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Finance GlossaryPositional Trading
Positional Trading
Definition of Positional Trading
Positional Trading is a trading strategy where a trader keeps their position (long or short) for weeks to months. Unlike intraday trading or swing trading, positional traders do not pay attention to minor price fluctuations and focus on fundamental analysis, economic trends, and long-term technical patterns to predict the overall direction of a security. This strategy is less time-intensive and is often preferred by traders who are looking to capture major moves in the market with lower transaction costs.
Related Terms
Book Building
Book building is the process of determining the potential issue price of a financial instrument based on investor demand, generally during an IPO.
Book building is typically done by an underwriter (like an investment bank) who will invite institutional investors like hedge funds, mutual funds, and others to submit bids for the financial instrument.
These bids act as a range that the underwriter can use to fix a price that satisfies the company issuing the security and market participants.
Book building is typically done by an underwriter (like an investment bank) who will invite institutional investors like hedge funds, mutual funds, and others to submit bids for the financial instrument.
These bids act as a range that the underwriter can use to fix a price that satisfies the company issuing the security and market participants.
Rights Issue
A rights issue is a common type of corporate action. When rights are issued, the existing shareholders of a company get the option to buy additional shares at a discounted price. In the process, the company raises fresh capital that it uses for different purposes. Some of the common uses of issuing rights include capital for expansion, reducing debt, or creating a working capital. Shareholders have the option to subscribe, ignore, or sell their rights, depending on the structure of the issue.
Cash Flow
The cash flow describes the amount of money that moves in or out of a company or an individual’s pocket. Cash flow can be of two types:
- Positive cash flow: more money earned than spent
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Negative cash flow: more money spent than earned
Cash flow is an important metric in finance because it helps calculate metrics like liquidity, cash conversion ratio, and others along with giving a broad overview of a company’s financial health.
Futures and Options
Futures and options are derivative contracts that derive their value from one or more underlying financial securities like stocks, bonds, interest rates, currencies, and commodities.
Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.
Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.
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.
Multi-Bagger
A multi-bagger refers to a stock that delivers returns multiple times higher than its original investment value. For example, a stock that grows five times from its purchase price is called a five-bagger. Investors often associate multi-baggers with strong business growth, long-term holding, and effective capital allocation.
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