Investor’s Dictionary. Stock market. part 1

Investor’s dictionary: about stock exchange and securities

Assets
Property that appreciates in value over time or generates income that covers the cost of maintaining it.

Assets can be tangible (e.g., land) or intangible (copyrights, patents, trademarks) – the main thing is that there is a prospect of making a profit.
Example
A personal car is most often not an asset, as it only loses value over time. It is another matter if the car is rented out to a carsharing company and receives passive income.

Another option is when an asset brings profit indirectly. For example, you live in the countryside and commute to work by car. The car is passive. But if you get a job with a higher salary and even farther from home, the car will become an asset. With its help you will get to work, and therefore earn more: the car will bring profit indirectly.

Another example is real estate. Renting an apartment can bring the owner a decent income. But it happens so: the tenant can not be found, the utilities are dripping, and it is time to update the repairs. Such an apartment is not an asset.

Financial assets
Investments in financial market assets: currency, precious metals and securities. The goals are the same – to receive regular income in the form of interest and/or in the future to sell more expensive than you bought.

Liabilities
From an investment point of view, this is any property that does not generate income. This also includes loans and other debt obligations – in other words, anything that has to be paid back.
Security
A document that proves you have certain property rights. The most common are the right to own a share in a company (stock), the right to repay a debt with interest (bond), or the right to buy or sell a security at a certain price (derivatives).
Issue
The issuance of securities. This can be done by the state or legal entities: all of them are called issuers in this case.

Exchange
A special trading platform. This is a non-governmental organization, and its main purpose is to make profit. The exchange brings buyers and sellers together, guarantees the safety of transactions and takes a commission for this. The Moscow Exchange is one of the largest in the world: it trades securities, currencies and commodities (grain and precious metals).
Stock Exchange
This is where securities are traded. There are two stock exchanges in Russia: the Moscow Stock Exchange (where securities of Russian companies are mainly traded) and the St. Petersburg Stock Exchange (for trading foreign securities).
Broker
An intermediary who gives access to stock exchange trading. Broker must have a license, in Russia they are issued by FFMS (Federal Financial Markets Service). You can check the availability of a license on the website of the Central Bank.
Depositary
Keeps records and stores investors’ securities. Often this function is assumed by a broker, opening a depo account for his clients along with a brokerage account (where money is kept).

Securities are now stored in “book-entry form” – in the form of special digital codes. So the depository is not a huge safe filled with papers, but a powerful server, which has all the information about the composition of your portfolio.

Trader
A trader on the stock exchange. As a rule, it is an individual. Legal entities can also participate in trading, brokers usually have special offers and working conditions for them.

Trading session
A period when the exchange is open and trades can be made on it.

At the Moscow Exchange, trading sessions are held on weekdays at strictly defined times:

10:00-18:40 – for stocks,
10:00-18:45 – for most bonds,
10:00-23:50 – for derivatives, currency and precious metals markets.
Clearing
A break in the exchange’s work, when all transactions performed are accounted for and account states are changed. The procedure is carried out by the Exchange’s partner, the National Clearing Center.

The Moscow Exchange holds 2 clearing sessions daily: a day session (14:00-14:03) and an evening session (18:45-19:00). All trading stops at this time.

Listing
A list of all securities admitted to trading on an exchange.

In order to be listed on the exchange, an issuer must meet a whole list of requirements and provide an impressive package of documents – they will be scrutinized by the admission committee. If the inspectors are satisfied with everything, the securities will appear on the exchange – and, accordingly, in the listing.

Exchange transactions (exchange trading)
These are transactions on the exchange. A deal is concluded if two bids to buy and sell coincide in terms. The most common trading mode on the Moscow Exchange is T+2. This means that money and securities are received in the account on the second day after the transaction, not instantly.
Example
You have decided to buy shares.
You submit your purchase order to the broker. There are many ways to do it, you can choose the most convenient one: through a special terminal, trading program for PC or mobile application.
The broker checks the state of your account.
The order goes to the exchange, where it meets with a sell order.
The order has taken place.
The transaction is taken into account by the clearing company.
We wait for the time defined by the trading mode.
Done – the required shares in the required amount have appeared on your account.

About securities
An equity security that confirms your right to a share of a business. Those who own shares in a company can claim a share of its current profits in the form of regular payments – dividends.

The more shares you own, the more you can influence the management of the company. And it is not only about the controlling stake (it is more than 50% of all issued shares + at least one more) – already 10% gives you the right to call a meeting of shareholders, and 25% – to block its general decision.

 

What are shares and how to make money on them?

Shares, brokerage account, register, depository

Bonds
Securities that secure a debt relationship. The investor lends his funds, and the issuer undertakes to return them at a certain date and pay interest. The date and amount of payment are known in advance. Bonds are issued by the state and commercial organizations.
Stock market (securities market)
These are all securities trading transactions that are conducted on and off the stock exchange (for example, shares of closed joint-stock companies are not traded on the stock exchange – they can be bought only with the permission of the general meeting of shareholders of CJSC).

Derivatives market
This is where derivatives are traded: futures and options.
Derivatives
These are derivative financial instruments. They are derivatives because they are based on some other asset. A derivative is simply a contract that sets out the terms on which an asset will be sold in the future. Agree now – sell-buy later.
Hedge
To fix a future price. Hedging the price is needed to reduce risk. The hedge is that you freeze today’s situation in order to apply it to an unreliable tomorrow.
Example
A farmer sells apples for 50 $ per kilogram. The situation on the apple market is unstable: in the new season the price can fall as well as rise. The farmer wants to insure himself and hedges his risks: he finds a buyer who is ready to buy apples of the new harvest at 50 $/kg in the fall and signs a corresponding contract.

Futures
A contract where the parties are obliged to buy or sell a commodity in the future at a price that is currently agreed upon.
Example
A farmer has concluded a futures contract. Now he is obliged to sell apples at 50 $/kg, even if he does not want to – for example, the market prices have jumped, and apples cannot be found cheaper than 80 $/kg. If prices fall, it will be to the farmer’s advantage, because under the contract the buyer is also obliged to buy apples at the old price.

Option
Gives the right to postpone the deal, fixing its terms. This option is not free – you have to pay the so-called “option premium”. This is an additional amount that the opposite party receives “for the uncertainty” of the situation – it is paid immediately when buying the option.
Example
Having bought an option, a farmer can wait until the fall and decide whether to sell his apples at the old price. If the average market price rises, the farmer will not exercise his right to sell at 50 $/kg – he would rather find another buyer at 80 $/kg. He has every right: an option is not a futures contract.

Repo
A derivative that specifies a double transaction:
sale of securities,
repurchase by the former owner at a higher price.
Repo is used so that one company can get free money quickly and the other can profit from the price difference. Both prices and terms of purchase and sale are clearly specified. Such a stock exchange “pawnshop”.
Knowledge of the matarticle will help you to save, invest, protect your rights and communicate with market professionals. You can also learn from practicing traders at courses.

In addition to academic terms, it is useful to know stock exchange slang: to avoid being a bear, lean on your shoulder and fill the glass.