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Finance GlossaryDerivatives Trading
Derivatives Trading
Definition of Derivatives Trading
Derivatives trading means buying and selling derivatives contracts like futures, options, swaps, and forwards either on an exchange or over the counter.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
Related Terms
Debentures
A debenture is a legal certificate that a company issues in exchange for a long-term unsecured loan. A debt instrument like a debenture is issued by companies who want to fund their business without diluting existing shares.
The components of a debenture are as follows:
The components of a debenture are as follows:
- Principal: The loan amount or the money lent by an investor
- Tenure: The duration of the loan
- Interest rate: The rate of interest
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Repayment: Terms and conditions of the amount to be repaid
Debenetures can also be issued by small-size companies who may not be creditworthy enough to secure a loan from traditional lenders. Hence, the unsecured aspect of the loan may help achieve their objective.
Price Discovery
Price discovery is the process of determining the market price of an asset or security. It is a continuous, dynamic process that is driven by many factors such as supply and demand, investor sentiment, macroeconomic news, company-specific information, and market liquidity. In efficient markets, the forces of buying and selling naturally converge to establish a fair and current market price.
Lump Sum
Lump sum refers to a one-time, single payment made in a single installment, as opposed to a series of smaller periodic payments. It commonly refers to a large sum of money paid at once, like a mutual fund investment or a share market investment, rather than spread out over multiple payments like SIPs.
Cash Ratio
A cash ratio measures a company’s ability to fulfill short-term debt obligations using only its cash and cash equivalents, which are known to have high liquidity. The formula for calculating cash ratio is:
Cash Ratio: Cash + Cash Equivalents / Current Liabilities
Cash Ratio: Cash + Cash Equivalents / Current Liabilities
Illiquid Asset
An illiquid asset is something of value that can not be exchanged for cash easily. Although an illiquid asset may have value, you will not be able to find buyers for it readily. As a result, illiquid assets are typically sold at a significant discount or worse, lose value and expire.
Futexagri
Futexagri refers to the commodity index of futures on NCDEX that’s equal-weighted, meaning all components have equally proportional weights assigned to them, comprised of the futures contracts of the most recent month.
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