Understand investment products, market mechanics, indicators and research terminology. Each entry includes an explanation, example, cautions and related learning.
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An option is a derivative contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a fixed strike price on or before an expiration date. The buyer pays a premium to the seller, who takes on the obligation.
Overfitting happens when a model or trading rule is tuned so closely to a historical sample that it captures random noise instead of a repeatable pattern, so it performs well on past data and poorly on new data. The more parameters tried and the more combinations tested, the greater the risk.