivative contracts whose value derives from a stock index, settled in cash, used for hedging portfolio risk or taking directional views on the broader market.

The fixed number of underlying units in one derivatives contract, set by the exchange so that contract value stays within a prescribed band as the underlying price changes.

A daily cash settlement of the change in a futures position's value, debited from losers and credited to gainers, preventing losses from accumulating unpaid.

The upfront collateral a trader must deposit before opening a derivatives position, sized to cover potential losses over the close-out period under stressed conditions.

A portfolio-based margining system that estimates the worst probable loss on a derivatives portfolio over a one-day horizon across a range of price and volatility scenarios.

The price a buyer pays and a seller receives for an option contract, made up of intrinsic value and time value, and quoted per unit of the underlying.

The amount by which an option is in the money, calculated as the difference between the underlying price and the strike for a call, or the reverse for a put.

The part of an option premium beyond intrinsic value, reflecting the chance that the option becomes more valuable before expiry. It shrinks as expiry approaches.

The volatility level that, when fed into an option pricing model, reproduces the option's observed market price. It rises when traders expect larger price swings.

The total number of derivative contracts outstanding and not yet closed out or exercised. It indicates participation and, alongside price, signals whether money is entering or leaving.

Standardised exchange-traded contracts to buy or sell a foreign currency against the rupee at a future date, settled in cash and used to hedge or speculate on exchange rates.

A customised over-the-counter agreement between two parties to exchange currencies on a specified future date at a rate fixed today, carrying counterparty credit risk.

The exchange-published terms of a derivative contract, covering the underlying, lot size, tick size, expiry day, settlement method and trading hours.

Taking an offsetting position in a related instrument to reduce exposure to an adverse price or rate movement, typically at the cost of giving up some potential gain.

The difference between the spot price and the futures price of the same underlying. It narrows toward zero as expiry nears and drives arbitrage between the two markets.

Sovereign debt instruments issued by the central government to fund its borrowing programme, carrying negligible credit risk and serving as benchmarks for the yield curve.

The fixed annual interest a bond issuer promises to pay on the face value, expressed as a percentage, independent of the price the bond trades at in the market.

The annualised return an investor earns by holding a bond to maturity, assuming all coupons are reinvested at that same rate, reflecting both coupon and purchase price.

A measure of a bond's sensitivity to interest rate changes, expressed in years, combining the timing of cash flows. Prices fall as yields rise in proportion to duration.

Duration adjusted to show the percentage change in a bond's price for a one percentage point change in yield, used to estimate interest rate risk quickly.

The quoted price of a bond excluding accrued interest since the last coupon date. The buyer pays the clean price plus accrued interest, called the dirty price.

Interest earned on a bond since its last coupon payment but not yet paid. It belongs to the seller and is added to the clean price at settlement.