Glossary of Investment Terms

If you’ve come across any particular terms in finance or investment and weren’t sure what it meant, you’ve come to the right place!

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A

Absolute Advantage: Generally related to international trade, occurs when one entity (or country) can produce a certain good with higher efficiency and lower resource utilization than others.

Acid-Test Ratio: Measures a company’s short-term liquidity by evaluating its ability to cover immediate liabilities with its liquid assets excluding inventory.

Acquisition: Process of one company purchasing the majority or entirety of another company’s shares or assets, thereby gaining control of it.

ADR (American Depositary Receipt): Certificates allowing U.S. investors to invest in foreign firms via U.S. exchanges rather than having to purchase shares on a foreign exchange.

After-Hours Trading: Trading of financial securities, typically by institutional investors, after the market closes and outside of standard trading hours.

Alpha: Measure of a specific asset’s performance relative to a market benchmark, indicating excess return compared to what’s expected based on the risk.

Appreciation: Growth of an asset’s value over time.

APR (Annual Percentage Rate): Standardized representation of an interest rate and other costs associated with loans or other credit options over a year.

APY (Annual Percentage Yield): Total effective annual rate of return that an investment provides, with compounding interest taken into account.

Angel Investor: Entity or individual who guides and provides capital to entrepreneurs at the early stage of a start-up in exchange for equity or convertible debt.

Annualization: Process of converting figures such as rates from a shorter period to an annual basis for easy comparison.

Annual Report: A document prepared by a company detailing financial performance, operations, and other relevant information for stakeholders.

ARR (Accounting Rate of Return): The ratio of a firm’s annual average accounting profit to initial investment cost, useful for evaluating the profitability of an investment.

Asset: Something of quantifiable economic value owned by an individual or entity and may provide future benefits or returns.

Asset Allocation: The distribution of different assets to create a diversified portfolio in order to optimize returns while adhering to a certain risk threshold.

Asset Management: The professional management of investments on behalf of individuals, funds, or institutions.

AUM (Assets Under Management): Total value of assets that an investment firm manages on behalf of clients or individuals.

B

Baby Boomer: Generation born between World War II and the mid 1960s, significant for their impact on demographic, economic, and social trends.

Balance Sheet: A financial statement that shows a company’s assets, liabilities and shareholders’ equity, giving a snapshot of its financial position at a point in time.

Bankruptcy: Legal status wherein an individual or organization is unable to meet financial obligations and seeks protection from creditors. This often leads to asset liquidation or debt restructuring.

Bear Market: A market condition often associated with a lack of investor confidence, characterized by falling asset prices.

Benchmark: A reference or standard used to evaluate the performance of various investments or financial instruments. The S&P 500 index is one of the most common benchmarks for measurement of Alpha.

Bernie Madoff: Broker, investment advisor and market maker who operated a Ponzi scheme for decades causing paper losses of over $64 billion. Died in prison aged 82 in 2021.

Beta: The measure of an asset or portfolio’s volatility in relation to the overall market.

Bill of Lading: Legal document serving as a contract for transportation of goods and acknowledgement of their receipt issued by the carrier.

Bitcoin: The first and best-known cryptocurrency and blockchain-based payment network, issued as a reward for “miners” who keep the network running.

Blockchain: A decentralized ledger using cryptography and distributed consensus to ensure that past transactions can’t be altered or tampered with.

Bollinger Band: A technical analysis tool that uses a centerline, normally a moving average, and two standard deviation bands. Normally used to measure price volatility and potential reversal points.

Bond: A debt security where the investor lends money to a government or corporation, receiving periodic interest payments and the return of the principal at maturity.

Book Value: The value of a company minus its liabilities, representing the company’s net worth, often expressed on a per-share basis.

Breakpoint: The investment amount at which a mutual fund investor becomes eligible for a reduced sales charge or lower fees.

Break-Even Analysis: A financial report that determines the level of revenue a business needs to cover its costs and avoid losses.

Brexit: Portmanteau of “Britain” and “exit” referring to the United Kingdom’s withdrawal from the European Union in 2020 following a 2016 referendum.

Budget: Financial plan detailing expected incomes and expenses over a specific period, typically a year, helping individuals and organizations manage finances.

Bull Market: A market condition characterized by rising asset prices, and often associated with economic growth and investor confidence.

Bubble: Situation when the prices of assets become significantly inflated and disconnected from their intrinsic values due to excessive speculation or investor optimism.

Business Model: Outline of how a business generates revenue and profits, defining products and/or services offered, target customers, pricing strategies, distribution channels, and other key business elements.

C

CAGR (Compound Annual Growth Rate): Measure of the annualized return of an investment over a certain amount of time taking into account rate and frequency of compounding.

Capital: Financial assets a company uses for operation and investment in its business. Can also refer to the ownership interest in a business.

CapEx (Capital Expenditure): Money spent by a company for acquisition or improvement of assets with the expectation of generating benefits or return in the future.

Capital Gains: Profit realized from the sale of assets subject to taxation. Often differentiated based on holding period into short-term or long-term that may be taxed differently.

Capitalization (or Market Capitalization): Total value of a company, calculated by multiplying the number of shares outstanding by current stock price.

Call: A type of options contract giving the holder the right to buy the underlying asset at a specific price within a certain time frame.

Cash Equivalent: Low-risk, highly liquid assets that can be converted to cash quickly and easily.

CDS (Credit Default Swap): Financial derivative contract allowing an investor to purchase insurance against the default of a particular debt security or loan.

Cede &Co.: The nominee name used by the Depository Trust Company (DTC) to hold and manage securities on behalf of its participants.

CEO (Chief Executive Officer): Top-ranking executive officer of a company, generally responsible for overall strategy, operations, and decision-making.

C-Suite: All top-level executive officers in a company including and reporting directly to the CEO, such as Chief Operating Officer (COO) and Chief Financial Officer (CFO).

CMBS (Commercial Mortgage-Backed Securities): Instruments representing an ownership interest in a pool of commercial real estate loans for properties such as office buildings and shopping centers.

Code of Ethics: Set of principles and guidelines that describe expected ethical behavior, conduct and standards for members (individuals or organizations) of a specific sector or profession.

Coefficient of Variation: Statistical measure that expresses relative variability of a set of data points, accounting for differences in their magnitudes. Often used to assess risk in investment portfolios.

Collateral: Assets, commonly properties, pledged as a security to secure a loan. In the case of a default, the lender can take possession of the collateral in order to recover the debt.

Comparative Advantage: Generally related to international trade, when one entity can produce a good or service at a lower cost than another entity.

Compound Interest: Interest that is calculated not just on the initial principal but also on any accumulated interest over previous periods, resulting in exponential growth over time.

Common Stock: Equity ownership in a company that comes with voting rights, granting holders residual claims on a company’s assets and earnings.

Correlation: Statistical measure describing the movement of two or more assets in relation to each other, helping to assess diversification benefits or analyze asset allocation in a portfolio.

Correlation Coefficient: Numerical representation of strength and direction of correlation, ranging from -1 (perfect inverse correlation) to 1 (perfect correlation).

COGS (Cost of Goods Sold): Direct costs associated with producing the goods or services sold by a company, including expenses such as raw materials, labor, and manufacturing overhead.

CPI (Consumer Price Index): Measure of inflation that tracks changes in the prices of a basket of goods and services compiled by the Bureau of Labor Statistics to represent average household spending.

Current Ratio: Metric that assesses a company’s short-term liquidity by comparing its current assets to its current liabilities.

Custodian: Entity such as a bank or financial institution responsible for holding financial assets on behalf of individuals or other organizations.

D

DCA (Dollar-Cost Averaging): Loner term investment strategy where a fixed amount of money is invested at regular intervals irrespective of market conditions, reducing the impact of short term market volatility.

Dark Pools: Private electronic trading platforms where institutional investors can execute large block trades anonymously away from public market scrutiny.

Debenture: Long-term debt instruments issued by companies or governments that are not backed by collateral but return principal at maturity and may pay periodic interest.

Debt Ratio: Ratio of a company’s total debt to its total assets, allowing an assessment of leverage and ability to meet debt obligations.

Default: Failure to meet terms and conditions of a debt agreement, such as missing payments or demonstrating inability to repay a loan.

Delisting: Removal of a publicly traded company’s shares from a stock exchange, generally due to non-compliance with listing requirements or financial distress.

Delta: The change in price of an options contract in relation to a change in price of the underlying asset. Allows traders to assess risk and potential profitability of an options contract.

Derivative: A financial instrument, such as an options or futures contract, whose value is derived from an underlying asset such as a stock, bond, or commodity.

Dilution: The decrease in ownership percentage of existing shareholders when a company issues additional shares via a stock offering. Typically frowned on by stockholders but can allow a company to raise money in times of need or opportunity.

Discount Rate: Interest rate used to calculate present value of future cash flows.

Distribution Schedule: A plan that outlines how an investment’s income or profits will be distributed to investors over time.

Diversification: Risk management strategy spreading investments across different securities or entire asset classes to reduce exposure to any single asset.

Dividend: Portion of a company’s earnings that is distributed to stockholders, either in cash or additional stock.

Dividend Payout Ratio: The proportion of a company’s earnings that is paid out as dividends, calculated by dividing dividends per share by earnings per share.

Dividend Reinvestment: Program offered by a company, transfer agent or stockbroker allowing shareholders to automatically reinvest their dividends into additional shares rather than receiving cash payouts.

Dividend Yield: Ratio of annual dividend income from an investment to its market price, allowing investors an easy assessment of its income potential and comparison with benchmarks.

Dow Jones: Stock market index tracking 30 large companies listed on the NYSE and Nasdaq that serves as an indicator of the U.S. economy. Originates from the Dow Jones media company which started the Dow Jones Industrial Average index.

DRS: System allowing investors to hold and manage securities directly with the issuer or transfer agent and become registered (as opposed to beneficial or street-name) shareholders.

DTCC (Depository Trust & Clearing Corporation): The financial services company that pürovides clearing, settlement, and asset servicing for securities transactions in the U.S.

DTC (Depository Trust Company): Subsidiary of DTC that provides electronic record-keeping and settlement services for a wide range of financial securities.

Due Diligence: Comprehensive analysis of a company, investment, or business opportunity assessing risks and potential returns.

E

EPS (Earnings Per Share): Portion of a company’s profit allocated to each share outstanding, assessing a company’s profitability on a per-share basis.

EBIT (Earnings Before Interest and Taxes): A company’s operating profit excluding interest and income tax expenses, providing assessment of a company’s core profitability.

EBITDA: Further exclusion of Depreciation and Amortization from EBIT, providing an assessment of a company’s cash flow.

Economies of Scale: Cost advantages a company can achieve with increased output, since larger scale operations can reduce average cost per unit of production.

Enterprise Value: Measure of a company’s total value via adding market capitalization, debt, preferred stock, and minority interest, and subtracting cash and cash equivalents.

Entrepreneur: Individual who takes on the financial risk of starting and managing a new business venture.

Equity: Ownership interest in a company represented by shares of common stock.

Escrow: Financial arrangement where a trusted third party holds funds or assets until specified conditions are met. Often used in mergers and acquisitions.

Ethereum: A “second-generation” blockchain platform and cryptocurrency that allows developers to build immutable, decentralized applications thanks to functionality known as “smart contracts”.

ETF (Exchange-Traded Fund): An instrument for investment that holds a diversified portfolio of assets and is traded on a stock exchange.

Ex-Dividend: A stock’s status when it no longer carries the right to receive the next dividend payment.

Ex-Dividend Date: The date on which a stock no longer has the right to receive the next dividend payment, serving as a cut-off for investors to purchase it if they want the dividend.

Expense Ratio: A fee expressed as a percentage of a mutual fund’s total AUM covering the fund’s operating expenses.

Expiration Date: The date when an options or futures contract ceases to exist and no longer holds any rights for the parties involved. They must be exercised before this time.

F

FANG/FAANG Stocks: Acronym referring to a group of technology sector stocks including Facebook (now Meta), Amazon, Netflix, Google (now Alphabet) and, optionally, Apple.

FDIC (Federal Deposit Insurance Corporation): U.S. Government agency providing deposit insurance and aiding in bank failures by guaranteeing the safety of deposits up to a certain limit.

Federal Fund Rate: Interest rate set by the Federal Reserve at which banks and credit unions lend excess reserves to each other overnight.

Federal Reserve Banks: 12 regional banks making up the Federal Reserve System providing banking services, supervising banks, and implementing monetary policy in their regions. Led by 9-member boards of directors, 6 of which are elected by private member banks.

Fiat Money: Currency issued by a government that has value because the government declares it to be legal tender.

Fiduciary: Individual or entity that is legally and ethically obligated to act in the best interests of another party, such as a trustee or financial advisor.

Financial Statement: Report summarizing a company’s financial performance and position, including balance sheet, income statement, and cash flow statement.

Fiscal Policy: The use of government spending and taxation to influence the economy, stimulating growth or controlling inflation.

Fixed Income Security: Class of investment asset that provides regular, fixed payments to the investor, usually in the form of interest payments.

Free Market: Economic system characterized by minimal government intervention, where prices and production are supposed to be determined by supply and demand forces in the open market.

Free Trade: Policy promoting the exchange of goods and services across international borders with the minimum of trade barriers such as tariffs and quotas.

Fund: A pool of money collected from multiple investors for the purpose of investing in a portfolio of assets.

Fundamental Analysis: An approach to investment analysis that focuses on a company’s financial health, management, industry trends, and other factors to determine the intrinsic value of its stock.

Futures: Contract that obligates the buyer and seller to respectively purchase and sell a specific quantity of an underlying asset at a predetermined price on a set future date.

G

GAAP (Generally Accepted Accounting Principles): Set of standardized accounting principles and procedures used for the preparation of financial statements in the U.S.

Game Theory: Branch of mathematics and economics dealing with strategic interaction among rational individuals and entities, used most often to study decision making.

Gamma: Options trading measure that assesses how the option delta changes in response to changes in the price of the underlying asset.

GDP (Gross Domestic Product): Key indicator of a country’s economic health, representing the total value of all goods and services produced within the country during a certain period.

GDPR (General Data Protection Regulation): European Union regulation governing data protection and privacy for EU residents, limiting the collection and processing of personal data.

Gen X: The generation born between the mid-1960s and early 1980s, in between the Baby Boomers and Millennials.

Government Bond: Debt security issued by a government to raise funds, generally considered low-risk investments.

Government Shutdown: Situation in which a government ceases operations considered to be non-essential due to a failure to pass a budget or appropriations legislation.

GNP (Gross National Product): Measure of a country’s economic output that includes total value of goods and services produced domestically as well as abroad by its residents and businesses.

Green Bonds: Fixed-income securities issued by governments or corporations to fund environmentally sustainable projects.

Great Depression: Worldwide economic depression following 1929 characterized by its severity, widespread unemployment, bank failures, and economic hardship.

Gross Profit: The profit earned from a company’s core activities before deducting operating expenses, calculated by subtracting cost of goods sold from total revenue.

Growth Stock: A stock viewed as having strong potential for future capital appreciation thanks to the current position and activities of the company.

Growth Investing: A style of investing focused on buying growth stocks, prioritizing capital appreciation over the medium or long term over immediate income.

GST (Goods and Services Tax): Consumption tax levied on the sales of goods and services in many countries, collected at each stage of the supply chain.

Guarantor: Individual or entity that provides a guarantee to assume responsibility for another party’s debt obligations in case of a default.

H

Harmonic Mean: Statistical measure used to calculate the average of a set of values, often used when assessing average return on investment.

Head and Shoulders Pattern: Chart pattern used in technical analysis to identify potential reversals in the price of an asset.

Hedge: Strategy for offsetting or reducing the risk of adverse price movements in an investment or portfolio, usually using derivatives such as options contracts.

Hedge Fund: Investment fund employing various strategies to generate returns for investors, including long and short positions in a wide variety of assets.

High Net-Worth Individual: Individual with a high level of wealth, typically above a certain threshold, who may have access to specialized financial services and investment options.

Holding Company: A parent company that owns the majority of the voting stock in one or more subsidiary companies, providing legal separation between business units.

Home Equity Loan: A type of loan allowing homeowners to borrow against the equity in their home for various purposes.

Hostile Takeover: Strategy where an acquiring company attempts to take over a target company against the wishes of the target company’s management and board of directors.

Housing Bubble: Period of rapid and unsustainable increase in housing prices, often fueled by institutional speculation and excessive demand. Can lead to significant market corrections and economic downturn.

Hyperinflation: Extreme and rapid rise in the general price level of goods and services within an economy, eroding the purchasing power of the country’s currency.

I

IPO (Initial Public Offering): Process by which a private company offers its shares to the public, raising capital from external investors and becoming a publicly traded company.

Impact Investing: Investing style aiming to blend financial return with positive social or environmental impact, guided by investors’ values and morals.

Implied Volatility: Measure of the market’s expectation for future volatility of an underlying asset, based on the pricing of options contracts.

Income: Money earned or received by an individual or entity, usually in the form of wages, dividends, or other forms of payment.

Income Statement: Financial statement providing a summary of a company’s revenues, expenses, and profits over a specific period.

Index: Benchmark used to measure the performance of a group of assets such as stocks or commodities, allowing investors to track market trends and assess investment returns.

Index Fund: A type of mutual fund or ETF designed to replicate the performance of a specific index.

Inflation: The increase in the general price level of goods and services in an economy over time.

Insider Trading: The illegal practice of buying or selling a security while in possession of non-public, material information about the company.

Interest Rate: The cost of borrowing or the return on an investment, expressed as a percentage of the principal amount.

Interest Rate Risk: Risk that changes in interest rates will negatively affect the value of an investment.

Inventory Turnover: The measure of how many times a company’s inventory is sold and replaced during a specific period.

Inverted Yield Curve: Yield curve in which short-term interest rates are higher than long-term interest rates, often seen as a sign of oncoming recession.

Investment Company: Company that pools the capital of multiple investors to build diversified portfolios and offers professional asset management.

IRA (Individual Retirement Account): Tax-advantaged retirement savings account in the U.S. allowing individuals to save for retirement while enjoying certain tax benefits.

J

J-Curve: Situation when a country’s trade balance worsens in the short term after currency depreciation but improves in the long term as exports become more competitive.

January Effect: Observed market phenomenon where stock prices rise in January, often attributed to year-end tax strategies or optimism at the start of a new year.

John Maynard Keynes: British economist, associated with Keynesian economics, who played a key role in the development of modern macroeconomics.

Joint-Stock Company: Business organization where ownership is divided into shares of stock, allowing multiple investors to hold ownership in the company.

Joint Venture: Arrangement where two or more parties collaborate to undertake a specific project or business activity.

Jumbo CD: A type of CD with a larger denomination than standard, often requiring a higher minimum deposit and offering higher interest rates.

Junk Bond: Bond issued by an entity with a lower credit rating, implying higher risk of default and resulting in higher interest rates than investment-grade bonds.

Jurisdiction Risk: Risk associated with the legal and regulatory environment in a specific jurisdiction, including the potential for changes in laws and regulations that may affect an investment.

K

Keynesian Economics: Economic theory developed by John Maynard Keynes advocating for government intervention in the economy through fiscal and monetary policies, particularly during economic downturns.

Kickback: Illegal or unethical payments made to a person in a position of power or influence in exchange for favorable treatment or decisions.

Kiddie Tax: Tax rule in the U.S. that applies to a child’s unearned income that exceeds a certain threshold, designed to prevent parents from shifting income to their children in lower tax brackets.

Klinger Oscillator: Technical indicator to assess the volume and price movements of a security, helping to identify potential buy and sell signals.

Knock-In Option: Type of option contract that becomes active only if the underlying asset’s price reaches a specific trigger level prior to a set expiration date.

Knock-Out Option: Type of option contract that expires if the underlying asset reaches a certain trigger price before a specified expiration date, rendering the option worthless.

Knowledge Economy: Economy in which the creation, distribution, and utilization of information and intellectual property play a significant role in driving growth.

KYC (Know Your Customer): Regulation obligating financial institutions to verify and authenticate the identities of their customers in order to prevent money laundering and fraud.

L

Law of Supply and Demand: Economic principle that states that the price of goods and services in a market is determined by the balance of their supply in the market and the demand for them.

Large-Cap Stock: A stock with high market capitalization, often considered low-risk due to the size and stability of the company and the volume of trading required to create a significant price shift.

Letter of Intent: Written document specifying the intent of parties involved in a business transaction as well as the terms and conditions of the deal.

Leverage: The use of borrowed funds to amplify the potential returns and losses on an investment.

Leverage Ratio: The proportion of a company’s debt to its equity capital, assessing the level of financial leverage and risk in its capital structure.

Leveraged Buyout (LBO): Strategy where an acquiring entity uses a significant amount of debt to purchase a target company, typically using the acquired company’s assets as collateral.

LIBOR (London Interbank Offered Rate): Benchmark interest rate for various financial instruments, based on average lending rates between major London banks.

Limit Order: An order to buy or sell an asset at a specific price or better, executed when market price reaches the set level or better.

Liquidity: Degree to which an asset can be easily bought and sold in the market without having a significant effect on price.

Liquidation: The process of selling off a company’s assets to pay debts and distributing the remaining proceeds to stakeholders.

LLC (Limited Liability Company): Legal business structure offering limited liability protection to its owners while allowing for flexible operations.

Long Position: Investment strategy where an investor holds an asset with the expectation that its price will increase over time.

Long-Term Investment Strategy: Strategy that focuses on acquiring assets with the intention of holding them for an extended period and growing wealth.

Ltd. (Limited): Suffix added to the name of a company to indicate limited liability.

LTV (Loan-to-Value): Ratio expressing the amount of a loan in relation to the appraised value of the asset used as collateral.

M

MACD (Moving Average Convergence Divergence): Technical analysis indicator calculated by subtracting the 26-period exponential moving average from the 12-period exponential moving average of the asset’s price.

Management Fee: Fee charged by an investment manager for managing and overseeing an investment portfolio such as a mutual fund or ETF.

Margin: The use of borrowed funds to purchase assets or derivatives, allowing traders to amplify potential gains or losses.

Margin Call: Demand from broker or lender for a trader to deposit additional funds into their account when its equity falls below a certain level. Often made with an actual telephone call.

Market Order: Order to buy or sell a security at the current market price, executed immediately. Execution is guaranteed but price may be unfavorable as large volume market orders work down the order book.

Market Timing: Investment strategy, often considered speculative, that attempts to make buying and selling decisions upon predictions of future price movements.

Maturity: Date on which a debt security such as a bond or certificate of deposit becomes due and the principal is returned to the investor.

Maturity Distribution: The range of maturity dates of bonds or other fixed-income securities within a portfolio.

Market Cap: Industry slang for market capitalization, the total value of a company calculated by multiplying current stock price by total number of shares outstanding.

MBS (Mortgage-Backed Securities): Financial instruments representing an ownership interest in a pool of mortgage loans such as those for residential properties.

Micro-Cap Stock: A company stock with very small market capitalization, typically below $300 million.

Mid-Cap Stock: A company stock which falls somewhere between that of large-cap stocks and small-cap stocks, often considered to have moderate risk and growth potential.

Money Market Mutual Fund: Mutual fund that invests in short-term, low-risk debt securities such as Treasury bills and commercial debt.

Mutual Fund: Professionally managed investment vehicle that pools funds from multiple investors to build a diversified portfolio. Unlike ETFs, can only be purchased at the end of the trading day based on their NAV.

N

NASDAQ: U.S.-based stock exchange known for listing technology and internet-based companies.

NAV (Net Asset Value): Per-share market value of a mutual fund or ETF calculated by subtracting the fund’s liabilities from its assets and dividing by the number of outstanding shares.

Nash Equilibrium: Game theoretic concept representing a stable state in an interaction, where no player has an incentive to change their strategy.

Negative Correlation: Statistical relationship between two variables wherein they move in opposite directions. Often used when building diversified portfolios of assets.

Net Worth: Difference between a person or organization’s total assets and total liabilities, representing their overall financial health.

Netting: Process of offsetting or balancing multiple transactions or obligations between parties to determine a net amount owed or payable in order to reduce transaction load.

Notional Value: Face value of a financial instrument such as a derivative or bond, used to calculate payments or obligations.

Number of Holdings: Total amount of individual assets held within an investment portfolio such as a mutual fund or ETF.

NYSE (New York Stock Exchange): One of the world’s oldest and largest stock exchanges, famous for its bustling trading floor.

O

Open Market Operations: Monetary policy actions by a central bank to buy or sell government securities in the open market, influencing the money supply and interest rates.

Operating Leverage: Measure of the operating income of a company’s sensitivity to changes in revenue. Companies with high operating leverage have relatively fixed costs, meaning a positive change in revenue can amplify profit.

Operating Margin: The percentage of a company’s revenue that remains as operating profit after deducting operating expenses such as wages, rent, and materials.

Opportunity Cost: The value of the next best alternative that is forgone when a decision is made to choose one option over another.

Options: Financial contracts that give the holder the right but not the obligation to buy or sell an underlying asset at a specified price within a certain time frame.

OTM (Out of the Money): An option that currently has no intrinsic value because its strike price is unfavorable compared to the current market price of the underlying asset.

OTC (Over-the-Counter): A market, often facilitated by financial firms, where financial securities including stocks, bonds, and derivatives are traded directly between buyers and sellers.

Outstanding Shares: The total number of a company’s shares that are held by investors.

Overbought: Technical indicator suggesting that an asset’s price has risen too steeply and may be due a correction.

Oversold: Technical indicator suggesting that an asset’s price has fallen too sharply and may rebound.

P

Par Value: Face value of a security such as a bond which is used to calculate interest payments or dividends.

Partnership: Business structure where two or more individuals or entities join together to operate a business.

Penny Stock: Low-priced, small-cap stock that trades below $5 a share, usually associated with speculation and high risk, including that of delisting.

Portfolio: Collection of assets or securities held by an individual or institution, typically managed to achieve specific financial goals.

Portfolio Allocation: Process of distributing investments among different securities or asset classes within a portfolio to achieve certain risk and reward parameters.

Positive Correlation: Statistical relationship between two variables in which they tend to move in the same direction.

Positive Tilt: A preference for certain types of assets in a portfolio that are expected to outperform the broader market or a set benchmark.

Preferred Stock: Class of stock that pays a fixed dividend to shareholders and has a higher claim on a company’s assets and earnings than common stocks. Also grants owners priority in receiving dividends and assets in the event of liquidation.

Premium: The amount paid to an options contract’s seller for the right to hold or purchase the option.

Pre-Market: Period before the official trading hours of the stock exchange where traders (typically institutions) can trade assets.

Price to Book Ratio: Comparison of a company’s stock price to its book value per share, allowing a fundamental analysis of the stock’s intrinsic value.

Price to Earnings Ratio (or P/E Ratio): Comparison of a company’s stock price to its earnings per share, speculated upon by analysts prior to earnings releases and viewed as a key indicator of value.

Proxy Vote: A vote cast by a person or entity such as a broker on behalf of a shareholder during a corporate meeting or election.

Puts: A type of options contract giving the holder the right but not the obligation to sell an underlying asset at a specific price within a certain time frame.

Q

Quadruple Witching: Financial event occurring four times a year where various financial contracts including index futures, index options, stock options, and single stock futures expire on the same day.

Quantitative Easing: Monetary policy tool used by central banks to stimulate the economy via the purchase of government securities and other financial assets to increase the money supply and low long-term interest rates.

Quality Distribution: The allocation of a portfolio’s assets based on their assessed quality ratings.

Quarter: Three month period of the calendar used to report financial results and track company performance.

Quick Assets: Assets such as marketable securities that can be quickly converted into cash and used to pay off current liabilities.

Quick Ratio: Measure of a company’s ability to cover its short-term liabilities with its most liquid assets, calculated by dividing quick assets by current liabilities.

R

R-Squared: Statistical measure expressing the correlation between an investment and its benchmark.

Ratings: Grades assigned to securities such as bonds by credit rating agencies, intended to measure risk and creditworthiness of the investment.

Recession: Significant decline in economic activity characterized by reduced investment, production levels and consumer spending along with rising unemployment.

Redemption: The process of cashing in an investment such as a mutual fund share or bond to receive the principal amount.

Reinvestment Option: Option offered to investors with regard to certain investments, such as dividends on shares, allowing the reinvestment of proceeds instead of receiving them in cash.

Repo (Repurchase Agreement or RP): Short-term (often overnight) lending arrangement for dealers in government securities. Common instrument of open market operations for the Federal Reserve.

Reverse Repo: Same as Repo, but viewed from the perspective of a dealer selling securities to a counterparty with the agreement to buy them back at a higher price later.

REIT (Real Estate Investment Trust): Company that owns, operates, or funds income-producing real estate assets such as commercial or residential properties and distributes income to shareholders.

ROI (Return on Investment): Measure of the profitability of an investment by calculating ratio of net profit to initial investment amount.

Rights of Accumulation: Feature of some mutual funds allowing investors to receive reduced sales charges or load fees on additional investment in the fund.

Risk Tolerance: An investor’s willingness to ride out potential losses in the value of their investments.

Roth IRA: Tax-advantaged retirement savings account in the U.S. allowing individuals to contribute after-tax income, with conditional tax-free withdrawals in retirement.

RSI (Relative Strength Index): Technical analysis indicator assessing the momentum of a security’s price movements and determining whether it is overbought or oversold.

Russell 2000: Index that tracks the performance of 2,000 small-cap stocks listed in the U.S. providing a snapshot of the broader small-cap market.

Russell 5000: Index including the 5,000 largest publicly traded U.S. companies, providing a wide view of the U.S. market.

S

S&P 500 (Standard & Poor’s 500): Widely followed index measuring the performance of the 500 largest publicly traded companies in the U.S., often used as a benchmark for the entire U.S. stock market.

SEC (U.S. Securities and Exchange Commission): Federal agency responsible for regulating securities markets in order to protect investors.

Securities: Financial instruments representing ownership or debt in an entity that can be bought, sold, or traded in financial markets.

Sector: Category of companies within an industry sharing similar business activities, products, or services.

Sharpe Ratio: Measure of risk-adjusted return that calculates the excess return (return above the risk-free rate) per unit of risk in an investment portfolio.

Short Selling: Trading strategy with unlimited risk where an investor borrows and sells a security with the intention of buying it back to return it at a lower price in the future.

Short Squeeze: Phenomenon in which a stock’s price rises rapidly due to a large number of short sellers closing their positions by buying the stock, creating upward price pressure.

Short-Term Investment: Investment with a short holding period, typically less than a single year.

Small Cap Stock: Stock with small market capitalization, often characterized by higher growth potential but higher risk than companies with larger capitalization.

Stocks and Shares: Interchangeably used terms referring to the ownership units of a company.

Stockholder: Individual or entity owning shares and therefore ownership in a company along with associated rights such as voting and dividends.

Stop Order: Order placed by an investor to buy or sell an asset once it reaches a specified price.

Stop-Limit Order: Order placed by an investor to buy or sell a security at a specific price or better after it reaches a certain level, combining elements of stop and limit orders.

Straddle: Options trading strategy involving the simultaneous purchase of both a call and put option with the same strike price and expiration date in order to profit from significant volatility in either direction.

Strike Price: Predetermined price at which the holder of an options contract has the right to execute their purchase or sale of the underlying asset.

T

Technical Analysis: Approach to evaluating assets and markets by analyzing historical price and trading volume data in order to predict future price movements.

TER (Total Expense Ratio): Total costs associated with managing an investment fund, expressed as a percentage of the fund’s average AUM.

Total Return: Overall return on an investment, including capital gains and income such as dividends or interest generated across a specific period.

TTM (Trailing 12 Months): Metric representing the most recent 12-month period ending on a specified date, used to analyze an investment’s recent performance.

TIPS (Treasury Inflation-Protected Security): A type of U.S. Treasury bond designed to protect investors from inflation, via the principal value of TIPS adjusting with changes in CPI.

Transfer Agent: Financial institution responsible for maintaining records of ownership of a company’s securities, including their issuance and transfer. Registered ownership of shares with full shareholder rights can be achieved via a transfer agent.

Treasury Bill: Short-term U.S. government debt security with a maturity of one year or less, typically sold at a discount and does not pay periodic interest.

Treasury Bond: Long-term U.S. government debt security with a maturity ranging from 10 to 30 years, paying periodic interest.

Trust: Legal entity that holds and manages assets for the benefit of specific individuals or entities called beneficiaries.

Trust Fund: A type of trust that manages assets for beneficiaries with stipulations or conditions established by the creator of the trust, called grantor.

Turnover Ratio: The frequency with which an investment portfolio buys and sells assets within a specific period.

U

Underlying Asset: The asset on which a financial derivative, such as a futures or options contract, is based.

Underwriting: The situation when an individual or financial institution takes on financial risk, such as loans, insurance, or investments, for a fee.

Unemployment Rate: Key economic indicator measuring the percentage of the labor force that is currently unemployed and actively seeking employment.

Unlimited Liability: Legal and financial concept where an individual is personally responsible for all of their business debts and liabilities, meaning personal assets can be used to cover them should the need arise.

Unsecured Loan: A loan that isn’t backed by collateral. Lenders may extend unsecured loans based on the borrower’s creditworthiness and ability to repay.

Upside: The potential for an investment to increase in value and provide positive returns in the future.

V

Valuation: The process of determining the fair market value of an asset, investment, or company. Can be done in several ways, such as analyzing discounted cash flow of a business or calculating price-to-earnings ratio for a stock.

Value Investing: Investment strategy identifying and purchasing undervalued securities with the expectation that their true intrinsic value will be recognized by the market eventually.

Value Stock: A stock considered undervalued relative to its fundamentals such as earnings or book value.

VAT (Value-Added Tax): Consumption-based tax imposed on the value added to goods and services at each stage of production and distribution, collected by businesses and remitted to the government.

Vega: The sensitivity of the price of an options contract to changes in implied volatility, quantifying how much the option’s price is expected to change per point of change in volatility.

Venture Capitalist: Individual or firm that provides financial capital to start-up companies in exchange for equity ownership.

Vesting: The process by which an individual becomes entitled to ownership of certain assets, such as stock options, over a specified period of time.

Volatility: Degree of variation in the price or value of a financial instrument, such as a stock or market index, over time.

VIX (CBOE Volatility Index): A popular measure of market volatility sometimes referred to as the “fear gauge”. Calculated based on the prices of S&p 500 options and is used to assess market uncertainty.

VWAP (Volume Weighted Average Price): Trading indicator that calculates the average price of a security based on both price and trading volume across a period.

W

Wall Street: Street in Lower Manhattan home to many major U.S. financial institutions including the NYSE and top investment banks.

Warrant: Financial instrument giving the holder the right but not the obligation to purchase the underlying security, usually common stock, at a predetermined price over an extended period.

Wash Sale: Transaction in which an investor sells a security at a loss and repurchases the same security within 30 days of the sale.

Weighted Average Market Cap: Calculation used in financial indexes assigning more weight to companies with higher market cap.

Weighted Average Maturity: Measure indicating the average time until a portfolio’s underlying securities mature, taking into account their respective weights.

White-Collar Crime: Non-violent, financially motivated criminal activity such as fraud or insider trading, usually perpetrated by individuals or organizations in positions of trust or authority.

Wire Fraud: Form of fraud, and a U.S. federal offense, involving the use of electronic communication or the internet to deceive individuals or entities for financial gain.

Withholding Tax: Tax dedicated or withheld from income or payments at the source before the recipient receives funds.

X

X-Efficiency: Economics concept measuring the efficiency of a firm in minimizing costs or maximizing production without wasting resources.

Y

YOY (Year-Over-Year): Comparison of data for a specific period to the same period in the previous year.

YTD (Year to Date): Period of time beginning on the first day of the current calendar year and extending to the present date.

Yield: Return on an investment, usually expressed as a percentage, relative to its cost or current market value.

Yield Curve: Graphical representation of interest rates or yields of bonds that have equal credit quality but differing maturity dates, helping to predict future interest rate changes and economic activity.

Yield Spread: The difference in yield between two different types of securities or two maturities of the same type of bond.

Z

Zero-Sum Game: Situation where one participant’s gain is perfectly balanced by the losses of other participants, or vice versa.

Zig Zag Indicator: Technical analysis indicator filtering out smaller price movements and highlighting significant price reversals and trends in order to identify potential entry and exit points.

Zombie Stock: Stock of a publicly traded company that is financially distressed, often with little or no revenue or prospects for profitability, yet continues to exist and trade on exchanges.

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10-K: Comprehensive annual report filed by publicly traded companies with the SEC, providing a detailed overview of the company’s performance, operations, and risks.

10-Q: Quarterly report filed by publicly traded companies with the SEC offering a summary of the company’s performance and operations over the previous quarter.

8-K: Report filed by publicly traded companies with the SEC to announce significant events or corporate changes that are of interest to shareholders and potential investors such as mergers, acquisitions, and executive changes.

401(k) Plan: Tax-advantaged retirement savings plan offered by U.S. employers where employees can contribute a portion of their salary which can then be matched by employers.

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