Knowledge Bank

Review the most common terms and definitions in the field of investing and trading securities.

A

  • Accrual

    The accumulation of interest, income, expenses, or other items that have been earned or incurred but not yet paid or received.

  • Alpha

    A measure of an investment’s performance relative to a market index, indicating the excess return generated by the investment manager’s skills.

  • Alternative Investments

    Investments other than traditional asset classes like stocks, bonds, and cash, including private equity, hedge funds, real estate, and commodities.

  • Amortization

    The process of gradually paying off a debt or loan through regular payments that include both principal and interest.

  • Annual Report

    A comprehensive report issued by a company to its shareholders at the end of each fiscal year, containing financial and operational information about the company’s performance.

  • Arbitrage

    The practice of exploiting price differences in different markets for the same asset to make a profit without risk.

  • Ask Price

    The lowest price at which a seller is willing to sell a security or financial instrument in the market.

  • Asset Allocation

    The strategic distribution of investments among various asset classes such as stocks, bonds, and cash equivalents to optimize risk and return.

  • At-the-Money (ATM)

    A term used to describe an option where the strike price is equal to the current market price of the underlying asset.

  • Automated Trading

    The use of computer programs and algorithms to execute trading orders in financial markets automatically.

B

  • Balance Sheet

    Financial statement showing a company’s assets, liabilities, and shareholders’ equity at a specific point in time.

  • Basis Point

    A unit of measure used in finance to describe the percentage change in interest rates or yields

  • Bear Market

    A market condition where prices are falling or expected to fall, often accompanied by pessimism and investor selling.

  • Bid Price

    The highest price a buyer is willing to pay for a security or financial instrument.

  • Black-Scholes Model

    A mathematical model used to calculate the theoretical price of options based on various factors such as underlying asset price, time to expiration, and volatility.

  • Blue Chip Stocks

    Shares of well-established, financially stable companies with a history of reliable performance and dividends.

  • Bond

    A fixed-income investment where an investor lends money to an entity (government or corporation) in exchange for periodic interest payments and return of the bond’s face value at maturity.

  • Brokerage

    The process of buying and selling financial instruments on behalf of clients in exchange for a fee or commission.

  • Bull Market

    A market condition characterized by rising prices and investor optimism.

  • Buy Limit Order

    A type of order to buy a security at or below a specified price.

C

  • Call Option

    A financial contract giving the holder the right, but not the obligation, to buy an asset at a predetermined price within a specified period.

  • Candlestick Chart

    A financial chart that displays the open, high, low, and close prices for a specific time period, often used in technical analysis.

  • Capital Gain

    Profit earned from the sale of an asset, such as stocks or real estate, resulting in a higher selling price than the purchase price.

  • Cash Flow

    The movement of money in and out of a business, including operating, investing, and financing activities.

  • Collateral

    Assets or property offered as security for a loan or credit.

  • Commission

    Fee charged by a broker or financial advisor for executing transactions or providing services.

  • Commodities

    Physical goods or raw materials such as gold, oil, wheat, etc., traded on exchanges.

  • Credit Rating

    Assessment of an individual’s or entity’s creditworthiness based on their financial history and ability to repay debts.

  • Cryptocurrency

    Digital or virtual currencies secured by cryptography, such as Bitcoin or Ethereum.

  • Currency Pair

    Quotation or pricing structure used in the foreign exchange market to represent the exchange rate between two currencies.

D

  • Dark Pool

    Private forums or exchanges for trading securities with transactions hidden from the public market.

  • Day Trading

    Buying and selling financial instruments within the same trading day to take advantage of small price movements.

  • Dead Cat Bounce

    Temporary recovery or increase in the price of a declining asset, followed by a continued decline.

  • Debt-to-Equity Ratio

    A financial ratio indicating the proportion of debt used to finance a company’s assets relative to shareholders’ equity.

  • Deflation

    A general decrease in prices of goods and services within an economy.

  • Derivative

    A financial contract whose value is derived from an underlying asset or group of assets.

  • Diversification

    Spreading investments across different asset classes or securities to reduce risk.

  • Dividend

    A portion of a company’s earnings distributed to its shareholders.

  • Dividend Yield

    A financial ratio showing the annual dividend income relative to the current market price of the security.

  • Dollar Cost Averaging

    An investment strategy involving regular fixed investments in securities regardless of market conditions.

E

  • EPS (Earnings Per Share)

    The portion of a company’s profit allocated to each outstanding share of common stock.

  • Equity

    Ownership interest in a company represented by shares of stock.

  • ETF (Exchange-Traded Fund)

    An investment fund traded on stock exchanges, holding assets like stocks, bonds, or commodities.

  • Eurobond

    A bond issued in a currency other than the currency of the country or market in which it is issued

  • Ex-Dividend Date

    The date when a buyer of a security is not entitled to receive the next dividend payment.

  • Exchange Rate

     The value of one currency expressed in terms of another currency.

  • Execution

    The completion of a buy or sell order in the market.

  • Exercise Price

    The price at which the holder of an option can buy or sell the underlying asset.

  • Expense Ratio

    The percentage of a fund’s assets used to cover its expenses.

  • Exponential Moving Average (EMA)

    A type of moving average that gives more weight to recent prices in its calculation.

F

  • Fair Value

    The estimated worth of an asset or liability based on current market conditions.

  • Fair Value

    The estimated worth of an asset or liability based on current market conditions.

  • Fill or Kill Order

     A type of order that must be executed immediately in its entirety or cancelled.

  • Fill or Kill Order

    A type of order that must be executed immediately in its entirety or cancelled.

  • Financial Planner

    A professional who helps individuals manage their finances and plan for the future.

  • Financial Planner

    A professional who helps individuals manage their finances and plan for the future.

  • Float

    The total number of shares available for trading of a particular stock.

  • Float

    The total number of shares available for trading of a particular stock.

  • Forex (Foreign Exchange)

    The global market for trading currencies.

  • Forex (Foreign Exchange)

    The global market for trading currencies.

  • Forward Contract

    A customized contract between two parties to buy or sell an asset at a specified future date and price

  • Forward Contract

    A customized contract between two parties to buy or sell an asset at a specified future date and price.

  • Free Cash Flow

     The cash generated by a company’s operations after accounting for capital expenditures.

  • Free Cash Flow

    The cash generated by a company’s operations after accounting for capital expenditures.

  • Front-Running

    Illegally trading on advance, non-public information to capitalize on the expected impact of the upcoming transaction.

  • Front-Running

    Illegally trading on advance, non-public information to capitalize on the expected impact of the upcoming transaction.

  • Fundamental Analysis

    Evaluation of a security’s intrinsic value by analyzing economic factors, financial statements, and other qualitative and quantitative factors.

  • Fundamental Analysis

    Evaluation of a security’s intrinsic value by analyzing economic factors, financial statements, and other qualitative and quantitative factors.

  • Futures

    Financial contracts obligating the buyer to purchase or the seller to sell an asset at a predetermined price and date in the future.

  • Futures

    Financial contracts obligating the buyer to purchase or the seller to sell an asset at a predetermined price and date in the future.

G

  • Gamma

    A measure of the rate of change in an option’s delta concerning the price of the underlying asset.

  • Gamma

    A measure of the rate of change in an option’s delta concerning the price of the underlying asset.

  • Gap

    A significant difference between a security’s closing price and its opening price on the following day

  • Gap

    A significant difference between a security’s closing price and its opening price on the following day.

  • General Ledger

    A complete record of a company’s financial transactions.

  • General Ledger

    A complete record of a company’s financial transactions.

  • Glass-Steagall Act

    A U.S. law that separated commercial and investment banking activities to prevent conflicts of interest

  • Glass-Steagall Act

     A U.S. law that separated commercial and investment banking activities to prevent conflicts of interest.

  • Golden Cross

    A technical chart pattern where a short-term moving average crosses above a long-term moving average, indicating a bullish trend

  • Golden Cross

    A technical chart pattern where a short-term moving average crosses above a long-term moving average, indicating a bullish trend.

  • Good Till Canceled (GTC)

     An order to buy or sell a security at a specified price that remains open until it’s executed or cancelled

  • Good Till Canceled (GTC)

     An order to buy or sell a security at a specified price that remains open until it’s executed or cancelled.

  • Government Bond

    Debt securities issued by a government with a promise of repayment at a specified future date.

  • Government Bond

    Debt securities issued by a government with a promise of repayment at a specified future date.

  • Green Bonds

    Bonds issued to finance environmentally friendly projects or activities.

  • Green Bonds

    Bonds issued to finance environmentally friendly projects or activities.

  • Gross Domestic Product (GDP)

    The total value of goods and services produced within a country’s borders in a specific time period.

  • Gross Domestic Product (GDP)

    The total value of goods and services produced within a country’s borders in a specific time period.

  • Growth Stock

     Shares in a company expected to grow at an above-average rate compared to other companies

  • Growth Stock

    Shares in a company expected to grow at an above-average rate compared to other companies.

H

  • Haircut (Finance)

    A reduction applied to the value of an asset for collateral purposes, reflecting a discount from its market value.

  • Haircut (Finance)

    A reduction applied to the value of an asset for collateral purposes, reflecting a discount from its market value.

  • Head and Shoulders Pattern

    A technical analysis chart pattern indicating a potential reversal in a security’s price trend.

  • Head and Shoulders Pattern

    A technical analysis chart pattern indicating a potential reversal in a security’s price trend.

  • Hedge Fund

    An investment fund that employs various strategies to generate high returns for its investors

  • Hedge Fund

    An investment fund that employs various strategies to generate high returns for its investors.

  • High-Frequency Trading (HFT)

     Trading strategy that uses powerful computers to execute a large number of trades at very high speeds.

  • High-Frequency Trading (HFT)

    Trading strategy that uses powerful computers to execute a large number of trades at very high speeds.

  • High-Yield Bond

    A bond with a higher yield due to its higher risk of default compared to investment-grade bonds.A bond with a higher yield due to its higher risk of default compared to investment-grade bonds.

  • High-Yield Bond

    A bond with a higher yield due to its higher risk of default compared to investment-grade bonds.

  • HODL

    A term derived from a misspelling of “hold,” indicating a long-term investment strategy without selling regardless of market fluctuations.

  • HODL

    A term derived from a misspelling of “hold,” indicating a long-term investment strategy without selling regardless of market fluctuations.

  • Holding Period

    The duration an investor holds a particular investment before selling it.

  • Holding Period

    The duration an investor holds a particular investment before selling it.

  • Horizontal Analysis

    Comparison of financial data over a series of reporting periods to identify trends and patterns.

  • Horizontal Analysis

    Comparison of financial data over a series of reporting periods to identify trends and patterns.

  • Hurdle Rate

    The minimum rate of return required by an investor or firm for an investment to be worthwhile.

  • Hurdle Rate

    The minimum rate of return required by an investor or firm for an investment to be worthwhile.

  • Hyperinflation

    An extremely high and typically accelerating inflation rate.

  • Hyperinflation

    An extremely high and typically accelerating inflation rate.

I

  • Implied Volatility

    An estimation of a security’s potential future volatility derived from its option prices.

  • Implied Volatility

    An estimation of a security’s potential future volatility derived from its option prices.

  • Index

    A measurement of the value of a section of the stock market, usually representing a specific market or sector

  • Index

    A measurement of the value of a section of the stock market, usually representing a specific market or sector.

  • Inflation

    The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

  • Inflation

    The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

  • Initial Public Offering (IPO)

    The first sale of stock by a private company to the public, making it a publicly-traded entity.

  • Initial Public Offering (IPO)

    The first sale of stock by a private company to the public, making it a publicly-traded entity.

  • Insider Trading

    The illegal practice of trading stocks based on material, non-public information.

  • Insider Trading

    The illegal practice of trading stocks based on material, non-public information.

  • Institutional Investor

    Large organizations that invest on behalf of others, such as pension funds, mutual funds, and insurance companies.

  • Institutional Investor

    Large organizations that invest on behalf of others, such as pension funds, mutual funds, and insurance companies.

  • Interest Rate

    The percentage at which interest is charged or paid on money lent or borrowed.

  • Interest Rate

    The percentage at which interest is charged or paid on money lent or borrowed.

  • Intrinsic Value

    The actual value of a company or an asset based on fundamental analysis, not influenced by market conditions.

  • Intrinsic Value

    The actual value of a company or an asset based on fundamental analysis, not influenced by market conditions.

  • Investment Bank

    A financial institution that assists companies in raising capital through underwriting or acting as an intermediary.

  • Investment Bank

    A financial institution that assists companies in raising capital through underwriting or acting as an intermediary.

  • IPO Lock-Up Period

    A contractual restriction preventing company insiders from selling their shares for a specified period after an IPO.

  • IPO Lock-Up Period

    A contractual restriction preventing company insiders from selling their shares for a specified period after an IPO.

J

  • J-Curve Effect

    In finance, it refers to a situation where a country’s trade balance initially worsens after the currency depreciates

  • Jobber

    A trader or stockbroker specializing in making quick transactions to profit from short-term price movements.

  • Junk Bond

    High-yield, high-risk debt securities issued by companies with a lower credit rating.

K

  • Kagi Chart

    A type of chart used in technical analysis in which the thickness of the lines represents price movements.

  • Kairi

    A Japanese technical analysis tool used to determine the market price’s long-term trend.

  • Kama

    The Kaufman Adaptive Moving Average, a trend-following indicator used in technical analysis.

  • Kangaroo Bond

    Foreign bonds issued in the Australian market by non-Australian entities.

  • Kappa

    A measure of an option’s sensitivity to changes in the price of the underlying asset.

  • Kickback

    Illicit payments made to someone in return for facilitating a transaction or providing favorable treatment.

  • Kicker

    An additional feature in a financial security that provides the possibility of increased returns or benefits.

  • Klinger Oscillator

    A technical analysis indicator used to determine long-term trends in financial markets.

  • Kurtosis

    A statistical measure used in finance to describe the distribution of returns from an investment.

L

  • Laddering

    A strategy where investments or securities with different maturities are purchased to spread risk and potentially increase returns.

  • LIBOR (London Interbank Offered Rate)

    The benchmark interest rate at which banks lend to one another in the international interbank market.

  • Liquidity

    The ease with which an asset can be bought or sold in the market without causing a significant change in its price.

  • Loan-to-Value Ratio (LTV)

    The ratio of a loan amount to the value of the asset purchased, commonly used in mortgage lending.

  • Long Position

    Holding an asset with the expectation that its value will increase over time.

M

  • Margin Call

    Demand by a broker for additional funds or securities when the value of an account falls below a certain level.

  • Market Maker

    A firm or individual that provides liquidity by buying and selling securities on a continuous basis.

  • Market Order

    An order to buy or sell a security at the best available price in the current market.

  • Market Risk

    The risk of losses due to movements in market prices such as interest rates, exchange rates, or commodity prices.

  • Mergers and Acquisitions (M&A)

    The consolidation of companies through various financial transactions like mergers, acquisitions, or takeovers.

N

  • Naked Option

    Selling or purchasing an option contract without owning the underlying asset.

  • NASDAQ Composite

     An index representing the performance of more than 2,500 stocks listed on the NASDAQ stock exchange.

  • Net Worth

    The difference between an individual’s assets and liabilities, representing their financial position.

  • Nominal Value

    The face value of a security or asset, typically stated on the security itself.

  • Non-Performing Asset (NPA)

    A loan or advance for which interest or principal payments are overdue for a specific period.

O

  • Open Interest

    The total number of outstanding derivative contracts, such as options or futures, at the end of a trading day.

  • Option Chain

    A listing of all available options contracts for a particular security, including their strike prices and expiration dates.

  • Out-of-the-Money (OTM)

    An option that has no intrinsic value because its strike price is unfavorable compared to the market price of the underlying asset.

  • Over-the-Counter (OTC) Derivative

    A derivative contract traded directly between parties without going through an exchange

  • Overbought

    A situation where the price of a security or asset rises too quickly and is expected to reverse or correct.

P

  • Payment for Order Flow

    Compensation paid by market makers or brokers to other brokers for directing orders to them for execution.

  • Pivot Point

    A technical indicator used in financial markets to determine potential price reversals.

  • Ponzi Scheme

    A fraudulent investment scheme that pays returns to earlier investors using funds from newer investors rather than profits.

  • Portfolio

    A collection of financial assets, such as stocks, bonds, and cash equivalents, held by an investor or entity.

  • Portfolio Manager

    A professional responsible for making investment decisions and managing a portfolio of securities.

  • Price Discovery

    The process by which the price of a security is determined in a free market system based on supply and demand.

  • Price-Earnings Ratio (P/E Ratio)

    A valuation ratio calculated by dividing a company’s stock price by its earnings per share.

  • Primary Market

    The market where newly issued securities are bought and sold for the first time, usually through an IPO.

  • Private Equity

    Ownership or interest in a company not publicly traded on a stock exchange.

  • Profit Margin

    A financial metric indicating a company’s profitability by measuring the percentage of revenue that becomes profit.

  • Profit Taking

    Selling securities to realize gains after their prices have risen.

  • Proprietary Trading

    Trading securities, commodities, or other financial instruments using a firm’s own funds rather than clients’ funds.

  • Proxy Statement

    A document filed with the SEC that discloses information related to a company’s annual meeting, management compensation, and more.

  • Public Offering

    The sale of securities to the public, typically through an IPO or follow-on offering.

  • Put Option

    A financial contract giving the holder the right, but not the obligation, to sell an asset at a predetermined price within a specified period.

Q

  • Qualified Dividend

    A type of dividend subject to the capital gains tax rate instead of the ordinary income tax rate.

  • Qualified Institutional Buyer (QIB)

    An entity, such as a bank or insurance company, eligible to invest in securities not registered with regulatory authorities.

  • Quantitative Easing (QE)

    A monetary policy in which a central bank purchases government securities or other securities to increase the money supply and stimulate the economy.

  • Quota

    The maximum limit set by a country on the quantity of a particular product that can be imported or exported.

  • Quote Currency

    The second currency in a currency pair used in the foreign exchange market.

R

  • Rally

    A rapid increase in the price of a security or market after a period of decline or consolidation.

  • Rate of Return

    The gain or loss on an investment over a specified period, expressed as a percentage of the investment’s initial cost.

  • Real Estate Investment Trust (REIT)

    A company that owns, operates, or finances income-generating real estate.

  • Regression Analysis

    A statistical method used to predict the relationship between variables in financial markets.

  • Resistance Level

    A price level at which an asset tends to stop rising due to selling pressure.

  • Return on Investment (ROI)

    A measure of the profitability of an investment, calculated as the ratio of the investment’s gain to its cost.

  • Risk Management

    The process of identifying, assessing, and mitigating potential risks to an investment or business.

  • Rollover

    The process of extending the settlement or expiration date of a financial contract or agreement.

  • Round Lot

    A standard unit of trading consisting of 100 shares of a stock or multiples thereof. Risk-Free Rate: The theoretical rate of return of an investment with zero risk, often measured by the yield on government bonds.

S

  • Securities

    Financial instruments such as stocks, bonds, options, and derivatives that can be traded in financial markets.

  • Securities and Exchange Commission (SEC)

    The U.S. regulatory agency overseeing the securities industry, enforcing securities laws, and protecting investors.

  • Settlement Date

    The date by which a securities transaction must be finalized, and payment or delivery must be made.

  • Short Selling

    Selling borrowed securities in anticipation of buying them back at a lower price, profiting from the price difference.

  • Spread

    The difference between the bid and ask prices of a security or asset.

  • Stock Market Index

    A measurement of the value of a section of the stock market, usually representing a specific market or sector.

  • Stock Split

    A corporate action that increases the number of outstanding shares while reducing their price proportionally.

  • Stop-Loss Order

    An order placed to buy or sell a security once the price reaches a certain level, limiting the loss or locking in a profit.

  • Support Level

    A price level at which an asset tends to stop declining due to buying pressure.

  • Swap

    A financial derivative contract in which two parties exchange financial instruments or cash flows.

T

  • Target Price

    The projected price of a security as determined by an analyst or investor’s valuation model.

  • Tax-Loss Harvesting

    A strategy of selling losing investments to offset capital gains and reduce taxes.

  • Technical Analysis

    Analysis of past market data, primarily price and volume, to forecast future price movements.

  • Thin Market

    A market with low trading activity and liquidity, often resulting in higher volatility.

  • Ticker Symbol

    A unique series of letters representing a particular stock or security listed on an exchange.

  • Time Value of Money (TVM)

    The concept that money available today is worth more than the same amount in the future due to its earning potential

  • Trading Floor

    The physical location where traders execute buy and sell orders in an open outcry or electronic system.

  • Trailing Stop

    A stop-loss order that trails the market price by a specified percentage or dollar amount.

  • Treasury Bond

    Long-term government debt security with a maturity of more than 10 years, issued by the U.S. Department of the Treasury.

  • Turnover Ratio

    A measure of the volume of shares traded in a portfolio over a specified period.

U

  • Underlying Asset

    The financial asset on which a derivative contract is based, such as stocks, bonds, commodities, or indices.

  • Underwriter

    A financial institution or individual that assesses and assumes the risk of another entity’s securities issuance.

  • Unit Trust

    A type of investment fund where investors’ money is pooled and managed collectively.

  • Universal Banking

    A system where banks provide a wide range of financial services, including commercial banking, investment banking, and insurance.

  • Unrealized Gain/Loss

    An increase or decrease in the value of an asset that has not yet been sold or realized.

V

  • Value Investing

    An investment strategy that focuses on buying undervalued stocks believed to have strong potential for growth.

  • Variable Annuity

    An annuity contract where the payment amount varies based on the performance of underlying investments.

  • Venture Capital

    Investment provided to startups and small businesses with growth potential in exchange for ownership stakes.

  • VIX (CBOE Volatility Index)

    A measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

  • Volatility

    The degree of variation of a trading price series over time, indicating the market’s instability.

W

  • Wall Street

    A street in New York City where the New York Stock Exchange and many financial institutions are located.

  • Warrant

    A derivative security giving the holder the right to buy underlying securities at a specified price and time.

  • White Knight

    A company or individual that rescues another company from a hostile takeover by acquiring it.

  • Wholesale Banking

    Banking services offered to large corporations, institutions, and other banks rather than individual customers.

  • Wire Transfer

    A method of electronically transferring funds from one entity to another.

X

  • Xetra

    An electronic trading system used by the Frankfurt Stock Exchange in Germany.

  • XIRR (Extended Internal Rate of Return)

    A measure of the annualized yield of an investment considering irregular cash flows and their timings.

Y

  • Yield Curve

    A graphical representation of the yields on bonds of different maturities.

  • Yield Spread

    The difference between yields on differing investments, often used as a measure of risk.

Z

  • Z-Score

    A statistical measurement used to predict the likelihood of bankruptcy for a company.

  • Zero-Coupon Bond

    A bond that pays no periodic interest but is sold at a discount and redeemed at face value at maturity.