Vanilla Strategy

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 Swap

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

    The most basic or standard version of a financial instrument, ...
  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. Cash Account

    A regular brokerage account in which the customer is required ...
  6. Deferred Payment Option

    An option with all the characteristics of an American vanilla ...
Related Articles
  1. 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.
  2. Options & Futures

    How To Use FX Options In Forex Trading

    Currency options are another versatile tool for forex traders. Find out how to use them.
  3. Forex Education

    Currency Swap Basics

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

    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.
  5. Investing Basics

    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.
  6. Investing Basics

    How Are Interest Rate Swaps Valued?

    When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps.
  7. Options & Futures

    Give Yourself More Options With Real Estate Options (PEI, CME)

    Real estate options have many benefits, including a smaller initial capital requirement.
  8. Retirement

    When Is It Better To Forgo A Roth Account?

    Depending on how much you're currently earning, a traditional IRA sometimes offers more tax relief than its Roth counterpart.
  9. Retirement

    When Not To Open A Roth IRA

    If you’re in your peak earning years now, you’re better off postponing the tax hit until you retire by investing in a traditional IRA.
  10. Bonds & Fixed Income

    The Advantages Of Bond Swapping

    This technique can add diversity to your portfolio and lower your taxes. Find out how.
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. How many votes am I entitled to, if I own ordinary shares of a company?

    Understand what an ordinary share is and how it may benefit investors. Learn how many votes an investor is entitled to, if ... Read Answer >>
  5. 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 >>
  6. I'm planning to rollover my 401k to an IRA fixed annuity. Is it a good idea?

Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center