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Investments glossary

Underlying

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Quotes of the day:

Not all treasure is silver and gold, mate.

— Johnny Depp, Pirates of the Caribbean

Underlying, when referred to in reference to equity trading, is the common stock that must be delivered when a warrant is exercised, or when a convertible bond or convertible preferred share is converted to common stock. The price of the underlying is the main factor that determines the prices of derivative securities, warrants, and convertibles. Therefore, a change in the price of the underlying results in a simultaneous change in the price of the derivative asset linked to it.



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