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Flat, in the securities market, is a price that does not rise or fall. Bonds that trade without accrued interest are called flat, according to fixed income terminology. In Forex, flat refers to a situation where a particular currency is neither long nor short, also known as a “square”.
- Flat trading generally refers to a situation in which the price or valuation of a market or security neither rises nor falls.
- In the context of securities, it refers to a market that does not offer many opportunities for profit. Traders can profit by trading individual stocks instead of indices for such markets.
- In the bond market, a trading platform is a situation where bond buyers are not responsible for accrued interest payments.
- In forex trading, a trade flat is when the opposite positions held by a forex trader cancel each other out, leaving a flat.
Understanding Flat Stocks
When the stock market has barely moved for a period of time, it is called a flat market. This does not mean that all publicly traded securities on the market haven’t moved materially. Conversely, an increase in the price of certain industries or industry stocks may be offset by a decrease in the price of securities in other industries. Investors and traders looking for profits in a flat market are better off trading individual stocks with upward momentum rather than market indices.
Individual stocks can also be flat. For example, if a stock was trading around $30 last month, it can be considered flat. Writing a covered call option is a good strategy to profit from stocks that are flat or falling slightly.
Understanding Flat Bonds
A bond trades flat if the bond’s purchaser is not responsible for paying the interest accrued since the last payment (accrued interest is usually part of the bond’s purchase price). In effect, a fixed bond is a bond with no accrued interest. The price of a fixed bond is called a fixed price or a clean price. Typically, a flat quote is made so as not to distort the daily increase in the actual price (bond price plus accrued interest), as accrued interest does not change the bond’s yield to maturity (YTM).
Bonds also trade flat if the bond’s interest matures but the issuer defaults. Defaulted bonds will be closed without accrued interest and delivery of the issuer’s unpaid face value. Additionally, a bond is said to trade flat if it settles on the same day the interest is paid, so no additional interest is accrued on top of the amount already paid.
Closing positions in Forex trading
Flat is a position that Forex traders take when they are unsure of the direction a market currency is trading. If you don’t have a dollar position, or if your long and short positions cancel each other out, you’ll be flat or flat. A flat position is considered an active position because while the trader stands on the sidelines without profit, they also do not suffer any losses.
A flat can also refer to a trade in which the currency pair does not rise or fall significantly, and therefore there is no large gain or loss on the forex trading position. A horizontal or sideways trend can negatively affect trading positions as flat prices remain within the same range and barely move.