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Finance GlossaryInterest Rate Futures
Interest Rate Futures
Definition of Interest Rate Futures
Interest rate futures are derivative contracts whose underlying instrument is any instrument that bears interest.
Just like any other futures contract, interest rate futures also give the right and obligation to fulfil the terms of the contract on expiry.
The price of interest rate futures and the interest rate itself shares an inverse relationship. If interest rates move higher, then the futures will be less valuable.
Just like any other futures contract, interest rate futures also give the right and obligation to fulfil the terms of the contract on expiry.
The price of interest rate futures and the interest rate itself shares an inverse relationship. If interest rates move higher, then the futures will be less valuable.
Related Terms
Swap
A swap is a financial agreement between two parties. They exchange cash flows or liabilities, mostly to manage risk. Common examples of swaps include currency swaps or interest rate swaps. For instance, one party may swap a fixed interest payment for a floating one to hedge against changes in interest rates. A swap helps both parties involved manage exposure and optimize financing costs.
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.
Foreign Direct Investment
Foreign Direct Investment (FDI) is the act of acquiring a majority stake in a company located in a different country with the intention of assisting, growing, and managing the business.
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
Ichimoku Cloud
Ichimoku Cloud is a group of technical indicators that’s used to understand trends, momentum, support,
and resistance by calculating averages.
Furthermore, the Ichimoku Cloud indicator is made up of two components:
- TenkanSen: The short-term indicator
-
KijunSen: The long-term indicator
There’s a cloud that’s formed as a result of plotting the averages and using the components on a chart.
One glance at this cloud can tell you multiple things like:
- Uptrend: If the price is above the cloud
- Downtrend: If the price is below the cloud
- Neutral: If the price is in the cloud
Moreover, if the cloud and the price are moving in the same direction, there’s much more confidence in the
trend that’s forming. In fact, it’s a trading signal.
Proprietary Trading
Proprietary trading is when a financial firm or commercial bank uses its own money to trade stocks, bonds, options, commodities, or other financial instruments, as opposed to client money. The purpose is to produce profits directly to the firm. This type of trading involves market-making, arbitrage, and various speculative strategies. Separated from the client's business to avoid conflicts. Involves higher risk-taking than client brokerage.
Modern Portfolio Theory (MPT)
Modern Portfolio Theory (MPT) is an investment framework that focuses on maximizing returns for a given level of risk through diversification. It suggests that combining assets with different risk and return characteristics can reduce overall portfolio risk, rather than evaluating investments in isolation.
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