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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
Volatility
Volatility refers to the degree of price fluctuations in a security or market over a period of time. A highly volatile stock may move sharply up or down within short durations, such as technology stocks during earnings announcements, while low volatility indicates more stable and predictable price movements.
Cash Commodity
A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.
Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.
Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.
P/E Ratio (Trailing)
The Trailing Price-to-Earnings (Trailing P/E) Ratio is the most common version of the P/E ratio, where the historical earnings of the company are used to calculate it. It compares the current stock price to the actual earnings per share (EPS) over the last four quarters (12 months) of the company. The formula for this is: Trailing P/E = Current Share Price / EPS for the last 12 months. Trailing P/E is based on concrete, reported financial results and is therefore reliable for historical comparison, but may not fully reflect a company's current or future prospects.
Price Action
Price action is the movement of the price of a security plotted over time. Traders who study price action make trading decisions based on the analysis of raw price movements, which often includes patterns, swings, and support/resistance levels rather than relying on traditional technical indicators. Price action analysis is the skill of interpreting the sentiments and activities of the market by reading candlesticks, bar charts, and volume data.
Delivery Notice
A delivery notice is produced by the seller of a commodity futures contract. It is proof of confirmation of the sellers intention to physically deliver the underlying commodity to the buyer at the pre-agreed date.
Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD) is a popular momentum indicator used to identify trend direction and strength. It is derived by taking the difference between a short-period EMA and a long-period EMA and is typically used along with a signal line to spot potential buy or sell signals.
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