Yield (in Trading)

What Is Yield (in Trading)?

Yield in trading refers to the earnings generated and realized on an investment over a particular period, expressed as a percentage of the investment's cost or current market value. It can come from various sources, such as interest or dividends. In the context of trading and finance, yield provides a measure of how much income an investment produces relative to its value.

How It Works

• Annual Yield: This is typically expressed on an annual basis and can be calculated as the income (interest or dividends) divided by the investment’s value.
• Types of Yield: Depending on the type of asset, yield could come from dividends in stocks, interest in bonds, or returns from real estate investments.
• Current vs. Yield to Maturity: For bonds, you may encounter current yield (income relative to its current price) or yield to maturity (total return anticipated if held until maturity).

Example

• Stock Example: If you own a stock priced at $100 that pays an annual dividend of $5, the yield is 5% ($5/$100).
• Bond Example: For a bond priced at $1,000 with an annual coupon payment of $70, the yield is 7% ($70/$1,000).

Key Points

• Indicator of Profitability: Yield can indicate how profitable an investment is compared to its price.
• Risk Consideration: Higher yields often come with higher risks.
• Comparison Tool: Investors use yield as a tool to compare the profitability of different investments.

In Short, Yield is a way to measure the return on an investment as a percentage, giving traders and investors an idea of how much income they can expect relative to the asset's cost or value.