DEFINITION of 'Vanilla Strategy'

An approach to investing or to business decision-making that is basic and common. Some investors and businesses excel because they choose an ordinary, vanilla strategy, while others succeed through innovation. In derivatives trading, a vanilla strategy is the use of two different plain vanilla instruments, such as swaps, at the same time.

BREAKING DOWN 'Vanilla Strategy'

For example, a vanilla strategy for retirement saving might include saving at least 10% of one's annual income, investing in diversified portfolio of stocks and bonds through tax-advantaged savings accounts like a 401(k) and Roth IRA, and buying a home with a plan to pay off the mortgage before reaching retirement. There is nothing interesting or unique about this strategy - it is "vanilla" because it is ordinary.

RELATED TERMS
  1. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  2. Plain Vanilla Swap

    The most basic type of forward claim that is traded in the over-the-counter ...
  3. Plain Vanilla Card

    A basic credit card with no special features or perks and no ...
  4. Asset Swap

    Similar in structure to a plain vanilla swap, the key difference ...
  5. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  6. Binary Option

    A type of option in which the payoff is structured to be either ...
Related Articles
  1. Investing

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  2. Financial Advisor

    Ditching High-Yield Bonds for Plain Vanilla Ones

    In a low-rate environment, it's tempting to go for higher yield bonds. However, you might be better off sticking with the plain vanilla ones.
  3. Trading

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  4. Investing

    What's an Interest Rate Swap?

    An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount.
  5. Managing Wealth

    An In-Depth Look At The Swap Market

    The swap market plays an important role in the global financial marketplace; find out what you need to know about it.
  6. Trading

    How To Use FX Options In Forex Trading

    Currency options are another versatile tool for forex traders. Find out how to use them.
  7. Trading

    Currency Swap Basics

    Find out what makes currency swaps unique and slightly more complicated than other types of swaps.
  8. Trading

    Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  9. Investing

    The Annual Report Is a Public Company's Obligation

    The annual report is a yearly publication that public corporations provide to shareholders to describe the company’s operations and financial condition.
  10. Trading

    Managing Interest Rate Risk

    Interest rate risk stems from the possibility that an interest-bearing asset’s value will change due to changing interest rates.
RELATED FAQS
  1. What is the difference between derivatives and swaps?

    Find out more about derivative securities, swaps, examples of derivatives and swaps, and the main difference between derivative ... Read Answer >>
  2. Do interest rate swaps trade on the open market?

    Learn how interest rate swaps are traded on the OTC and interbank markets, and how these swaps can be used to arbitrage different ... Read Answer >>
  3. Can bond traders trade on interest rate swaps?

    Read about interest rate swaps and why these transactions are performed by institutional actors in the bond market, not individual ... Read Answer >>
  4. What are interest rate swaps on the OTC market?

    Learn about interest rate swaps and how they are traded over the counter, and understand the impact of Dodd-Frank on swaps ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center