Demystifying complex market jargon

@Pai @mohitmehra and other folks here are regularly sharing stuff trying to simplify complex market related terms or concepts.

There are many seasoned professionals in this forum who can help us know and strengthen our market related concepts and words. We can share and discuss any complex market jargon which are used in markets here.

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What are swaps & forwards?

And explain in a way, comparable to options & futures?

And why these are not available in Indian market?

What are hybrid securities?

I searched for things, but I didn’t get a suitable definition that I can held on to!

Seems there are many variations! :man_shrugging:t2:

Yes please, I had to watch movies like The Big Short or Boiler Room Wall Street or Margin Call or The Wolf of Wall Street to learn some jargon.

What is the minimum amount in rupee or shares that has to be traded to be qualified as block trade in the exchange that we trade? Before Mehra Boss says just google it, I did and I found US answer of 10000 shares or worth $200000.

A block deal is defined as a trade wherein more than 500,000 shares or shares worth a value exceeding Rs. 5 Crores, of a particular company listed on the exchange, are traded . Block deals may only be conducted during a particular trading window in the early trading hours.

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Forward deal with regard to foreign exchange is the rate a customer can book on a specific future date

Example. Assume an importer who buys a commodity from a foreign country When he buys he needs to pay in foreign currency on a specific day in future by converting from the local currency. As exchange rate keeps fluctuating he will not know what would be the rate on that specifc future date. Forward contracts help in fixing the exchange rate on the specific date in future. This enables the importer to fix his selling price locally without worrying about currency fluctuations. Once the forward deal is executed the bank will give the required currency at that specfic date. You can also buy an option in addition to the forward. What this does is. If on that specific future date if the market exchange rate for that currency is favourable then the importer can exercise his option and cancel the forward and buy the currency from the bank on that day

In what way it is different from options,

By probably involving currency exchange rates?

Will do a post on these :slight_smile:

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https://twitter.com/dineshpaii/status/1646052387520671745

Had explained Swap contracts here - and a Swap contract is very similar to a forwards contract.

Swap contracts, including interest rate swaps and currency swaps, are actively traded in India

Interest rate swaps are used in India to manage interest rate risk. These contracts involve exchanging fixed-rate and floating-rate cash flows based on a notional principal amount. They allow parties to hedge against interest rate fluctuations or to modify their debt structure.

Currency swaps are also prevalent in India. They involve exchanging principal amounts and interest payments in different currencies, allowing parties to manage currency risk associated with their international transactions or investments.

National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are used to trade swap contracts.

Are these for institutional traders only?

Swap contracts are widely used by institutions, yes. The costs and complexity of the product makes it unsuitable for retail investors. These swaps are also designed to protect against systemic risks, hence suitable for institutional investors, be it interest rate swaps or currency swaps.

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With Tata Motors announcing that the company will be converting its DVR shares into ordinary shares issuing 7 ordinary shares for every 10 ‘DVR’ Shares:

I think its a good time to revisit our basics - what are DVRs? :slight_smile:

For those who might not know this, Differential Voting Rights (DVRs) shares provide shareholders with either higher or lower voting rights in comparison to ordinary shareholders of the company. Company primarily issues these to potentially avoid any hostile takeovers and also brings in passive investors who are not interested to participate in the decision making of the management and are happy to take the extra dividend in lieu of lower voting rights.

One question to those who know about DVRs

Generally, DVRs trade a discount of 5-10% to the ordinary shares. What might’ve been the reason for tata motors DVR shares to trade at a discount of 40-50% from tata motors shares?

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