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Finance GlossaryLeverage In Stock Market
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Leverage In Stock Market

Definition of Leverage In Stock Market

Leverage is a loan that a broker offers to allow traders to take up bigger positions by paying lesser capital. This feature is known as Margin Trading Facility (MTF) or simply margin funding. Leverage is often represented as a multiple like 2x, 3x, 4x, and so on. For example, getting 4x leverage on a trade worth ₹1,00,000 means you’ll pay ₹25,000 and the broker will cover the rest of the ₹75,000.

Related Terms

Grey Market

The grey market is an unofficial yet legal marketplace where unlisted or soon-to-be-listed securities are traded.

By definition, the grey market is an over-the-counter market because of the lack of regulation and structure.

Underwriters of an IPO gauge market demand for a share by analyzing the grey market premium for it before going public.

Deferred Tax Liability

A deferred tax liability is line item on a company’s balance sheet that refers to taxes that owed but due in the future. Common examples of deferred tax liabilities include:

  • Paying less tax
  • Sales in instalments

Interest Coverage Ratio

Interest Coverage Ratio (ICR) is used to determine the likelihood of a company’s ability to pay interest on existing outstanding debt. A low ICR typically indicates that a company is less likely to pay interest.

In fact, it indicates that the company may be heading towards bankruptcy. A higher ICR means that a company’s financial health is solid and more than likely to pay interest on existing outstanding debt.

Equity Options

An equity option gives the holder the right but not the obligation to buy or sell the underyling shares at a pre-agreed price and date. Equity options are derivative contracts that derive value from underlying shares.

Every equity option comes with a lot size that specifies the total number of underlying shares the contract contains. A trade who wants to start options trading can procure the derivative contract by paying a premium.

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.

Ask Or Offer Price

The ask or offer price is the price at which an investor is willing to sell a security like stocks, bonds, currencies, ETFs, and others.



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