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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
Compounded Annual Growth Rate (CAGR)
Compounded Annual Growth Rate shows how much returns on average an investment can generate over a year, given the data for a period of time (say 5+ years).
CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:
CAGR = [(Ending value/Beginning Value)^(1/N)]-1
CAGR is an indicative measure of yearly returns growth that assumes the profits are reinvested. The formula to calculate Compound Annual Growth Rate is:
CAGR = [(Ending value/Beginning Value)^(1/N)]-1
Iron Condor
The Iron Condor is an options trading strategy wherein the trader will buy two calls and two puts each with different strike prices but the same expiration date. It is a version of the Butterfly Option Strategy. If the underlying asset averages out or in other words, closes between the middle strike prices, then the Iron Condor generates the maximum profit.
Book To Bill Ratio
Book to Bill ratio is the value you get by dividing the total worth of new orders received by the total worth of orders sold. The formula to calculate Book to Bill ratio is:
Book to Bill ratio: Total worth of new orders received / Total worth of orders billed
Book to Bill ratio helps companies understand the demand and supply for their goods or services. A Book to Bill ratio of more than 1 means that there’s more demand and less supply.
Whereas, a Book to Bill ratio of less than 1 means that there’s less demand and more supply. Using these indicators, the company can work on increasing or limiting production.
Book to Bill ratio: Total worth of new orders received / Total worth of orders billed
Book to Bill ratio helps companies understand the demand and supply for their goods or services. A Book to Bill ratio of more than 1 means that there’s more demand and less supply.
Whereas, a Book to Bill ratio of less than 1 means that there’s less demand and more supply. Using these indicators, the company can work on increasing or limiting production.
Expense Ratio
An expense ratio is a management fee that investors must pay for the services of the fund manager and their team. Mutual funds are handled by fund managers who take care of everyday stock analysis, buying & selling, and other activities. The expense ratio is a fee to compensate for this day-to-day management.
Face Value
The term face value refers to the actual price of a stock that’s obtained by dividing a company’s net value by its total shares outstanding. In India, the face value of shares can range from Rs. 1 to Rs. 100.
However, the market value of the share may vary. At times, the difference can be drastic. For example, the face value of an MRF share is Rs. 10 but the market value (LTP) of the same share is Rs. 86,313.45.
Face value is also known as nominal value or par value. The latter is used frequently in the case of bonds.
The face value of a bond is the amount that an investor receives from the issuer on maturity. Similar to stocks, bonds and other fixed income instruments may have a different face value and market value.
However, the market value of the share may vary. At times, the difference can be drastic. For example, the face value of an MRF share is Rs. 10 but the market value (LTP) of the same share is Rs. 86,313.45.
Face value is also known as nominal value or par value. The latter is used frequently in the case of bonds.
The face value of a bond is the amount that an investor receives from the issuer on maturity. Similar to stocks, bonds and other fixed income instruments may have a different face value and market value.
Capital Expenditure
Capital expenditure or CapEx is the amount of money a company spends on maintaining, upgrading, or buying new assets like machinery, equipment, property, and others.
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