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Finance GlossaryTheta
Theta
Definition of Theta
Theta measures the rate at which an option loses value as time passes, assuming other factors remain constant. It reflects time decay, which accelerates as the option nears expiry. For option buyers, theta works as a cost over time, while for option sellers, it can be a favourable component of returns.
Related Terms
Fibonacci Retracement
A Fibonacci Retracement is a predictive technical indicator that is used to determine possible direction or trend reversal of a stock or index’s price with horizontal lines for potential support as well as resistance levels.
Fibonacci retracement in action
The logic behind tuning to a Fibonacci Retracement is the assumption that prices will reverse direction towards a previous price-level, especially after a new trend is in motion.
Fibonacci retracement in action
The logic behind tuning to a Fibonacci Retracement is the assumption that prices will reverse direction towards a previous price-level, especially after a new trend is in motion.
IPO
An IPO or Initial Public Offering is the method in which a privately held company becomes a publicly listed company. Existing shareholders must approve the IPO plan before the company can go public. Once shareholders approve, the company will either hire an intermediary or go for a Direct Public Offering, the result of which will be the determination of a price for the new equity shares that will be listed in the primary market.
Mutual Fund
A mutual fund is a financial instrument that collects funds from investors and invest in different assets, like equity, bonds, etc. A professional fund manager handles the investments, making it easier for individuals to invest and spread their risk without needing deep market knowledge.
Future Trading
Futures trading is the buying and selling of futures contracts on a recognized exchange or over the counter. Futures contracts are derivatives that oblige a trader to buy or sell the underlying security at a predetermined price and date.
Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.
Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.
Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.
Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.
Floating Interest Rate
The rate of interest that changes across the tenure of a loan, generally every quarter, due to the government’s interest rate, market conditions, and other factors is known as a floating interest rate.
Personal loans and home loans are typical examples of borrowing that carry a floating interest rate. A point to note here: the floating interest rate is added on top of a base interest rate that is charged by lenders.
Personal loans and home loans are typical examples of borrowing that carry a floating interest rate. A point to note here: the floating interest rate is added on top of a base interest rate that is charged by lenders.
Off-Board Trading
Off-Board Trading refers to the buying or selling of securities outside a recognized stock exchange. These transactions are usually conducted directly between parties or through private arrangements and are not recorded on the exchange’s trading platform, making them less transparent and less regulated than on-exchange trades.
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