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Tuesday, January 26, 2010

What does Averaging basically mean in a stock market?

What does Averaging basically mean in a stock market?

Averaging is nothing but buying a stock at different rates so that the average price becomes the value of the stock. It is basically done when the investor is not sure of what would be the future of the stock whether it is increasing in price or decreasing in price.

For example: the investor has brought the stock at $100 and the current price in the market is $75. since the stock is in a loss and the investor doesn’t want to loose his money and is also believes that stock would come up in price in future hence he buys the stock at $75 so that the average buying price would much lesser than $100.

In other words if 100 stocks are brought at $100 so the amount invested would be 10000 and if the stock has lowered in price and the current market price is $75 then the total value of stock currently would be 7500 , now if the investor goes for averaging say investor has brought another 100 stocks at current market price then the current investment would be 7500, and the total investment would be 17000 with the total current value being 15000. then the average price would be 87.5 per share.

It is basically calculated by total monthly invested divided by total number of share. In the above case the total investment is 17500 with number of price being 100+100=200 so 17500 / 200 = 87.5

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Stock Terms and jargons

Active Share: An active share is the one which has a volume in trade (it has changed hands in many), these are the shares which are easy to buy or sell. which also may have some news sticked along with it.

Advance-Decline ration: It is also known as advanced decline ratio. This ratio is used to find whether market is in bullish trend or in the bearish trend, in other words whether the market is in advacing or declining. It is found by dividing the total number of advanced shares to the total number of declined shares. For instance: there are a total of 10000 stocks listed in the market of them 800 advances and 200 declines then the Advance Decline ratio would be 4 and since the ratio. Any value more than 1 would indicate a rising trend (bullish trend) and any value which is less than 1 would indicate a declining trend (bearish trend).

ADR: American Depository Receipt is a negotiable receipt issued by the US banks stating that the number of shares have been deposited with them. This can be directly traded in the stock market. This in turn eases an American investor to buy ADR than to buy an foreign stock in a foreign market. The rate of an ADR is close to the rate of the stock in the home market.

After-Tax:

Aging Schedule

AGM or Annual General Meeting

Amortization

Annual Report

Application-Money

Asset

Asset Coverage

Asset Financing

Auction Market

Auctioning of an Issue

Automated Screen Trading (AST)

Average

Averaging

Averaging In/Averaging Out.