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Finance GlossaryPrimary Market
Primary Market
Definition of Primary Market
The primary market is where the securities are created and first issued to investors. This is where companies raise funds by selling stocks and bonds. Key activities in the primary market are Initial Public Offerings (IPOs), Further Public Offerings (FPOs), and rights issues. The proceeds from these sales go directly to the issuing company or government entity.
Related Terms
Volume
Volume represents the total number of shares or contracts traded in a security during a specific period. High trading volume often confirms the strength of a price movement, such as a stock breaking out of resistance with heavy volume, while low volume may indicate weak investor interest.
Portfolio
A Portfolio is a collection or grouping of financial assets of an investor. A portfolio can have a diversified mix of assets such as equity shares, mutual fund units, government bonds, fixed deposits, gold, and real estate. The aim of building a portfolio is to manage the risk by diversification, ensuring that the poor performance of one asset is compensated for by the high performance of another. Portfolio management is one of the most important elements of financial planning for an investor.
Index Arbitrage
Index arbitrage is the method of generating returns by trading the difference between the same or different indices that have a standard value but has diverged momentarily. The way one does index arbitrage can vary as it is possible to trade indices via ETFs, Options, Futures, and more.
At The Money
At The Money is a scenario in which the strike price of an options contract is the same as the market price of its underlying security.
Exercising an option At The Money can lead to a loss as the premium paid for the contract won’t be recovered.
That said, At The Money is known to be a positive indicator as it indicates the option may soon have intrinsic value.
Exercising an option At The Money can lead to a loss as the premium paid for the contract won’t be recovered.
That said, At The Money is known to be a positive indicator as it indicates the option may soon have intrinsic value.
Basis Trading
Basis trading means futures trading strategies that use the difference between the spot price and the futures contract price of a stock or commodity.
The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:
The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:
- Short the basis : Done if the price difference or basis is expected to reduce
- Long the basis :Done if the price difference or basis is expected to increase
Systematic Investment Plan (SIP)
A systematic investment plan is a method in which an investor can contribute a fixed amount regularly to mutual funds. Usually, investors maintain a monthly frequency for SIPs. This investment strategy helps them build wealth over time through discipline. The power of compounding comes into play, while the rupee-cost averaging reduces the impact of volatility in the market. SIP is one of the most effective and popular tactics used in goal-based investments.
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