Basic Terminologies of Online Trading

To understand online trading, you need to spend time and delve into the basics of online trading. The online trading basics is about a lot of terms and popular usages in online trading. Here we look at the basics of online share trading in India and how you must interpret the various terms in the trading account you are dealing in.

We look at a host of online share trading basics ranging from operations to concepts to process. The basics of online trading in India are all about the interplay of various concepts in online trading. Here is a quick collection of online trading terms in popular use.

Terminologies for Online Trading

Cash market

The cash market is also called the equity market. The cash market involves the buying and selling of equities in the cash market segment in online trading. The cash market is the actual trading in shares and this could either be for delivery or intraday. The cash market is a barometer of the stock markets overall.

F&O market

The F&O market or the derivatives market is where the futures and options get traded. The F&O market trades stock futures, stock options, index futures, and index options. You can define and trade these contracts in the online trading account itself. The F&O market is derived from the cash market values, which is why they are called derivatives.

Intraday

Intraday refers to buying and selling the stock on the same day. When you place an intraday trade online, you must select the order as an MIS order. The intraday trade entails lower margins but for that, you must make it a point to close the position on the same day. You can buy and sell or you can sell and buy. If you don’t close, the broker will close the order.

SPAN margin

Span margin is the combination of VAR margin and the exposure margin which is the initial margin that needs to be paid when you take a long or short position in the futures market. The SPAN margin is based on risk assessment of the positions and the worst-case loss in the next day.

MTM Margin

Mark to market margin or MTM margin is the margin you need to bring in to make up for the notional loss when the position goes against you. MTM losses are applicable on futures positions and sell options positions and are calculated daily.

Market order

In a market order, the order is just placed in the market and the same will be executed by the market system based on the best price and quantity available. You cannot define the best price in this case.

Limit order

In a limit order, you place a limit. If it is a buy limit order, then the order will only be executed at the limit price or lower. If it is a sell limit order, then it will only be executed at the limit price or higher.

Cover order

Cover order is a type of intraday order where you also put the stop loss order along with the actual order. The margins on a cover order are still lower as compared to a regular intraday order as risks are better managed.

Basket order

A basket is a predefined portfolio of stocks wherein you can buy the basket as a whole. The basket normally tends to be a diversified set of stocks and is provided as a model portfolio. Basket orders save you the trouble of buying one by one.

IOC order

Immediate or Cancel is also called IOC order and it means that the order should get executed as soon as it hits the system. If it is not executed immediately then it is automatically canceled by the system.

GTD order

This is a good-to-date order and is normally valid till the end of the trading day. At the end of the day if the order is not executed, then the order is automatically canceled by the system, and the next day you need to put the order afresh.

GTC order

This is a longer-term order that is valid and existing in the system till the time you cancel the order. This order remains in the system for several days at a stretch and you can define triggers at which the order gets automatically canceled.

Collateral

Collateral is the backup comfort you offer when you take a loan. Normally, when you take futures and options position, you either put the cash or you can take these positions based on your Demat balance by offering shares as collateral to fund the position margins.

Fundamental analysis

It is the analysis of the strengths and weaknesses of the company whose shares you are buying and includes analyzing the income statement, balance sheet, cash flows, ratios, etc. This has the ultimate intent of arriving at a valuation for the stock.

Technical analysis

Technical analysis is all about charts. You believe that past patterns will repeat in the future and hence use these patterns to extrapolate patterns into the future so that you can take trading decisions.

Open position

In intraday trading and futures and options, open positions are all the long and short positions that you have assumed but not closed out. In futures and options, this is also known as open interest.

Net position

This is the net position in your trading account which is your total payable for stock and total receivable from the sale of stocks adjusted against each other. The net position is the amount payable or receivable by you.

Order book

When you place an order in the market, it first finds its way into the order book. Till it is just in the order book, you can either modify or cancel the order. However, once the order is executed, it goes into the trade book. Order book shows executed and opens orders.

Trade book

Trade book is the next step after orders are executed. Only executed orders are shown in the trade book with the quantity-wise price and the average price. You can cross-check these figures with the contract note.

Top gainers

These are the stocks that have gained the most at the end of the day in percentage terms and are normally classified group-wise. These top gainers can also be seen daily, monthly, yearly, etc.

Top losers

These are the stocks that have lost the most value at the end of the day in percentage terms and are normally classified group-wise. These top losers can also be seen daily, monthly, yearly, etc.

Demat balance

These are the shares that you own and hence exist in your Demat account. This can be checked through your online trading account.

Index Options

Index options are a right to buy or sell the index without the obligation to buy or sell for the buyer of the index option. Indices with options include Nifty, Bank Nifty, etc.

Stock Options

Stock options are a right to buy or sell a particular stock without the obligation to buy or sell for the buyer of the stock option. Stocks with options are around 200 and are defined by the stock exchange from time to time.

Index Futures

Index futures are a right to buy or sell the index along with an obligation to buy or sell for the buyer and the seller of the index futures. Indices with futures include Nifty, Bank Nifty, etc.

Stock Futures

Stock futures are a right and an obligation to buy or sell the specific stocks along with an obligation to buy or sell for the buyer and the seller of the stock futures. Stocks with futures include around 200 stocks defined by SEBI and the exchanges from time to time.

Option Calculator

This is the calculator that uses the Black & Scholes formula to calculate the intrinsic value of the option and also simultaneously calculates the options Greeks like Delta, Gamma, Vega, Theta, Rho, etc.

Cost of Carrying calculator

It calculates the cost of carrying which is the annualized cost of the futures premium for all the stocks and indices on which futures are available.

Contract Note

You can download the contract note from the online trading interface which is the proof of the trade and you can use it for raising any disputes at a later date.

Holding statement

It is the Demat statement showing shares held by you in the Demat account at a particular date.

Transaction statement

The transaction statement shows the flow of stocks in and out of the Demat account as a result of purchases and sales from time to time.

Pledged shares

These are the shares offered by you as collateral, either to get a loan or to get margin for intraday and F&O trading.

Pay-in book

It shows your total pay-in obligation against which you will get the shares purchased on T+2 days.

Pay-out book

It shows your total pay-out against which you will get the funds for the shares sold, on T+2 day.

Why do you Need to Learn these Stock Market Terms

Trading may look simple and it is. However, there are several statements, books, and ledgers you must be familiar with. That is why getting the hang of these market terms can go a long way. It is a good place to start.

What is equity trading

Equity trading is the buying and selling of shares in the market normally using your online trading account. This online trading account facilitates purchase and sales inequities, index options, index futures, stock futures, stock options, ETFs, etc. Equity trading is all about earning profits in the short to medium term.