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Finance GlossaryLeverage In Stock Market
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, 5X and so on. For example, getting 5X leverage on a trade worth ₹1,00,000 means you’ll pay ₹20,000 and the broker will cover the rest of the ₹80,000.
Related Terms
Free Cash Flow
Free float market capitalization is the market cap of a company based on the total freely available publicly traded outstanding shares. The formula to calculate free float market capitalization is:
Free float market capitalization = Share Price x (Number of Shares Available for Trading – Private and Locked-In Shares)
When calculating the free float market cap of a company, the number of shares held privately or the shares that are locked-in are not taken into account. Typically, these shares are held by promoters and the government.
Free float market capitalization = Share Price x (Number of Shares Available for Trading – Private and Locked-In Shares)
When calculating the free float market cap of a company, the number of shares held privately or the shares that are locked-in are not taken into account. Typically, these shares are held by promoters and the government.
Bracket Order
A bracket order is used in intraday trading to limit downside and lock upside by placing three types of orders together:
- Buy or sell order at market price
- Target order to square off & book profits
- Stop-loss order to limit loss
Value Investing
Value investing is an investment strategy focused on buying securities that appear undervalued relative to their fundamentals. Investors look for stocks trading below intrinsic value due to temporary issues, such as short-term earnings decline, expecting that prices will rise once the market corrects its mispricing.
Box Spread
A box spread is a trading strategy that involves buying a bull call spread and a matching bear put spread. The components of a box spread are designed as so:
- Bull call spread : two call options with a lower and upper strike price
- Bear put spread : buying and selling puts at different strike prices of the same underlying asset with the same expiration
Common Stocks
A common stock is a type of share that gives the holder the right to a part of a company’s profits, voting on key policies and decisions. Common stockholders have an advantage over preferred stockholders because they can:
- Get higher returns
- A part of the assets left after a company is liquidated (in case of default)
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.
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