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instrument, traded on or off an exchange, the price of which
is directly dependent upon, or "derived from", the
value of one or more underlying securities, equity indices,
debt instruments, commodities, other derivative instruments,
or any agreed-upon pricing index or arrangement (e.g., the
movement over time of the Consumer Price Index or freight
rates). Derivatives involve the trading of rights or
obligations based on the underlying product, but do not
directly transfer property. They are used to hedge risk or
to exchange a floating rate of return for fixed rate of
An investment vehicle in which investors give a manager or broker
authority to buy and sell securities, futures or other assets
on behalf of the investor, sometimes with, sometimes without, restrictions.
The purchase of deeply discounted securities issued
by troubled or bankrupt companies, or short-selling the
stocks of those firms.
practice of holding several different types of investments
simultaneously. For example, investing in a small company
stock fund, a large company stock fund and an international
fund, as well as investing in funds that pursue different
investment approaches, such as growth stock funds and value
stock funds. By investing in a range of different
investments, overall risk is reduced. That's because
different types of investments are unlikely to all move in the same
direction at the same time.
The peak-to-trough decline during a specific record period
of an investment or fund. It is usually quoted as the
percentage between the peaks to the trough. In other words,
a drawdown is from the time a retrenchment begins to when a
new high is reached, as the shape of the valley is unknown until the
new peak is reached.