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. Vanilla Option

    A financial instrument that gives the holder the right, but not ...
  4. Plain Vanilla Card

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

    Similar in structure to a plain vanilla swap, the key difference ...
  6. Cash Account

    A regular brokerage account in which the customer is required ...
Related Articles
  1. Markets

    What Does Plain Vanilla Mean?

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

    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. Markets

    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.
  4. Trading

    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.
  5. Trading

    How To Use FX Options In Forex Trading

    Currency options are another versatile tool for forex traders. Find out how to use them.
  6. 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.
  7. Trading

    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. Trading

    What Is A Derivative?

    A derivative is a security whose price is dependent upon or derived from one or more underlying assets. Learn more on how investors can use this financial instrument in their trading strategies.
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. 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 >>
  3. 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 >>
  4. What is the most logical and beneficial route for me to take for my retirement?

    I am 49 years old. I am just now in a position to start putting away for my retirement. ... Read Answer >>
  5. What does the notional principal of a derivative contract refer to?

    Find out more about the notional principal amount, interest rate swap agreements and how the notional principal amount in ... Read Answer >>
  6. How soon should I start saving for retirement?

    Learn about the basics of retirement planning and the reasons why it is so advantageous for individuals to start saving for ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center