The financial world is filled with lots of technical and complex concepts. Hence, if you really want to fully understand how it works and what you can do to gain income from it, then what you need to do is to start understanding some basic concepts first. This can be done by picking some basic terminologies that you can define.

In this view, among the most basic terms that you have to understand are the cash settled, derivative, settlement risks, open interest as well as inside market and equivalency. This article will define the basic meanings of these terms and probably provide illustrations and examples, if necessary.

Cash Settled

Cash settled is a short term of cash-settled options. This is one of the options that a trader can choose when dealing with securities. This is because it does not required the physical or actual delivery of the specific security primarily because of the high costs that will be incurred from transportation. In some cases, this is the option of traders, specifically buyers, who do not want to get hold of the physical security.

Derivative

On the other hand, the second basic term is the derivative, which refers to the instrument being used for trading. This serves like a contract between two or more parties wherein there are some specifications on the terms like price, interest and the like.

Settlement Risk

As its name suggest, settlement risk is a kind of risk that usually occur when the counterparty was not able to deliver its commitment according to the agreed contract or terms and conditions. This is very common in all kind of trade, but one can minimize it by monitoring and checking that the seller, for instance, will deliver its commitment no matter what.

Open Interest

Open interest can mean two things. On the one hand, it can refer to the specific number of the buy market orders that are available even before the opening of the stock market. On the other hand, it can also mean that total options and futures contracts that were not delivered during the specific trade.

Inside Market

This is specifically important for people who are engaging in security trading. This is because inside market means that highest bid and the lowest level of offered price between the different competing market makers, specifically in the field of security trading at the NASDAQ market.

Equivalency

Last, but not the least important of these basic terms that you need to understand, is the equivalency. This term can actually mean different things. However, among the most common usage of this is on the cash equivalency, which is very much related to its root word equivalent. For example, when it comes to the cash equivalency, this can mean an asset tat can be changed easily into cash.