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Finance GlossaryPreferred Stock
Preferred Stock
Definition of Preferred Stock
Preferred stock is a class of ownership in a corporation that has a higher claim on assets and earnings than common stock. Preferred stockholders receive dividends, and they must be paid out prior to any dividends being distributed to common stockholders. Unlike common stock, preferred stock does not come with voting rights. It is a hybrid security, with elements of both equity (ownership) and debt (fixed payments of dividends).
Related Terms
Short Selling
Short selling is a popular intraday selling strategy. Through this strategy, traders can sell shares that they currently don’t own. They expect the prices to fall, so they borrow the shares and sell them at the current price. The goal is to buy the stock back later at a lower price. However, traders can incur significant losses if the prices rise instead. That’s why risk management is crucial in short selling.
Commodity Spread Straddle
A commodity spread straddle or simply a commodity straddle is an options trading strategy where a trader will buy call and put options with the same strike price and expiration date.
The goal of a commodity straddle is to create a neutral strategy that wins in the event that the underlying security’s price rises or falls. That said, the profits must be higher than the total premium paid for the options.
The goal of a commodity straddle is to create a neutral strategy that wins in the event that the underlying security’s price rises or falls. That said, the profits must be higher than the total premium paid for the options.
Cash and Cash Equivalents
Cash and cash equivalents are short-term assets or holdings which fall under the current assets of a business. Cash and cash equivalents have very high liquidity. When you take the term literally, you have two components:
- Cash: money like cash holdings in a bank account, petty cash, and others
- Cash equivalents: assets or investments like T-bills, commercial paper, and others that have a short maturity which can easily be converted into cash
Derivatives Trading
Derivatives trading means buying and selling derivatives contracts like futures, options, swaps, and forwards either on an exchange or over the counter.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
Delivery Date
The delivery date of a cash or derivative contract refers to the final day and time on which the underlying asset should be delivered to the contract holder to fulfil the terms and obligations of the contract.
Commodity Exchange
A commodity exchange is a marketplace where commodities and related derivative contracts are standardized and traded. The commodity exchange can be split into these sub-markets:
- Derivatives market: this is where commodity exchanges allow futures, options, forwards, and other derivatives to be traded
-
Spot market: this is where commodity exchanges allow buying and selling of commodities in real-time (on the spot), including cash contracts
In India, there are 4 commodity exchanges that are popular and widely turned to:
- Indian Commodity Exchange (ICEX)
- Multi Commodity Exchange of India (MCX)
- National Commodity & Derivatives Exchange Limited (NCDEX)
-
National Multi Commodity Exchange of India (NMCX)
Within these exchanges, the most commonly traded commodities include:
- Crude oil
- Coffee
- Corn
- Cotton
- Gold
- Natural gas
- Silver
- Sugar
- Wheat
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