Premium
The amount an asset trades above its par or intrinsic value.
A premium is an asset trading above its par or intrinsic value.
A premium is when an asset trades above its par or intrinsic value, meaning you pay more than it is notionally worth. It can reflect quality, scarcity or market sentiment. It is the counterpart of a discount and shows up on bonds, funds and some products.
How It Works
- It is the opposite of a discount
- It can signal quality or overvaluation
- Bonds and funds trade at premiums
Trading Tips
Ask why it carries a premium before paying it
Compare it to the discount side of the same asset
Read the reason behind the price
Premium Example
Say a bond fund holding $100 of assets trades at $104 after hype inflows. Buyers pay $4 over value for popularity. When sentiment cools it slides back toward asset value, taxing late buyers for the privilege.
How Traders Use Premium
Pay premiums only with a catalyst for more premium: scarcity, quality, momentum with an exit. Track premium to asset value monthly. Mean reversion collects from premium buyers first.
Related Terms
Put Your Knowledge Into Practice
Compare regulated brokers and find the best one for your trading style.