What is Face Value: Definition & Meaning Explained

Margin Funding

Margin funding is a feature offered by brokers that allows users to borrow funds from the broker to increase purchasing power for trading or investing in financial markets. Margin funding is effectively a loan and as a result, there’s collateral to be pledged in the form of shares either already owned to about to be bought. Thus, margin funding amplifies profit and loss.

Basis Trading

Basis trading means futures trading strategies that use the difference between the spot price and the futures contract price of a stock or commodity.

The difference between the spot and futures prices forms the “basis” for the trading strategy. Hence the name basis trading. These are the two ways in which a trader may use the basis:

Short the basis : Done if the price difference or basis is expected to reduce

Long the basis :Done if the price difference or basis is expected to increase

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.

At The Close Or Closing Price

At the close or closing price is the last traded price of securities like stocks, ETFs, and others at the end of regular market hours.

For example, if a stock hit Rs. 4,500 at 3.30 PM (market close), then that is its price at the close also known as the closing price.

Unlike Adjusted Closing Price, at the close or closing price does not take into account price changes due to corporate actions.

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
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.

Call Option

A call option is a type of derivative contract that gives the right but not the obligation to buy an underlying asset like shares, commodities, currencies, and others at a pre-agreed price and date.

There are three components to a call option:

Premium: the price paid to buy a call option
Strike price: the pre-agreed price of the underlying asset
Expiration date: the day after which the option contract will be worthless