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Definition of Pip

PIP stands for Point in Percentage and is the smallest unit of price movement of a currency pair, which is used mostly in forex trading. Pips are used by traders to calculate the spread between the bid and ask prices of the currency pair, and express the profit or loss that their position has made. It is usually one hundredth of a percent, and can have a significant effect on the overall exchange rate.

Related Terms

Program Trading

Program trading, which is frequently linked with algorithmic trading, is the use of computer algorithms for automatically generating and executing orders in large volumes based on predetermined sets of rules, such as price or timing conditions. It is the buying or selling of a basket of stocks at the same time. Program trading has significantly increased the speed and volume of market transactions and is commonly employed in arbitrage, index arbitrage, and portfolio insurance strategies.

Gamma

Gamma is a mathematical formula used to measure the change in the delta of an options contract price.

Delta is the change in the price of an options contract in relation to the underlying asset’s price.

In simple terms, gamma can be called as the change of the change. The formula to calculate gamma of an options contract is: Γ = ∂2V/∂S2

Convertible Bonds

A convertible bond is a hybrid security that’s initially designed to be a debt instrument that pays a fixed interest rate in exchange for a loan. Once the loan’s tenure ends, the holder can decide to take one of either action:
  • Don’t convert bond: face value of the bond is transferred to the holder on maturity
  • Par Value

    Par value, also known as face value or nominal value, is the stated, fixed amount on a financial instrument (such as a stock or bond) fixed at the time of issuance, the minimum amount for accounting and legal purposes. For bonds, it's the amount repaid at maturity, and used to calculate interest; for stocks, it's the minimum price the company can sell shares for initially. Market price is different from par value.

    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.

    Market Depth

    The number of buy and sell orders available at different price levels for a stock denotes its Market Depth. It helps traders understand supply and demand in the market. Strong market depth means there are many buyers and sellers, making it easier to enter or exit trades without causing large price changes.



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