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Finance GlossaryMargin Trading
Margin Trading
Definition of Margin Trading
Margin trading is a strategy that involves borrowing funds from a broker to take bigger positions in stocks, commodities, currencies, futures, or options.
Related Terms
Futures and Options
Futures and options are derivative contracts that derive their value from one or more underlying financial securities like stocks, bonds, interest rates, currencies, and commodities.
Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.
Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.
Value Investing
Value investing is an investment strategy focused on buying securities that appear undervalued relative to their fundamentals. Investors look for stocks trading below intrinsic value due to temporary issues, such as short-term earnings decline, expecting that prices will rise once the market corrects its mispricing.
P/E Ratio (Forward)
The Forward Price to Earnings (Forward P/E) Ratio is a valuation metric that compares the current stock price of a company to its estimated earnings per share (EPS) for the next four quarters or the next fiscal year. The formula is: Forward P/E = Current Share Price/ Estimated Future EPS. Indian analysts and investors often use the Forward P/E to forecast how expensive a stock is, given what the company is expected to earn in the future, which gives a more relevant picture for making investment decisions than historical earnings.
Cash Reserve Ratio
Cash Reserve Ratio (CRR) is the amount of liquid cash a bank has to deposit with the Reserve Bank of India (RBI), calculated as a percentage of the total deposit of the bank. The latest Cash Reserve Ratio in India is 4.5%.
There are two important uses of CRR:
There are two important uses of CRR:
- It acts as a reserve or collateral because banks borrow money from the RBI
-
The RBI decides the interest rate for borrowing based on the CRR
These two pointers become extremely important during high inflation as the RBI can hike interest rates with the assurance of having collateral from banks.
Blue Chip Stocks
Blue chip stocks are shares of iconic companies in India that have been leaders of their respective industries for years, if not decades, and have a stellar yet consistent business track record. Example of blue chip stocks in India are: HDFC Bank, TCS, Reliance Industries, Hindustan Unilever, Infosys etc.
After Hours Trading
After hours trading means buying and selling securities after the end of regular market hours. In India, the stock market is open for regular trade from 9.15 AM to 3.30 PM.
After hours trading is allowed from 3.40 PM to 4 PM. Around the world, stocks are known to suffer from a lack of liquidity during after hours trading.
After hours trading is allowed from 3.40 PM to 4 PM. Around the world, stocks are known to suffer from a lack of liquidity during after hours trading.
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