Basic concepts of assessing trading strategies, Financial Management

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  • Leveraging can be described as an investing principle where borrowed funds are invested in a part of the securities. Leveraging can magnify either returns or losses from an investment for a given change in the price of that security.

  • Repurchase agreement is a contract wherein the seller of a security agrees to buy back the same security from the purchaser at a specified price and time. It is also known as repo or buyback.  

  • Reverse repo is an agreement where a buyer purchases securities with an agreement to resell them at a specified price (which is higher than the buying price) on a specified date.

  • Mark to market is the process of recording the price or value of a security or portfolio on a daily basis, to calculate profits and losses. It also helps to confirm that margin requirements are being met.

  • Trade is assessed on the basis of its performance. Performance can be defined as the expected total return over and above the investment horizon of the trade. The returns would be from: coupon payment, the change in the value of the bond, and reinvestment income derived from reinvesting coupon payments and principal repayment.

  • The process of evaluating a strategy under several scenarios is called as scenario analysis.

  • Duration is the change in the value of bond that will result from a hundred basis point change in yield.


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