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Trading Terms Glossary: Key Finance, Investing & Trading Terminology
The Trading Terms Glossary is designed to help you understand key financial terms and concepts. It provides straightforward definitions and examples, making it a handy resource for anyone looking to improve their knowledge of trading and investing.
From understanding stock options and risk management to learning about different types of markets, this glossary covers the essentials. It’s a quick and useful guide, whether you're new to investing or just looking to brush up on your financial vocabulary.
From understanding stock options and risk management to learning about different types of markets, this glossary covers the essentials. It’s a quick and useful guide, whether you're new to investing or just looking to brush up on your financial vocabulary.
A
What is an Accumulating ETF?
An accumulating ETF is an exchange-traded fund that reinvests the dividends it earns back into the fund rather than distributing them to investors. This allows the value of the ETF to grow over time without requiring the investor to manually reinvest the dividends.
Example: Instead of receiving dividend payouts, the accumulating ETF reinvests the income, increasing Peter’s investment value over time without him needing to take any action.
Example: Instead of receiving dividend payouts, the accumulating ETF reinvests the income, increasing Peter’s investment value over time without him needing to take any action.
What is an Acquisition?
The acquisition process involves a company buying another company to expand its operations, access new markets, or gain new resources.
Example: Company A acquires Company B to broaden its product line and strengthen its presence in a new international market. This acquisition allows Company A to tap into Company B's existing customer base and leverage its resources for further growth.
Example: Company A acquires Company B to broaden its product line and strengthen its presence in a new international market. This acquisition allows Company A to tap into Company B's existing customer base and leverage its resources for further growth.
What is Active management?
Active management is the process of making buy and sell decisions in an investment portfolio, typically aimed at outperforming a specific benchmark or index.
Example: The fund manager actively buys and sells stocks to try and outperform the S&P 500, constantly adjusting the portfolio based on market trends.
Example: The fund manager actively buys and sells stocks to try and outperform the S&P 500, constantly adjusting the portfolio based on market trends.
What is an After-tax contribution?
After-tax contribution is money that has already been taxed before being contributed to an investment or retirement account, such as a Roth IRA.
Example: Jane contributes to her Roth IRA using after-tax dollars. Because the contributions are made with money that has already been taxed, she won’t have to pay taxes on her qualified withdrawals during retirement, allowing her to enjoy her savings tax-free later on.
Example: Jane contributes to her Roth IRA using after-tax dollars. Because the contributions are made with money that has already been taxed, she won’t have to pay taxes on her qualified withdrawals during retirement, allowing her to enjoy her savings tax-free later on.
What is Aggregating mode?
Aggregating mode ensures that you can hold only a single open position for a given instrument. Every time you open a new position with the same instrument, it combines with the existing one, and the price is averaged across all positions.
Example: Imagine you open a position to buy 10 shares of Company A at $50 each. Later, you decide to buy 5 more shares when the price rises to $60. In aggregating mode, these two positions will merge, giving you a total of 15 shares. The new average price of the shares will be $53.33, instead of treating the two purchases separately.
Example: Imagine you open a position to buy 10 shares of Company A at $50 each. Later, you decide to buy 5 more shares when the price rises to $60. In aggregating mode, these two positions will merge, giving you a total of 15 shares. The new average price of the shares will be $53.33, instead of treating the two purchases separately.
What is Alpha?
Alpha is a measure of an investment’s performance compared to a market index, indicating how much it has outperformed or underperformed. A positive alpha means the investment has done better than expected.
Example: If a mutual fund has an alpha of 2, it means the fund outperformed its benchmark index by 2%, suggesting the fund manager made successful investment choices.
Example: If a mutual fund has an alpha of 2, it means the fund outperformed its benchmark index by 2%, suggesting the fund manager made successful investment choices.
What is Alpha decay?
Alpha decay is the gradual reduction in the excess returns that an investment strategy generates over time, often due to market changes or increased competition.
Example: John’s trading strategy initially produced a 5% alpha, but as other investors adopted similar tactics, the alpha decayed to 2% over the next year, reducing his overall gains.
Example: John’s trading strategy initially produced a 5% alpha, but as other investors adopted similar tactics, the alpha decayed to 2% over the next year, reducing his overall gains.
What is Alternative Minimum Tax (AMT)?
The Alternative Minimum Tax (AMT) is a parallel tax system designed to ensure that individuals or corporations with significant tax deductions still pay a minimum level of tax.
Example: Alice uses multiple deductions to reduce her tax bill significantly. However, under the AMT, she must calculate her tax liability differently, potentially resulting in a higher tax payment.
Example: Alice uses multiple deductions to reduce her tax bill significantly. However, under the AMT, she must calculate her tax liability differently, potentially resulting in a higher tax payment.
What is an American Depositary Receipt (ADR)?
An American Depositary Receipt (ADR) is a financial instrument that represents shares in a foreign company, allowing U.S. investors to trade those shares on American stock exchanges.
Example: John wants to invest in a Japanese technology company but prefers to do so on the U.S. stock market. He buys an ADR, which represents the foreign company’s shares, allowing him to invest conveniently.
Example: John wants to invest in a Japanese technology company but prefers to do so on the U.S. stock market. He buys an ADR, which represents the foreign company’s shares, allowing him to invest conveniently.
What is Amortisation?
Amortisation is the process of gradually paying off a debt over time in regular installments or spreading the cost of an intangible asset over its useful life.
Example: Sarah takes out a 5-year loan for her business. Each monthly payment she makes includes both principal and interest, reducing the loan balance through amortisation.
Example: Sarah takes out a 5-year loan for her business. Each monthly payment she makes includes both principal and interest, reducing the loan balance through amortisation.
What are Annual contribution limits?
Annual contribution limits are the maximum amount that can be contributed to specific accounts, like IRAs or 401(k) plans, each year, as set by tax authorities.
Example: For 2024, the annual contribution limit for a 401(k) plan is $22,500. Employees can contribute up to this amount, benefiting from tax-deferred growth.
Example: For 2024, the annual contribution limit for a 401(k) plan is $22,500. Employees can contribute up to this amount, benefiting from tax-deferred growth.
What is an Annual general meeting?
Annual general meeting (AGM) is a yearly gathering of a company’s shareholders to discuss and vote on key issues, such as electing the board of directors and approving financial statements.
Example: ABC Ltd. held its AGM, where shareholders voted on the new board members and reviewed the company’s financial performance over the past year.
Example: ABC Ltd. held its AGM, where shareholders voted on the new board members and reviewed the company’s financial performance over the past year.
What is an Annual report?
Annual report is a comprehensive report published annually by a company, detailing its financial performance, operations, and future strategies.
Example: XYZ Corporation released its annual report, outlining its profits, revenue, and plans for expansion, providing shareholders with a detailed overview of the company's health. Learn how to read financial statements.
Example: XYZ Corporation released its annual report, outlining its profits, revenue, and plans for expansion, providing shareholders with a detailed overview of the company's health. Learn how to read financial statements.
What is an Annual tax statement?
Annual tax statement is a document provided by an employer or financial institution summarising the income earned and taxes withheld for a given year, often used for tax filing.
Example: James receives his annual tax statement from his employer, showing his total earnings and tax deductions for 2024, which he uses to complete his tax return.
Example: James receives his annual tax statement from his employer, showing his total earnings and tax deductions for 2024, which he uses to complete his tax return.
What is an Annualized return?
Annualised return is a calculation that shows the average annual rate of return for an investment over a specific period, taking compounding into account.
Example: If an investment of £1,000 grows to £1,210 over two years, the annualised return is approximately 10%, indicating the investment's average yearly growth.
Example: If an investment of £1,000 grows to £1,210 over two years, the annualised return is approximately 10%, indicating the investment's average yearly growth.
What is Appreciation?
Appreciation is the increase in the value of an asset, such as stocks or property, over time.
Example: Sarah bought a house for £200,000, and after five years, its value appreciated to £250,000, giving her a potential profit of £50,000 if she chooses to sell.
Example: Sarah bought a house for £200,000, and after five years, its value appreciated to £250,000, giving her a potential profit of £50,000 if she chooses to sell.
What is Arbitrage?
Arbitrage is the simultaneous buying and selling of an asset across different markets to capitalise on price discrepancies. This strategy enables traders to profit from differences in asset prices, taking advantage of market inefficiencies.
Example: A trader notices that a stock is priced at £50 on the London Stock Exchange and £51 on the New York Stock Exchange. They buy the stock in London and sell it in New York, making a £1 profit per share through arbitrage.
Example: A trader notices that a stock is priced at £50 on the London Stock Exchange and £51 on the New York Stock Exchange. They buy the stock in London and sell it in New York, making a £1 profit per share through arbitrage.
What is Arbitrage Pricing Theory (APT)?
Arbitrage Pricing Theory (APT) is a financial model used to estimate the fair value of a security by considering multiple factors that affect its risk and expected return. Unlike the Capital Asset Pricing Model (CAPM), which relies on a single market factor, APT takes into account several economic and financial variables, such as interest rates, inflation, and company-specific risks, to determine the price of a security.
Example: Imagine an investor analyzing a stock using APT. They might consider factors like changes in interest rates, inflation trends, and the company's earnings growth. If APT calculations show that the stock is currently undervalued based on these factors, the investor could buy the stock, expecting it to eventually rise to its fair value.
Example: Imagine an investor analyzing a stock using APT. They might consider factors like changes in interest rates, inflation trends, and the company's earnings growth. If APT calculations show that the stock is currently undervalued based on these factors, the investor could buy the stock, expecting it to eventually rise to its fair value.
What is an Ask price?
The ask price is the minimum price at which a seller is prepared to sell a security in the market.
Example: If the ask price for a stock is £10, buyers must pay at least this amount to purchase shares from the seller.
Example: If the ask price for a stock is £10, buyers must pay at least this amount to purchase shares from the seller.
What is an Ask size?
The ask size is the quantity of shares that a seller is willing to sell at the specified ask price.
Example: If an investor sees an ask size of 1,000 shares at an ask price of £20, this indicates the volume available for purchase at that price.
Example: If an investor sees an ask size of 1,000 shares at an ask price of £20, this indicates the volume available for purchase at that price.
What is Asset allocation?
Asset allocation is an investment strategy that spreads your portfolio across various asset classes - such as stocks, bonds, and cash - to balance risk and return.
Example: To reduce risk, Emma allocates her investments across stocks, bonds, and real estate, creating a diversified portfolio.
Example: To reduce risk, Emma allocates her investments across stocks, bonds, and real estate, creating a diversified portfolio.
What are Asset classes?
Asset classes are categories of financial assets, including stocks, bonds, and real estate, each offering different risk and return profiles.
Example: John diversifies his portfolio by investing in various asset classes, such as equities for growth and bonds for stability.
Example: John diversifies his portfolio by investing in various asset classes, such as equities for growth and bonds for stability.
What are Assets?
Assets are resources owned by an individual or business that hold economic value and offer potential future benefits.
Example: When applying for a loan, Anna lists her house, car, and investments as her assets.
Example: When applying for a loan, Anna lists her house, car, and investments as her assets.
What is AutoInvest?
AutoInvest allows you to customize a deposit schedule to your pies, assign a payment method, and invest automatically.
Example: Tom sets up auto-investing, so a fixed amount is invested into his portfolio every month without needing manual intervention.
Learn more about AutoInvest
Example: Tom sets up auto-investing, so a fixed amount is invested into his portfolio every month without needing manual intervention.
Learn more about AutoInvest
What are Automatic payments?
Automatic payments are arrangements that enable regular, scheduled payments, commonly used for recurring bills or contributions to savings accounts.
Example: Susan sets up automatic payments to ensure her utility bills are paid each month without needing to make a manual transfer.
Example: Susan sets up automatic payments to ensure her utility bills are paid each month without needing to make a manual transfer.
What is an Average price adjustment?
Average price adjustment is a method of lowering the average purchase price of securities in a portfolio by buying more at lower prices.
Example: By investing a set amount each month, Rachel reduces the average cost of her stock purchases when prices fluctuate.
Example: By investing a set amount each month, Rachel reduces the average cost of her stock purchases when prices fluctuate.
What is an Award agreement?
An award agreement is a legal document detailing the terms and conditions of stock or equity awards granted to an employee.
Example: Mark reviews his award agreement to understand the vesting schedule and requirements for his stock options.
Example: Mark reviews his award agreement to understand the vesting schedule and requirements for his stock options.
What is an Award price?
The award price is the price set by a company at which an employee can purchase stock through stock options or equity awards.
Example: Sarah's company grants her stock options at an award price of £5 per share, which she can exercise once they vest.
Example: Sarah's company grants her stock options at an award price of £5 per share, which she can exercise once they vest.
B
What is Backtesting?
Backtesting is a method of assessing a trading strategy by applying it to historical data to evaluate its effectiveness.
Example: Before adopting his trading strategy, Mike backtests it on past market data to gauge its potential success.
Example: Before adopting his trading strategy, Mike backtests it on past market data to gauge its potential success.
What is a Balanced fund?
A balanced fund is a type of mutual fund that invests in both stocks and bonds to achieve a blend of growth and income.
Example: Jane invests in a balanced fund with a 60% allocation to stocks and 40% to bonds, providing a mix of growth and stability.
Example: Jane invests in a balanced fund with a 60% allocation to stocks and 40% to bonds, providing a mix of growth and stability.
What is a Bank run?
A bank run occurs when a large number of depositors withdraw their money simultaneously due to fears over the bank's solvency.
Example: News of financial instability triggered a bank run, with customers rushing to withdraw their funds.
Example: News of financial instability triggered a bank run, with customers rushing to withdraw their funds.
What is a Base currency?
The base currency is the currency in which an investor holds their primary account and settles trades, typically their domestic currency.
Example: If John’s trading account is in GBP, then GBP serves as his base currency for all transactions.
Example: If John’s trading account is in GBP, then GBP serves as his base currency for all transactions.
What is a Bear market?
A bear market is a market condition where stock prices have declined by 20% or more from recent highs, typically reflecting widespread investor pessimism and concerns about a potential economic downturn or recession. This sustained period of declining prices can be driven by various factors, such as economic slowdowns, high inflation, or global events, and often leads to reduced investor confidence.
Example: In 2008, during the global financial crisis, the stock market experienced a severe bear market. Major indices like the S&P 500 plummeted by more than 50% from their peak, as fears of economic collapse and banking failures dominated the market. Investors reacted by selling off stocks, further pushing prices down.
Example: In 2008, during the global financial crisis, the stock market experienced a severe bear market. Major indices like the S&P 500 plummeted by more than 50% from their peak, as fears of economic collapse and banking failures dominated the market. Investors reacted by selling off stocks, further pushing prices down.
What is a Beneficiary?
A beneficiary is a person or entity designated to receive assets, benefits, or financial payouts upon the owner’s death. This can include money, property, or other valuable items, as specified in a will, trust, or insurance policy.
Example: Lisa designates her daughter as the beneficiary of her life insurance policy, ensuring that her daughter will receive the policy’s payout after Lisa’s passing.
Example: Lisa designates her daughter as the beneficiary of her life insurance policy, ensuring that her daughter will receive the policy’s payout after Lisa’s passing.
What is Best-in-class?
Best-in-class refers to the top-performing product, service, or company within a specific category or peer group.
Example: ABC Fund was recognised as best-in-class among equity funds, delivering the highest returns in its category.
Example: ABC Fund was recognised as best-in-class among equity funds, delivering the highest returns in its category.
What is Beta?
Beta is a measure of a stock’s volatility in comparison to the overall market. A beta above 1 indicates higher volatility, while a beta below 1 suggests lower volatility.
Example: A stock with a beta of 1.5 is 50% more volatile than the market.
Example: A stock with a beta of 1.5 is 50% more volatile than the market.
What is Beta decay?
Beta decay measures how an investment’s returns diverge from the market over time, especially relevant in leveraged ETFs.
Example: Over time, beta decay in a leveraged ETF can cause returns to differ significantly from those of the underlying index.
Example: Over time, beta decay in a leveraged ETF can cause returns to differ significantly from those of the underlying index.
What is Bid price?
The bid price is the highest price a buyer is willing to pay for a security in the market.
Example: If the bid price for a stock is £20, buyers must offer at least this amount to purchase shares.
Example: If the bid price for a stock is £20, buyers must offer at least this amount to purchase shares.
What is Bid size?
The bid size is the quantity of shares a buyer is prepared to purchase at the bid price.
Example: An investor sees a bid size of 500 shares at £10, indicating the volume they can sell at that price.
Example: An investor sees a bid size of 500 shares at £10, indicating the volume they can sell at that price.
What is Bid-ask spread?
The Bid-ask spread represents the difference between the ask price (the lowest price a seller will accept) and the bid price (the highest price a buyer is willing to pay) for a security.
Example: If the bid price for a stock is £9.90 and the ask price is £10.00, the bid-ask spread is £0.10, which reflects market liquidity and transaction costs.
Example: If the bid price for a stock is £9.90 and the ask price is £10.00, the bid-ask spread is £0.10, which reflects market liquidity and transaction costs.
What is the Black-Scholes model?
The Black-Scholes model is a mathematical framework used to estimate the theoretical value of options contracts. It helps calculate fair prices for options by taking into account factors such as the stock price, strike price, time until expiration, risk-free interest rate, and market volatility.
Example: Traders frequently use the Black-Scholes model to determine the fair market value of call and put options, allowing them to assess whether an option is overpriced or underpriced based on market conditions.
Example: Traders frequently use the Black-Scholes model to determine the fair market value of call and put options, allowing them to assess whether an option is overpriced or underpriced based on market conditions.
What is a Blue chip stock?
What are Bonds?
Bonds are debt securities issued by governments, corporations, or other entities to raise capital. When you purchase a bond, you are essentially lending money to the issuer in exchange for periodic interest payments (referred to as the coupon) and the return of the bond’s face value (principal) when it matures. Bonds are typically considered a lower-risk investment compared to stocks.
Example: John purchases a 10-year government bond with a 2% annual interest rate. He will receive 2% of the bond's value each year as interest, and after 10 years, the government will repay the full principal amount he originally invested.
Example: John purchases a 10-year government bond with a 2% annual interest rate. He will receive 2% of the bond's value each year as interest, and after 10 years, the government will repay the full principal amount he originally invested.
What is a Bond ladder?
A bond ladder is an investment strategy where an investor purchases bonds with staggered maturity dates to create a steady income stream and reduce interest rate risk. By holding bonds that mature at different intervals, the investor can reinvest the proceeds from maturing bonds at potentially higher interest rates, while also maintaining liquidity and reducing the impact of interest rate fluctuations.
Example: Tom creates a bond ladder by purchasing bonds that mature in 1, 3, 5, and 10 years. As each bond matures, Tom receives the principal and can reinvest it, ensuring a consistent income flow while mitigating the risk of interest rate changes.
Example: Tom creates a bond ladder by purchasing bonds that mature in 1, 3, 5, and 10 years. As each bond matures, Tom receives the principal and can reinvest it, ensuring a consistent income flow while mitigating the risk of interest rate changes.
What is Book value?
Book value represents the net value of a company's assets after subtracting its liabilities, often used to gauge the company’s intrinsic worth.
Example: To determine a company's book value, its liabilities are subtracted from its total assets.
Example: To determine a company's book value, its liabilities are subtracted from its total assets.
What is a Broker?
A broker is a person or firm that facilitates and executes financial transactions, such as buying and selling securities, on behalf of clients. Brokers act as intermediaries between buyers and sellers in the financial markets and may offer additional services like investment advice and portfolio management.
Example: Maria contacts her broker to place an order to buy 100 shares of a technology company. The broker executes the trade on her behalf, ensuring that she acquires the shares at the current market price.
Example: Maria contacts her broker to place an order to buy 100 shares of a technology company. The broker executes the trade on her behalf, ensuring that she acquires the shares at the current market price.
What is Brokerage?
Brokerage refers to the act of buying and selling financial assets, such as stocks or bonds, on behalf of investors. A brokerage firm typically earns a commission or fee for facilitating these transactions.
Example: John's brokerage assists him in trading stocks, charging a small fee for each transaction they execute on his behalf.
Example: John's brokerage assists him in trading stocks, charging a small fee for each transaction they execute on his behalf.
What is a Brokerage account?
A brokerage account is a taxable account that allows individuals to buy and sell various types of investments, such as stocks, bonds, and mutual funds. Unlike retirement accounts, it doesn't have tax advantages, but it offers flexibility in trading and accessing funds.
Example: Peter opens a brokerage account to invest in a diversified portfolio of stocks and bonds, aiming to grow his wealth over time.
Example: Peter opens a brokerage account to invest in a diversified portfolio of stocks and bonds, aiming to grow his wealth over time.
What is a Bull market?
A bull market is a market condition in which stock prices are rising, typically fueled by investor optimism, confidence, and economic growth. It often leads to sustained increases in asset prices over an extended period.
Example: The stock market entered a bull market, with prices steadily climbing for several months as investors remained optimistic about the economy's recovery.
Example: The stock market entered a bull market, with prices steadily climbing for several months as investors remained optimistic about the economy's recovery.
What is a Buy price?
The buy price is the price an investor is prepared to pay to purchase a stock or other security.
Example: Emma sets her buy price for ABC stock at £15, intending to buy if the stock drops to that level.
Example: Emma sets her buy price for ABC stock at £15, intending to buy if the stock drops to that level.
C
What is a Call option?
A call option grants the holder the right, but not the obligation, to buy a security at a specified price before a certain date.
Example: Sarah buys a call option to purchase shares of XYZ Ltd. at £50 each, with the option expiring in six months.
Example: Sarah buys a call option to purchase shares of XYZ Ltd. at £50 each, with the option expiring in six months.
What is Capital expenditure (CapEx)?
Capital expenditure (CapEx) refers to the funds a company uses to acquire, upgrade, or maintain physical assets such as buildings, machinery, or equipment. These investments are made to improve or extend the life of the company's operations.
Example: The company's capital expenditure for the year included purchasing new machinery to boost production and enhance efficiency in the manufacturing process.
Learn more about CapEx and OpEx
Example: The company's capital expenditure for the year included purchasing new machinery to boost production and enhance efficiency in the manufacturing process.
Learn more about CapEx and OpEx
What is a Capital gain?
A capital gain is the profit realised when an investment is sold for a price higher than its purchase price.
Example: Jane sold her shares for £1,500 after buying them for £1,000, realising a capital gain of £500.
Example: Jane sold her shares for £1,500 after buying them for £1,000, realising a capital gain of £500.
What is a Capital gains ex-date?
A capital gains ex-date is the cut-off date after which investors are no longer eligible to receive capital gains distributions declared by a mutual fund.
Example: To qualify for the capital gains distribution, Mark bought shares before the ex-date set by the fund.
Example: To qualify for the capital gains distribution, Mark bought shares before the ex-date set by the fund.
What are Capital gains (long-term)?
Long-term capital gains refer to profits from selling investments held for more than one year, typically subject to a lower tax rate.
Example: Anna held her stocks for over a year before selling, making her gains eligible for long-term capital gains tax rates.
Example: Anna held her stocks for over a year before selling, making her gains eligible for long-term capital gains tax rates.
What are Capital gains (reinvest)?
Reinvesting capital gains earned from investments back into the same security or fund.
Example: The fund automatically reinvested its capital gains back into additional shares, increasing David's total investment.
Example: The fund automatically reinvested its capital gains back into additional shares, increasing David's total investment.
What are Capital gains (short-term)?
Short-term capital gains are profits from selling investments held for less than one year, usually taxed at ordinary income tax rates.
Example: Mike sold his shares within six months, resulting in his profits being taxed as short-term capital gains.
Example: Mike sold his shares within six months, resulting in his profits being taxed as short-term capital gains.
What is a Capital gains tax?
The Capital gains tax is the tax paid on the profits earned from selling investments or assets for more than their original purchase price. This tax is typically applied to the sale of stocks, real estate, or other investments.
Example: Linda paid capital gains tax on the profit she made from selling her shares, which had significantly appreciated in value since she purchased them.
Example: Linda paid capital gains tax on the profit she made from selling her shares, which had significantly appreciated in value since she purchased them.
What is a Capital loss?
A capital loss occurs when an investment is sold for less than the price originally paid, resulting in a financial loss. This loss can sometimes be used to offset capital gains for tax purposes.
Example: Susan sold her stocks at a loss, incurring a capital loss that she could apply to reduce taxes on her other investment gains.
Example: Susan sold her stocks at a loss, incurring a capital loss that she could apply to reduce taxes on her other investment gains.
What is Cash flow?
Cash flow refers to the total amount of cash generated and used by a company during a specific period. It is often used to assess the company's financial health and ability to cover expenses, reinvest in operations, or pay dividends.
Example: The company's cash flow statement reflected positive cash flow from its operations, signaling strong financial health and the ability to fund future growth.
Learn more about Cash flow
Example: The company's cash flow statement reflected positive cash flow from its operations, signaling strong financial health and the ability to fund future growth.
Learn more about Cash flow
What is a Cash ISA?
A Cash ISA (Individual Savings Account) is a tax-free savings account in the UK where individuals can deposit cash and earn interest without paying taxes on the earnings. It is a popular way to save and grow money without tax deductions.
Example: George deposits money into a Cash ISA, allowing his savings to grow tax-free, helping him build up funds for future expenses.
Learn more about ISA accounts
Example: George deposits money into a Cash ISA, allowing his savings to grow tax-free, helping him build up funds for future expenses.
Learn more about ISA accounts
What is a Cash reserve ratio (CRR)?
The cash reserve ratio (CRR) is the percentage of a bank's total deposits that must be kept in reserve and not lent out. It is set by the central bank to regulate liquidity and control the money supply in the economy.
Example: The central bank raised the cash reserve ratio, reducing the amount banks could lend, in an effort to control inflation and tighten monetary policy.
Example: The central bank raised the cash reserve ratio, reducing the amount banks could lend, in an effort to control inflation and tighten monetary policy.
What is Cashback?
Cashback is a reward offered by some companies or financial services where a percentage of the money spent on purchases is returned to the customer. This incentive encourages spending and provides savings on transactions.
Example: Jane received 5% cashback on her grocery purchases by using her credit card, earning a small rebate on her total spending.
Example: Jane received 5% cashback on her grocery purchases by using her credit card, earning a small rebate on her total spending.
What is a Certificate of deposit (CD)?
A certificate of deposit (CD) is a savings product offered by banks with a fixed interest rate and a set term. The principal is returned to the investor at maturity, along with the earned interest. CDs are considered a low-risk investment due to their guaranteed return.
Example: John invested in a certificate of deposit with a 2-year term, securing a fixed interest rate and knowing his principal would be returned at maturity.
Example: John invested in a certificate of deposit with a 2-year term, securing a fixed interest rate and knowing his principal would be returned at maturity.
What is CERTIFIED FINANCIAL PLANNER™ (CFP®)?
A CERTIFIED FINANCIAL PLANNER™ (CFP®) is a professional designation for financial planners who have met rigorous education, experience, and ethical standards set by the CFP Board. This certification demonstrates expertise in financial planning, investments, and ethics.
Example: Sarah earned the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation after passing the board exam and fulfilling the required experience, showcasing her qualification to provide comprehensive financial advice.
Example: Sarah earned the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation after passing the board exam and fulfilling the required experience, showcasing her qualification to provide comprehensive financial advice.
What is a Circuit breaker?
A circuit breaker is a regulatory measure designed to temporarily halt trading on an exchange during extreme market volatility to prevent panic-selling and allow investors time to reassess the situation. It is used to maintain market stability.
Example: When the stock market experienced a sharp decline, a circuit breaker was triggered, pausing trading to prevent further panic-selling and help restore order.
Example: When the stock market experienced a sharp decline, a circuit breaker was triggered, pausing trading to prevent further panic-selling and help restore order.
What is a Cliff?
The cliff vesting date is the point at which restrictions on stock options or equity grants expire, and the employee gains full ownership of the granted shares or options. It marks the end of a vesting period where the employee becomes entitled to the assets.
Example: Mark's stock options reached the cliff vesting date, allowing him to fully own the shares and exercise his rights to sell or hold them.
Example: Mark's stock options reached the cliff vesting date, allowing him to fully own the shares and exercise his rights to sell or hold them.
What is Closing price?
The closing price is the last price at which a security traded before the market closed on a particular day. It represents the final value of the security for that trading session and is often used as a reference point for its daily performance.
Example: The closing price of the stock was £150, reflecting its value at the end of the trading day.
Example: The closing price of the stock was £150, reflecting its value at the end of the trading day.
What is Collateral?
Collateral refers to assets pledged as security for a loan, which the lender has the right to seize if the borrower defaults on repayment. Collateral reduces the risk for the lender by providing a form of backup in case the loan is not repaid.
Example: The bank required Peter to use his house as collateral for the mortgage loan, meaning the bank could take ownership of the house if he failed to make the payments.
Example: The bank required Peter to use his house as collateral for the mortgage loan, meaning the bank could take ownership of the house if he failed to make the payments.
What is a Commodity?
A commodity is a raw material or primary agricultural product that can be bought and sold, typically used as inputs in the production of other goods or services. Commodities include natural resources like gold, oil, and agricultural products such as wheat or coffee.
Example: Crude oil is a widely traded commodity, essential in various industries, from energy production to plastics manufacturing.
Example: Crude oil is a widely traded commodity, essential in various industries, from energy production to plastics manufacturing.
What is Common stock?
Common stock is a type of stock that represents ownership in a company, giving shareholders voting rights and the potential to receive dividends based on the company's profitability. Common shareholders typically have a say in key corporate decisions through voting at shareholder meetings.
Example: By purchasing common stock in Apple Inc., James became a part-owner of the company and gained the right to vote on important company matters, such as electing board members.
Example: By purchasing common stock in Apple Inc., James became a part-owner of the company and gained the right to vote on important company matters, such as electing board members.
What is Compound Annual Growth Rate (CAGR)?
The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period longer than one year. It provides a smoothed rate of return that shows how an investment has grown over time, assuming the profits are reinvested each year.
Example: If an investment grows from £1,000 to £2,000 over 5 years, the CAGR can be calculated to determine the average annual growth rate, reflecting a consistent rate of return over the period.
Example: If an investment grows from £1,000 to £2,000 over 5 years, the CAGR can be calculated to determine the average annual growth rate, reflecting a consistent rate of return over the period.
What is Compound growth?
Compound growth refers to the growth of an investment by reinvesting earnings, such as interest or dividends, to generate additional returns over time. This process accelerates the growth of the investment, as returns are earned not only on the initial principal but also on the accumulated earnings.
Example: Rachel's initial £1,000 investment grew to £1,500 after she reinvested the dividends, allowing her to benefit from compound growth, where her earnings generated additional returns.
Example: Rachel's initial £1,000 investment grew to £1,500 after she reinvested the dividends, allowing her to benefit from compound growth, where her earnings generated additional returns.
What is Compound interest?
Compound interest is interest calculated on the initial principal as well as on all accumulated interest from previous periods. This allows the investment or savings to grow at an accelerating rate over time.
Example: Mike's savings account earns compound interest, which helps his balance grow faster since he earns interest not only on his initial deposit but also on the interest that has already been added to his account.
Example: Mike's savings account earns compound interest, which helps his balance grow faster since he earns interest not only on his initial deposit but also on the interest that has already been added to his account.
What is Contango?
Contango is a market condition in which the future price of a commodity is higher than the current spot price. This often occurs due to storage costs, supply shortages, or expectations of rising demand over time.
Example: The oil market is in contango when the price of oil futures exceeds the current spot price, largely because of the costs associated with storing oil until the future delivery date.
Example: The oil market is in contango when the price of oil futures exceeds the current spot price, largely because of the costs associated with storing oil until the future delivery date.
What is a Contract for Difference (CFD)?
A Contract for Difference (CFD) is a financial derivative product that allows traders to speculate on the price movements of various underlying assets, such as stocks, commodities, currencies, and indices, without owning the actual asset. Traders profit or incur losses based on the difference between the opening and closing prices of the contract.
Example: Sarah uses contracts for difference (CFDs) to speculate on stock price movements, allowing her to profit from changes in the price without needing to purchase the actual shares.
Learn more about Contract for Difference (CFD)
Example: Sarah uses contracts for difference (CFDs) to speculate on stock price movements, allowing her to profit from changes in the price without needing to purchase the actual shares.
Learn more about Contract for Difference (CFD)
What is a Convertible bond?
A convertible bond is a type of bond that can be converted into a specified number of shares of the issuing company’s stock. It offers investors a combination of debt features, such as regular interest payments, and equity potential, as it can be converted into stock if the company's share price rises.
Example: John's convertible bond gives him the option to convert it into company stock at a predefined conversion rate, allowing him to benefit from potential stock price increases while still earning interest as a bondholder.
Example: John's convertible bond gives him the option to convert it into company stock at a predefined conversion rate, allowing him to benefit from potential stock price increases while still earning interest as a bondholder.
What is Correlation?
Correlation is a statistical measure that indicates the degree to which two assets move in relation to each other. It ranges from -1 to +1, where +1 indicates perfect positive correlation, -1 indicates perfect negative correlation, and 0 means no correlation. Investors use correlation to assess the diversification potential of different assets.
Example: The correlation between the prices of gold and the stock market is often negative, meaning when stock prices fall, gold prices may rise, helping investors diversify their portfolios and reduce risk.
Example: The correlation between the prices of gold and the stock market is often negative, meaning when stock prices fall, gold prices may rise, helping investors diversify their portfolios and reduce risk.
What is Cost basis?
Cost basis is the original value paid for an asset, used to calculate capital gains or losses when the asset is sold. It includes the purchase price plus any associated costs, such as commissions or fees.
Example: The cost basis of Jane's shares is £1,000, which will be used to determine the capital gain or loss when she sells them, based on the selling price.
Example: The cost basis of Jane's shares is £1,000, which will be used to determine the capital gain or loss when she sells them, based on the selling price.
What is Cost of capital?
Cost of capital refers to the total cost required to finance a company's operations or projects, including the cost of both debt and equity. It is used by companies to evaluate the return on potential investments and ensure they will generate sufficient returns to cover these costs.
Example: A company assesses its cost of capital to determine if a new investment project will generate returns that exceed the combined costs of borrowing and equity financing, ensuring the project is financially viable.
Example: A company assesses its cost of capital to determine if a new investment project will generate returns that exceed the combined costs of borrowing and equity financing, ensuring the project is financially viable.
What is the CPI?
The Consumer Price Index (CPI) is a measure of inflation that tracks the average change over time in the prices paid by consumers for a basket of goods and services. It is widely used to assess price stability and the cost of living.
Example: An increase in the CPI reflects rising inflation, which reduces the purchasing power of consumers as they have to pay more for everyday goods and services.
Example: An increase in the CPI reflects rising inflation, which reduces the purchasing power of consumers as they have to pay more for everyday goods and services.
What is Crowdfunding?
Crowdfunding is the practice of raising small amounts of capital from a large number of people, typically through online platforms. This method is often used by entrepreneurs, creatives, and non-profits to fund projects, startups, or causes.
Example: John used a crowdfunding platform to raise money for his startup, receiving contributions from hundreds of backers, each investing a small amount to support his venture.
Example: John used a crowdfunding platform to raise money for his startup, receiving contributions from hundreds of backers, each investing a small amount to support his venture.
What is Crypto mining?
Crypto mining is the process of using computer resources to verify and validate transactions on a blockchain, helping to maintain the network's security. In return for their work, miners earn cryptocurrency rewards, typically in the form of the currency being mined.
Example: Mike began crypto mining to earn Bitcoin by using his computer to verify transactions on the Bitcoin blockchain, receiving rewards for his contributions to the network.
Example: Mike began crypto mining to earn Bitcoin by using his computer to verify transactions on the Bitcoin blockchain, receiving rewards for his contributions to the network.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography for security and operates independently of a central authority, such as a government or bank. Bitcoin, Ethereum, and other cryptocurrencies rely on decentralized networks like blockchain technology.
Example: Emma purchased cryptocurrency to diversify her investment portfolio, adding digital assets like Bitcoin alongside her traditional investments in stocks and bonds.
Example: Emma purchased cryptocurrency to diversify her investment portfolio, adding digital assets like Bitcoin alongside her traditional investments in stocks and bonds.
What is Currency appreciation?
Currency appreciation is an increase in the value of one currency relative to another. This makes imports cheaper for the appreciating currency's country, but it can make that country's exports more expensive for foreign buyers.
Example: The currency appreciation of the pound against the dollar made it more affordable for UK residents to purchase goods from the USA, while making UK exports more costly for American buyers.
Example: The currency appreciation of the pound against the dollar made it more affordable for UK residents to purchase goods from the USA, while making UK exports more costly for American buyers.
What is Currency conversion?
Currency conversion is the process of exchanging one currency for another to facilitate financial transactions, trading, or investments. It allows individuals and businesses to operate across different countries with varying currencies.
Example: Sarah used a currency conversion service to exchange her euros for dollars before her trip to the US, ensuring she had the appropriate currency for her travel expenses.
Example: Sarah used a currency conversion service to exchange her euros for dollars before her trip to the US, ensuring she had the appropriate currency for her travel expenses.
What is Currency depreciation?
Currency depreciation is a decrease in the value of one currency relative to another, which makes imports more expensive but makes a country's exports cheaper and more competitive in foreign markets.
Example: The currency depreciation of the yen against the dollar increased the cost of imported goods in Japan, while making Japanese exports more affordable for buyers in the United States.
Example: The currency depreciation of the yen against the dollar increased the cost of imported goods in Japan, while making Japanese exports more affordable for buyers in the United States.
What is Current ratio?
The current ratio is a financial ratio that measures a company's ability to pay its short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities, providing insight into the company’s liquidity and short-term financial health.
Example: A current ratio above 1 suggests that the company has sufficient assets to cover its short-term debts, indicating good liquidity and financial stability.
Example: A current ratio above 1 suggests that the company has sufficient assets to cover its short-term debts, indicating good liquidity and financial stability.
D
What is Daily dividend factor?
The daily dividend factor refers to the portion of a dividend that is allocated to an investor on a daily basis, often in the context of exchange-traded funds (ETFs) or other financial instruments that accrue dividends on a daily basis but pay them out periodically.
Example: The daily dividend factor for a specific date would be the calculated dividend amount an investor is entitled to for that day, based on the number of shares they hold and the dividend yield of the underlying asset.
Example: The daily dividend factor for a specific date would be the calculated dividend amount an investor is entitled to for that day, based on the number of shares they hold and the dividend yield of the underlying asset.
What is Day trading?
Day trading is the practice of buying and selling securities within the same trading day to capitalize on short-term market movements. Traders aim to make quick profits by taking advantage of price fluctuations throughout the day.
Example: Day trading demands swift decision-making, as traders rapidly buy and sell stocks to profit from small, short-term price changes within the same trading session.
Example: Day trading demands swift decision-making, as traders rapidly buy and sell stocks to profit from small, short-term price changes within the same trading session.
What is a Dead cat bounce?
A dead cat bounce is a temporary recovery in the price of a stock or asset after a significant decline, followed by a continuation of the downward trend. It gives the false impression of a market reversal but is typically short-lived.
Example: After a steep drop in the stock price, there was a brief rise, but analysts cautioned that it was merely a dead cat bounce, and the downward trend would likely resume.
Example: After a steep drop in the stock price, there was a brief rise, but analysts cautioned that it was merely a dead cat bounce, and the downward trend would likely resume.
What is Debt-to-equity ratio?
The debt-to-equity ratio is a financial ratio that indicates the relative proportion of a company’s debt to its shareholders' equity. It measures the extent to which a company is financing its operations through debt versus wholly owned funds.
Example: A debt-to-equity ratio of 2 means the company is using £2 of debt for every £1 of equity, indicating a significant reliance on borrowed funds for its operations.
Example: A debt-to-equity ratio of 2 means the company is using £2 of debt for every £1 of equity, indicating a significant reliance on borrowed funds for its operations.
What is Decentralized finance (DeFi)?
Decentralized finance (DeFi) is a financial system that uses blockchain technology to eliminate intermediaries, allowing users to interact directly for financial transactions such as lending, borrowing, and trading.
Example: Decentralized finance (DeFi) platforms enable users to lend, borrow, and trade assets without the involvement of traditional banks, offering greater control and transparency.
Example: Decentralized finance (DeFi) platforms enable users to lend, borrow, and trade assets without the involvement of traditional banks, offering greater control and transparency.
What is Default?
Default refers to the failure to fulfill a financial obligation, such as not making required payments on a loan or bond. Default can result in penalties, legal actions, or a decline in the credit rating of the borrower.
Example: The company defaulted on its loan payment, which caused a significant drop in its credit rating and raised concerns among its creditors.
Example: The company defaulted on its loan payment, which caused a significant drop in its credit rating and raised concerns among its creditors.
What is Delta?
Delta is a measure of how much the price of a derivative, such as an option, changes in response to a change in the price of the underlying asset. It represents the sensitivity of the option's price to movements in the underlying asset's price.
Example: A delta of 0.5 for a call option indicates that if the stock price increases by £1, the option's price will rise by 50 pence, reflecting a 50% sensitivity to the stock's price movement.
Example: A delta of 0.5 for a call option indicates that if the stock price increases by £1, the option's price will rise by 50 pence, reflecting a 50% sensitivity to the stock's price movement.
What are Derivatives?
Derivatives are financial contracts whose value is derived from the performance of underlying assets, such as stocks, bonds, commodities, or currencies. These instruments are often used for hedging risks or speculating on future price movements.
Example: Futures and options are common derivatives that traders use to protect against potential losses or to speculate on the price movements of underlying assets like stocks or commodities.
Example: Futures and options are common derivatives that traders use to protect against potential losses or to speculate on the price movements of underlying assets like stocks or commodities.
What is a Discount rate?
The discount rate is the interest rate used to determine the present value of future cash flows. It is commonly applied in discounted cash flow (DCF) analysis to evaluate the value of investments or projects by accounting for the time value of money.
Example: The company applied a discount rate of 10% to calculate the present value of its projected future earnings, helping to assess the investment's profitability.
Example: The company applied a discount rate of 10% to calculate the present value of its projected future earnings, helping to assess the investment's profitability.
What is a Distribution schedule?
A distribution schedule is a timetable that outlines when dividends or capital gains will be paid to investors in a fund. This schedule ensures that investors know when to expect payouts, typically in the form of periodic income or gains.
Example: The mutual fund's distribution schedule specifies that dividends will be paid out quarterly, providing investors with regular income throughout the year.
Example: The mutual fund's distribution schedule specifies that dividends will be paid out quarterly, providing investors with regular income throughout the year.
What is Diversification?
Diversification is an investment strategy that involves spreading investments across different asset classes, such as stocks, bonds, and real estate, to reduce risk and potentially improve returns. By holding a variety of assets, investors can mitigate the impact of poor performance in any single investment.
Example: By diversifying her portfolio with a mix of stocks, bonds, and real estate, Sarah reduces her overall investment risk while aiming to achieve more stable returns.
Example: By diversifying her portfolio with a mix of stocks, bonds, and real estate, Sarah reduces her overall investment risk while aiming to achieve more stable returns.
What is a Dividend paid?
The dividend is the amount paid to shareholders, typically in the form of cash or additional shares, as a return on their investment in a company. Dividends are usually distributed from the company’s profits.
Example: The company declared a dividend of £1 per share, rewarding its shareholders with a cash payment for their investment in the company.
Example: The company declared a dividend of £1 per share, rewarding its shareholders with a cash payment for their investment in the company.
What is a Dividend reinvest NAV?
Dividend reinvest NAV refers to the process of automatically reinvesting dividends received from a stock or mutual fund back into additional shares, using the Net Asset Value (NAV) at the time of reinvestment. This strategy helps compound growth as dividends are used to purchase more shares instead of being taken as cash.
Example: By choosing dividend reinvestment, John increases his holdings in the mutual fund each time dividends are paid, purchasing more shares at the current NAV, allowing his investment to grow faster over time.
Example: By choosing dividend reinvestment, John increases his holdings in the mutual fund each time dividends are paid, purchasing more shares at the current NAV, allowing his investment to grow faster over time.
What is a Dividend yield?
The dividend yield is a financial ratio that shows the annual dividend income per share as a percentage of the share price. It helps investors assess the return they can expect from dividends relative to the current stock price.
Example: A company with a share price of £100 and an annual dividend of £5 has a dividend yield of 5%, indicating the investor earns 5% of the share price as dividend income annually.
Example: A company with a share price of £100 and an annual dividend of £5 has a dividend yield of 5%, indicating the investor earns 5% of the share price as dividend income annually.
What is a Dividend?
A dividend is a payment made to shareholders from a company's profits, typically distributed in the form of cash or additional shares. It represents a share of the company's earnings that is returned to investors as a reward for their ownership.
Example: The company declared a dividend to be paid to its shareholders, distributing a portion of its annual profits as a cash reward.
Example: The company declared a dividend to be paid to its shareholders, distributing a portion of its annual profits as a cash reward.
What is Dollar cost averaging (DCA)?
Dollar cost averaging is the practice of regularly investing a fixed dollar amount in a particular asset, regardless of its price. This strategy helps lower the average cost per share over time, as it allows the investor to buy more shares when prices are low and fewer when prices are high.
Example: Jane follows a dollar cost averaging strategy by investing £200 in the stock market every month, automatically purchasing more shares when prices are low and fewer shares when prices are high, helping to reduce her average cost over time.
Learn more about DCA
Example: Jane follows a dollar cost averaging strategy by investing £200 in the stock market every month, automatically purchasing more shares when prices are low and fewer shares when prices are high, helping to reduce her average cost over time.
Learn more about DCA
What is Dollar peg?
A currency peg is a situation where a country’s currency value is fixed to the U.S. dollar (or another major currency), meaning its exchange rate is maintained at a set level. This system is often used to stabilize a country’s economy and reduce currency volatility.
Example: The Hong Kong dollar is pegged to the U.S. dollar, helping to maintain a stable exchange rate and providing economic stability in the region.
Example: The Hong Kong dollar is pegged to the U.S. dollar, helping to maintain a stable exchange rate and providing economic stability in the region.
What is Dow Jones Industrial Average (DJIA)?
The Dow Jones Industrial Average (DJIA) is a stock market index that tracks 30 large, publicly owned U.S. companies. It is often used as a benchmark to gauge the overall performance of the U.S. stock market and broader economy.
Example: The Dow Jones Industrial Average (DJIA) rose by 200 points, reflecting positive market sentiment and gains in major U.S. companies for the day.
Example: The Dow Jones Industrial Average (DJIA) rose by 200 points, reflecting positive market sentiment and gains in major U.S. companies for the day.
What is Drawdown?
A drawdown is the peak-to-trough decline in the value of an investment portfolio, often used as a measure of risk. It shows how much a portfolio has dropped from its highest point before recovering.
Example: During the market crash, Mark's portfolio experienced a drawdown of 25%, meaning it lost a quarter of its value from its highest point before starting to recover.
Example: During the market crash, Mark's portfolio experienced a drawdown of 25%, meaning it lost a quarter of its value from its highest point before starting to recover.
What is Duration?
Duration is a measure of a bond's sensitivity to changes in interest rates, expressed in years. It estimates how much a bond’s price will fluctuate in response to a change in interest rates, with longer durations indicating higher sensitivity.
Example: A bond with a duration of 5 years means that its price will change by approximately 5% for every 1% change in interest rates, reflecting its sensitivity to rate fluctuations.
Example: A bond with a duration of 5 years means that its price will change by approximately 5% for every 1% change in interest rates, reflecting its sensitivity to rate fluctuations.
E
What is Earned income?
Earned income refers to the income earned from employment or self-employment, including wages, salaries, bonuses, and tips. It represents compensation for services provided or work performed.
Example: Emma's earned income from her job includes her regular monthly salary, as well as the bonuses she receives for her performance.
Example: Emma's earned income from her job includes her regular monthly salary, as well as the bonuses she receives for her performance.
What are Earnings per share?
Earnings per share (EPS) is a financial ratio that divides a company's net income by the number of outstanding shares. It is used to assess a company's profitability, indicating how much profit is generated per share of stock.
Example: The company's earnings per share (EPS) rose to £2, signaling improved profitability and providing shareholders with a clearer view of the company's financial performance.
Example: The company's earnings per share (EPS) rose to £2, signaling improved profitability and providing shareholders with a clearer view of the company's financial performance.
What is Earnings season?
Earnings season is the period when publicly traded companies report their quarterly earnings, often having a significant impact on stock prices as investors react to the financial results.
Example: Earnings season typically leads to increased volatility in the stock market as companies announce their financial performance, with stock prices rising or falling based on whether the results meet or miss expectations.
Example: Earnings season typically leads to increased volatility in the stock market as companies announce their financial performance, with stock prices rising or falling based on whether the results meet or miss expectations.
What is the Efficient market hypothesis (EMH)?
The efficient market hypothesis (EMH) is a theory suggesting that stock prices fully reflect all available information, making it challenging to consistently outperform the market.
Example: The EMH implies that it is difficult for investors to beat the market solely through stock picking.
Example: The EMH implies that it is difficult for investors to beat the market solely through stock picking.
What is an Employee stock option exercise and equity award agreement?
An employee stock option exercise and equity award agreement is a legal document that outlines the terms for exercising employee stock options and any associated equity awards.
Example: The agreement specified the vesting schedule and conditions for John’s stock options.
Example: The agreement specified the vesting schedule and conditions for John’s stock options.
What is Employee stock purchase plan (ESPP)?
An employee stock purchase plan (ESPP) is a company benefit scheme that allows employees to buy company shares at a discount, typically via payroll deductions.
Example: Sarah joined the ESPP to purchase company shares at a 10% discount.
Example: Sarah joined the ESPP to purchase company shares at a 10% discount.
What is an Employer-sponsored retirement account?
An employer-sponsored retirement account is a workplace pension or savings plan provided by an employer, often including tax benefits and employer contributions.
Example: David’s employer-sponsored retirement account offers a matching contribution to his monthly savings.
Example: David’s employer-sponsored retirement account offers a matching contribution to his monthly savings.
What are Equities?
Equities are shares that represent ownership in a company, providing shareholders with voting rights and the potential to receive dividends.
Example: By investing in equities, Jane became a partial owner of the companies in which she held shares.
Example: By investing in equities, Jane became a partial owner of the companies in which she held shares.
What is Equity compensation?
Equity compensation is payment provided in the form of company shares or stock options, often used to motivate and reward employees.
Example: The company included equity compensation in its incentive package to attract top talent.
Example: The company included equity compensation in its incentive package to attract top talent.
What is Equity risk premium?
The equity risk premium is the additional return expected from investing in shares compared to risk-free assets, often considered to be government bonds. It compensates investors for the higher risk associated with equity investments.
Example: Investors seek a higher equity risk premium when the market outlook is uncertain.
Learn more about market risk premium
Example: Investors seek a higher equity risk premium when the market outlook is uncertain.
Learn more about market risk premium
What is Equity security?
An equity security is a financial instrument representing ownership in a company, such as shares or stocks. It provides investors with voting rights and a claim on the company’s assets and earnings.
Example: Equity securities like company shares provide investors with an ownership stake in the issuing company and the potential to receive dividends.
Example: Equity securities like company shares provide investors with an ownership stake in the issuing company and the potential to receive dividends.
What is Ex-dividend date?
The ex-dividend date is the date on which a stock begins trading without the right to receive the most recently declared dividend. Investors who buy the stock on or after this date are not entitled to the upcoming dividend.
Example: Investors who purchase the stock on or after the ex-dividend date will not receive the next dividend payment.
Example: Investors who purchase the stock on or after the ex-dividend date will not receive the next dividend payment.
What is an Exchange?
An exchange is a marketplace where financial instruments, including stocks, bonds, and commodities, are bought and sold. Examples include the London Stock Exchange (LSE) and Nasdaq.
Example: The company listed its shares on the exchange to attract public investment.
Example: The company listed its shares on the exchange to attract public investment.
What is an Exchange-traded fund (ETF)?
An exchange-traded fund (ETF) is an investment fund that holds a portfolio of assets, such as stocks or bonds, and trades on an exchange like a stock. ETFs provide diversification and liquidity similar to individual stocks.
Example: Emma invested in an exchange-traded fund (ETF) to gain exposure to a diversified portfolio of global stocks.
Learn more about ETFs
Example: Emma invested in an exchange-traded fund (ETF) to gain exposure to a diversified portfolio of global stocks.
Learn more about ETFs
What is Execution?
Execution is the process of carrying out a trade where securities are bought or sold, finalizing the transaction. It ensures that the trade is completed at the agreed price or market rate.
Example: The execution of the trade was completed at the market price, ensuring the shares were promptly acquired.
Example: The execution of the trade was completed at the market price, ensuring the shares were promptly acquired.
What is Exercise?
Exercise is the act of using stock options to purchase company shares at a pre-agreed price, known as the exercise price.
Example: Mark decided to exercise his stock options when the market price exceeded the exercise price.
Example: Mark decided to exercise his stock options when the market price exceeded the exercise price.
What is Exercise and hold?
Exercise and hold is a strategy where employees exercise stock options and hold the shares for a period rather than selling them immediately. This approach is often used when expecting future appreciation in the share price.
Example: Lucy chose to exercise and hold her stock options, anticipating that the company’s share price would rise further in the long term.
Example: Lucy chose to exercise and hold her stock options, anticipating that the company’s share price would rise further in the long term.
What is Exercise and sell?
Exercise and sell is a strategy where employees exercise stock options and immediately sell the shares to realise a profit. This approach is used to quickly capitalise on the current market price.
Example: David opted to exercise and sell his stock options to capitalise on the current market price.
Example: David opted to exercise and sell his stock options to capitalise on the current market price.
What is Exercise date?
The exercise date is the date on which an investor can exercise their stock options to buy company shares. It marks the point when the options become eligible for use.
Example: Mark’s stock options reached their exercise date, allowing him to purchase shares at the pre-set price.
Example: Mark’s stock options reached their exercise date, allowing him to purchase shares at the pre-set price.
What is Exercise price?
The exercise price is the price set by a company for employees to purchase stock through stock options. This price is pre-determined and typically lower than the current market value when the option is exercised.
Example: The exercise price of £10 per share enabled employees to buy company shares below the current market value.
Example: The exercise price of £10 per share enabled employees to buy company shares below the current market value.
What is Expiry date?
The expiry date is the date when a contract or option expires, after which it can no longer be exercised. It marks the last day the option holder can take action on the contract.
Example: Sarah closely monitored the expiry date of her options to ensure she could exercise them in time.
Example: Sarah closely monitored the expiry date of her options to ensure she could exercise them in time.
What is Extrinsic value?
The extrinsic value is the portion of an option's price that exceeds its intrinsic value, reflecting factors such as time and market volatility. It represents the potential for future profit beyond the option's immediate value.
Example: The option had an extrinsic value due to the volatility in the underlying asset's market price, increasing its overall premium.
Example: The option had an extrinsic value due to the volatility in the underlying asset's market price, increasing its overall premium.
F
What is Fair market value (FMV)?
The fair market value (FMV) is the estimated price an asset would fetch in the open market between a willing buyer and seller, both having reasonable knowledge of the relevant facts.
Example: The property's fair market value (FMV) was determined based on recent comparable sales in the area.
Example: The property's fair market value (FMV) was determined based on recent comparable sales in the area.
What is the Financial Conduct Authority (FCA)?
The Financial Conduct Authority (FCA) is a regulatory body in the UK responsible for overseeing financial markets and firms to ensure they operate fairly and transparently while protecting consumers' interests.
Example: The FCA ensures that financial institutions operate fairly and transparently, protecting consumers' interests.
Example: The FCA ensures that financial institutions operate fairly and transparently, protecting consumers' interests.
What is the Federal Open Market Committee (FOMC)?
The Federal Open Market Committee (FOMC) is a committee within the Federal Reserve System that oversees open market operations, influencing monetary policy decisions, including interest rates and money supply.
Example: The Federal Open Market Committee (FOMC) meets regularly to discuss interest rates and the economy's outlook.
Example: The Federal Open Market Committee (FOMC) meets regularly to discuss interest rates and the economy's outlook.
What is the Federal Reserve System (Fed)?
The Federal Reserve System (Fed) is the central banking system of the United States, responsible for implementing monetary policy, regulating banks, and ensuring financial stability.
Example: The Federal Reserve System (Fed) sets interest rates to help manage inflation and employment levels.
Example: The Federal Reserve System (Fed) sets interest rates to help manage inflation and employment levels.
What is Financial Independence, Retire Early (FIRE)?
The Financial Independence, Retire Early (FIRE) movement promotes saving aggressively and investing early to achieve financial independence and retire much earlier than the traditional retirement age.
Example: The FIRE movement encourages individuals to live frugally and invest heavily to retire decades earlier than the traditional retirement age.
Learn more about the FIRE movement
Example: The FIRE movement encourages individuals to live frugally and invest heavily to retire decades earlier than the traditional retirement age.
Learn more about the FIRE movement
What is a Flexible ISA?
A Flexible ISA is a tax-advantaged savings account in the UK that allows flexibility in how savings and investments are allocated, enabling users to withdraw and redeposit funds within the same tax year without affecting their annual allowance.
Example: Jane uses her Flexible ISA to withdraw and redeposit funds within the same tax year without affecting her annual allowance.
Example: Jane uses her Flexible ISA to withdraw and redeposit funds within the same tax year without affecting her annual allowance.
What is Forex?
Forex, also known as the foreign exchange market, is the global marketplace for trading currencies, where traders exchange one currency for another. It is the largest and most liquid financial market in the world.
Example: Forex trading enables investors to speculate on currency movements, such as the exchange rate between the pound and the dollar.
Example: Forex trading enables investors to speculate on currency movements, such as the exchange rate between the pound and the dollar.
What is a Forward contract?
A forward contract is a financial agreement between two parties to buy or sell an asset at a future date for a predetermined price. These contracts are often used to hedge against future price fluctuations.
Example: The farmers entered into a forward contract to lock in the price of wheat for the upcoming season, protecting themselves from potential price changes.
Example: The farmers entered into a forward contract to lock in the price of wheat for the upcoming season, protecting themselves from potential price changes.
What is a Forward P/E ratio?
The forward P/E ratio is a price-to-earnings ratio that uses projected future earnings to provide a more forward-looking valuation metric. It helps investors assess a company's future profitability based on expected earnings.
Example: The forward P/E ratio helped investors assess the company's expected growth based on its forecasted earnings.
Learn more about P/E ratio
Example: The forward P/E ratio helped investors assess the company's expected growth based on its forecasted earnings.
Learn more about P/E ratio
What is a Fractional share?
A fractional share is a portion of a stock that is less than one full share, enabling investors to buy smaller fractions of high-priced stocks. This allows for more accessible investments with lower amounts of capital.
Example: With fractional shares, Alex was able to invest £50 in a company whose full share price was £1,000.
Example: With fractional shares, Alex was able to invest £50 in a company whose full share price was £1,000.
What is Free cash flow (FCF)?
Free cash flow (FCF) is the cash a company generates after accounting for operating expenses and capital expenditures. It is a key indicator of a company’s financial health and its ability to pay dividends, reduce debt, or reinvest in its operations.
Example: High free cash flow (FCF) allowed the company to pay dividends and reinvest in its business operations.
Learn more about cash flow
Example: High free cash flow (FCF) allowed the company to pay dividends and reinvest in its business operations.
Learn more about cash flow
What are Futures?
Futures are contracts that obligate the buyer to purchase, or the seller to sell, an asset at a predetermined future date and price. These contracts are commonly used in commodities, stocks, and currencies for hedging or speculation.
Example: By entering into a futures contract, the trader agreed to buy gold at a set price three months from now.
Example: By entering into a futures contract, the trader agreed to buy gold at a set price three months from now.
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What is Gamma?
Gamma is a measure of how much the price of an option will change in response to changes in the price of the underlying asset. It reflects the rate of change of an option’s delta and helps traders assess an option’s sensitivity to price movements.
Example: A high gamma value indicates that the option's price will be more sensitive to movements in the stock price.
Example: A high gamma value indicates that the option's price will be more sensitive to movements in the stock price.
What is Gross Domestic Product (GDP)?
Gross Domestic Product (GDP) is the total value of goods and services produced within a country over a specific period, serving as a key indicator of a nation’s economic health and growth.
Example: The country's GDP growth indicated a strong economy, with increased production and consumer spending.
Example: The country's GDP growth indicated a strong economy, with increased production and consumer spending.
What is Gross domestic product (GDP) per capita?
GDP per capita is a measure of the average economic output per person in a specific region, calculated by dividing the Gross Domestic Product (GDP) by the population. It is often used to assess the standard of living and economic prosperity in a country.
Example: The GDP per capita provided insight into the standard of living in the country, indicating economic prosperity.
Example: The GDP per capita provided insight into the standard of living in the country, indicating economic prosperity.
What is a Grant?
A grant is the act of providing an award, such as stock options or shares, to an employee or recipient as part of a compensation or incentive plan.
Example: The company issued a grant of 100 shares to its top-performing employee as part of their incentive scheme.
Example: The company issued a grant of 100 shares to its top-performing employee as part of their incentive scheme.
What is a Grant agreement?
A grant agreement is a legal document that outlines the terms and conditions under which an equity award, such as stock options, is provided to an employee. It specifies details like the vesting schedule, performance targets, and other conditions of the award.
Example: The grant agreement detailed the vesting schedule and performance targets for the employee's stock options.
Example: The grant agreement detailed the vesting schedule and performance targets for the employee's stock options.
What is a Grant date?
The grant date is the specific date when an equity award, such as stock options, is issued to an employee. It marks the official start of the award’s vesting period and eligibility.
Example: On the grant date, the company awarded Sarah 200 stock options as part of her compensation package.
Example: On the grant date, the company awarded Sarah 200 stock options as part of her compensation package.
What is a Grant ID?
A grant ID is a unique identifier assigned to each equity award or stock option grant, used for tracking and record-keeping purposes. It helps companies manage and reference individual grants efficiently.
Example: Each employee's stock option grant was assigned a distinct grant ID for easy reference and management.
Example: Each employee's stock option grant was assigned a distinct grant ID for easy reference and management.
What is a Grant price?
The grant price is the price at which an employee can purchase company stock using stock options, as set by the company. It is also known as the exercise or strike price.
Example: The grant price was set at £20 per share, allowing employees to buy company stock at this predetermined price.
Example: The grant price was set at £20 per share, allowing employees to buy company stock at this predetermined price.
What is a Green Bond?
A green bond is a type of bond specifically issued to fund projects that have positive environmental or climate benefits, such as renewable energy or sustainable infrastructure.
Example: The government issued a green bond to finance renewable energy projects and sustainable infrastructure.
Example: The government issued a green bond to finance renewable energy projects and sustainable infrastructure.
What is a Gross amount?
The gross amount refers to the total amount before any deductions, such as taxes, fees, or other expenses.
Example: The contractor's gross amount for the project was £50,000, with further deductions for taxes and expenses.
Example: The contractor's gross amount for the project was £50,000, with further deductions for taxes and expenses.
What is Growth investing?
Growth investing is an investment strategy that focuses on buying stocks of companies expected to grow at an above-average rate compared to the market, often reinvesting profits to fuel further expansion.
Example: Sarah practiced growth investing by purchasing shares in tech startups with high potential for rapid expansion.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
Example: Sarah practiced growth investing by purchasing shares in tech startups with high potential for rapid expansion.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
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What is a Haircut?
A haircut is a percentage reduction applied to the value of an asset when used as collateral to account for market risk, ensuring the lender has a margin of safety.
Example: The bank applied a 20% haircut to the property value when it was used as security for the loan.
Example: The bank applied a 20% haircut to the property value when it was used as security for the loan.
What is Hedging?
Hedging is an investment strategy used to reduce risk by taking an opposite position in a related asset or market, protecting against potential losses in the original investment.
Example: To hedge his stock portfolio, John invested in options that would profit if the stock market declined.
Example: To hedge his stock portfolio, John invested in options that would profit if the stock market declined.
What is Hedging mode?
Hedging mode allows you to open multiple positions with the same financial instrument, where each position is opened separately and executed at the current market price. This mode enables traders to manage individual positions and reduce their size by placing market orders for specific quantities.
Example: Traders employed hedging mode to protect their investments from sudden market downturns by holding opposite positions on the same asset.
Learn more about hedging mode
Example: Traders employed hedging mode to protect their investments from sudden market downturns by holding opposite positions on the same asset.
Learn more about hedging mode
What is Herd mentality?
Herd mentality refers to the tendency of individuals to follow the actions or decisions of a larger group, often disregarding their own analysis or rationale. This behavior is common in financial markets, where investors may buy or sell assets based on what others are doing, leading to market bubbles or crashes.
Example: During a stock market rally, herd mentality can cause investors to buy overvalued stocks simply because everyone else is doing so, potentially inflating a market bubble. Conversely, in a market downturn, panic selling driven by herd mentality can exacerbate losses.
Herd mentality can lead to irrational decision-making, as people often follow the crowd without considering whether the decision aligns with their own financial goals or risk tolerance.
Example: During a stock market rally, herd mentality can cause investors to buy overvalued stocks simply because everyone else is doing so, potentially inflating a market bubble. Conversely, in a market downturn, panic selling driven by herd mentality can exacerbate losses.
Herd mentality can lead to irrational decision-making, as people often follow the crowd without considering whether the decision aligns with their own financial goals or risk tolerance.
What is a Holding period?
The holding period is the length of time an investment is held before it is sold or disposed of. It is a key factor in determining the tax treatment of investment gains or losses.
Example: The holding period for the shares was two years, after which the investor decided to sell them.
Example: The holding period for the shares was two years, after which the investor decided to sell them.
What is a Holding period return (HPR)?
The holding period return (HPR) is the total return on an investment over a specified period, expressed as a percentage. It includes income and capital gains earned during the holding period.
Example: Mark calculated the holding period return (HPR) of his investment in shares, which yielded a 15% return over three years.
Example: Mark calculated the holding period return (HPR) of his investment in shares, which yielded a 15% return over three years.
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What is an Illiquid asset?
An illiquid asset is an asset that cannot easily be sold or exchanged for cash without a significant loss in value due to the lack of readily available buyers.
Example: The antique artwork was an illiquid asset, as it would take time to find a buyer willing to pay a fair price.
Example: The antique artwork was an illiquid asset, as it would take time to find a buyer willing to pay a fair price.
What are In-the-money stock options?
In-the-money stock options are options where the current market price of the underlying stock is higher than the exercise price for a call option, or lower than the exercise price for a put option. These options have intrinsic value, meaning they can be exercised for an immediate profit.
Example: John's stock options were in-the-money, as the market price of the shares had risen to £30, while his exercise price was only £20, allowing him to exercise the options for a profit.
Example: John's stock options were in-the-money, as the market price of the shares had risen to £30, while his exercise price was only £20, allowing him to exercise the options for a profit.
What are Incentive Stock Options (ISOs)?
Incentive Stock Options (ISOs) are a type of stock option granted to employees that offer favorable tax treatment if certain conditions are met. ISOs allow employees to purchase company stock at a set price, often below market value, and may provide tax benefits if the shares are held for a required period before selling.
Example: The company granted incentive stock options (ISOs) to its employees, providing them with potential tax benefits if the shares were held for at least one year after exercising the options and two years from the grant date.
Example: The company granted incentive stock options (ISOs) to its employees, providing them with potential tax benefits if the shares were held for at least one year after exercising the options and two years from the grant date.
What is an Index?
An index is a statistical measure that tracks the performance of a specific group of stocks, bonds, or other financial securities. It is commonly used as a benchmark to gauge the overall performance of a market or sector.
Example: The S&P 500 index tracks the performance of 500 large companies listed on U.S. stock exchanges, providing investors with an overview of the broader U.S. equity market.
Example: The S&P 500 index tracks the performance of 500 large companies listed on U.S. stock exchanges, providing investors with an overview of the broader U.S. equity market.
What is an Individual Retirement Account (IRA)?
An Individual Retirement Account (IRA) is a retirement savings account in the U.S. that offers tax advantages. Contributions to a traditional IRA may be tax-deductible, and the account allows investments to grow tax-deferred until withdrawal during retirement.
Example: Emma contributed to an individual retirement account (IRA) to grow her savings tax-free until retirement.
Example: Emma contributed to an individual retirement account (IRA) to grow her savings tax-free until retirement.
What is an Individual savings account (ISA)?
An Individual Savings Account (ISA) allows you to save or invest cash tax-free in the UK. Any income or gains made within an ISA are tax-free, offering a significant advantage for long-term savers. However, there is an annual limit on contributions, known as the ISA allowance.
Example: Jane opened an Individual Savings Account (ISA) to save for her future. She contributes up to the annual ISA allowance each year and benefits from the interest and investment returns being completely tax-free.
Learn more about ISAs
Example: Jane opened an Individual Savings Account (ISA) to save for her future. She contributes up to the annual ISA allowance each year and benefits from the interest and investment returns being completely tax-free.
Learn more about ISAs
What is Inflation?
Inflation is the rate at which prices for goods and services rise, leading to a decrease in the purchasing power of money over time. It reduces the value of currency, meaning that a given amount of money buys fewer goods and services as inflation increases.
Example: Due to inflation, the cost of groceries increased, and the value of Mark's savings was eroded.
Example: Due to inflation, the cost of groceries increased, and the value of Mark's savings was eroded.
What is Initial Coin Offering (ICO)?
An Initial Coin Offering (ICO) is a type of fundraising that uses cryptocurrencies, where companies issue new digital tokens to investors in exchange for capital. ICOs are typically used by startups to raise funds for blockchain-related projects.
Example: The startup launched an initial coin offering (ICO) to raise funds for its blockchain-based platform, offering digital tokens to investors.
Example: The startup launched an initial coin offering (ICO) to raise funds for its blockchain-based platform, offering digital tokens to investors.
What is Initial margin?
The initial margin is the initial deposit required to enter into a leveraged position, often expressed as a percentage of the total value of the position. It acts as collateral for the trade and helps to manage the risk associated with leverage.
Example: To open a trading position in the forex market, John needed to deposit the initial margin of 5% of the total trade value.
Example: To open a trading position in the forex market, John needed to deposit the initial margin of 5% of the total trade value.
What is Initial Public Offering (IPO)?
An Initial Public Offering (IPO) is the first time a private company offers its shares to the public, allowing them to be traded on a stock exchange. This process helps the company raise capital and provides investors with the opportunity to own a stake in the company.
Example: The company's initial public offering (IPO) attracted many investors, leading to a surge in its stock price on the first day of trading.
Example: The company's initial public offering (IPO) attracted many investors, leading to a surge in its stock price on the first day of trading.
What are Interest rates?
The interest rate is the cost of borrowing money, usually expressed as a percentage, charged by lenders to borrowers. It represents the amount paid by the borrower for the use of the lender's funds over time.
Example: Due to rising interest rates, mortgage payments increased, affecting homeowners with variable-rate loans.
Example: Due to rising interest rates, mortgage payments increased, affecting homeowners with variable-rate loans.
What is Intrinsic value?
The intrinsic value is the real, inherent worth of an asset or investment, as determined through fundamental analysis. It reflects the true value based on factors like earnings, dividends, and growth potential, rather than market price fluctuations.
Example: The intrinsic value of the stock was higher than its market price, making it an attractive investment opportunity.
Example: The intrinsic value of the stock was higher than its market price, making it an attractive investment opportunity.
What is Investing?
Investing is the process of allocating money into various financial assets with the aim of achieving a return on investment. It involves choosing assets like stocks, bonds, or real estate to grow wealth or meet financial goals.
Example: Investing in a mix of stocks, bonds, and real estate helped Mark diversify his portfolio and reduce risk.
Example: Investing in a mix of stocks, bonds, and real estate helped Mark diversify his portfolio and reduce risk.
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What is a Junk bond?
A junk bond is a bond with a lower credit rating, typically below investment grade, offering higher returns to compensate for the increased risk. These bonds carry a greater likelihood of default compared to higher-rated bonds.
Example: Junk bonds are attractive to investors seeking higher yields, but they come with a greater risk of default.
Example: Junk bonds are attractive to investors seeking higher yields, but they come with a greater risk of default.
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What is Key Investor Information Document (KIID)?
A Key Investor Information Document (KIID) is a document that provides essential information about an investment product to help investors make informed decisions. It includes details such as the fund's objectives, risks, fees, and past performance.
Example: The Key Investor Information Document (KIID) outlines a fund's objectives, risks, charges, and past performance to aid in investment choices.
Example: The Key Investor Information Document (KIID) outlines a fund's objectives, risks, charges, and past performance to aid in investment choices.
What is Kurtosis?
Kurtosis is a statistical measure that indicates how heavy the tails of a probability distribution are compared to a normal distribution. It helps assess the likelihood of extreme outcomes in a dataset.
Example: The stock returns exhibited high kurtosis, suggesting the presence of more extreme values than a normal distribution would predict.
Example: The stock returns exhibited high kurtosis, suggesting the presence of more extreme values than a normal distribution would predict.
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What is a Large cap?
A large-cap company is a business with a large market capitalization, typically over $10 billion, often considered stable and reliable with a strong financial track record.
Example: Apple is a large-cap company, boasting a market capitalization well above $10 billion and known for its strong financial performance.
Example: Apple is a large-cap company, boasting a market capitalization well above $10 billion and known for its strong financial performance.
What is a Letter of intent?
A letter of intent (LOI) is a document outlining an individual's or entity's intent to commit to a specific action, often used in financial or business contexts. While not legally binding, it demonstrates serious interest in proceeding with negotiations or a transaction.
Example: The investor signed a letter of intent expressing interest in acquiring a minority stake in the startup.
Example: The investor signed a letter of intent expressing interest in acquiring a minority stake in the startup.
What is Leverage?
Leverage allows you to control a larger position in a financial instrument than your available funds would otherwise permit. It can be viewed as the ratio of how much your initial deposit or available funds are multiplied to gain greater exposure to the market. Leverage increases both potential profits and potential losses.
Example: With leverage, an investor can use £1,000 to control £10,000 worth of assets, multiplying the impact of market movements on their investment.
Learn more about leverage
Example: With leverage, an investor can use £1,000 to control £10,000 worth of assets, multiplying the impact of market movements on their investment.
Learn more about leverage
What is a Leveraged ETF?
A leveraged ETF is an exchange-traded fund that uses leverage to amplify the returns of an underlying index, typically by borrowing or using financial derivatives. These funds aim to deliver multiples (e.g., 2x or 3x) of the daily performance of the index.
Example: Leveraged ETFs can offer double or triple the daily return of a stock index, but they also carry higher risk due to the use of leverage.
Example: Leveraged ETFs can offer double or triple the daily return of a stock index, but they also carry higher risk due to the use of leverage.
What is a Limit order?
A limit order is an order type that specifies the price at which a trade will be executed. It allows you to buy or sell a stock at a predetermined price in the future. The order will only be completed if the stock reaches the set price or better, ensuring that you don’t pay more or receive less than your target price.
Example: If you set a limit order to buy a stock at £50, the trade will only execute when the stock price falls to £50 or lower.
Learn more about limit orders
Example: If you set a limit order to buy a stock at £50, the trade will only execute when the stock price falls to £50 or lower.
Learn more about limit orders
What is Liquidity?
Liquidity is the ability to quickly convert an asset into cash without significantly affecting its price. Highly liquid assets can be bought or sold easily with minimal impact on their market value.
Example: Stocks of large-cap companies are usually highly liquid, as they can be sold easily in the market at their current price.
Example: Stocks of large-cap companies are usually highly liquid, as they can be sold easily in the market at their current price.
What is a Liquidity premium?
The liquidity premium is the additional return investors require to hold a less liquid asset compared to a more liquid one. It compensates for the risk of being unable to quickly sell the asset without affecting its price.
Example: The liquidity premium on the corporate bond was higher than on the government bond, reflecting its lower market liquidity.
Example: The liquidity premium on the corporate bond was higher than on the government bond, reflecting its lower market liquidity.
What is a Long position?
A long position is when an investor holds a specific financial instrument with the expectation that its value will rise over time. This strategy is typically used when the investor anticipates future price appreciation.
Example: John took a long position by buying shares in a technology company, expecting that their value would increase over the next few years.
Learn more about long positions
Example: John took a long position by buying shares in a technology company, expecting that their value would increase over the next few years.
Learn more about long positions
What is a Lookback?
A lookback is a type of option or trading strategy that allows the holder to "look back" over time to determine the optimal price to exercise the option. It is used to calculate the maximum benefit based on the highest or lowest price over a specific period.
Example: With a lookback option, the investor can exercise the option at the most favorable price during the option’s term, rather than a fixed strike price.
Example: With a lookback option, the investor can exercise the option at the most favorable price during the option’s term, rather than a fixed strike price.
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What is a MACD (Moving Average Convergence Divergence)?
MACD is a technical analysis indicator that shows the relationship between two moving averages of a stock’s price. It is commonly used to identify trends and momentum in stock prices.
Example: Traders use MACD to spot potential buy or sell signals when the MACD line crosses above or below the signal line.
Example: Traders use MACD to spot potential buy or sell signals when the MACD line crosses above or below the signal line.
What is a Margin?
Margin is the amount of capital that an investor must deposit with a broker to open and maintain a leveraged position in the market. It acts as collateral for the borrowed funds used to increase investment exposure.
Example: Mark needed to put up £1,000 as margin to control a £10,000 position in the forex market.
Learn more about margin
Example: Mark needed to put up £1,000 as margin to control a £10,000 position in the forex market.
Learn more about margin
What is a Margin call?
A margin call occurs when the value of an investor's account falls below the broker’s required margin level, forcing the investor to deposit more funds or sell assets to cover the shortfall.
Example: John received a margin call from his broker when his account balance fell below the required minimum due to declining stock prices.
Learn more about margin calls
Example: John received a margin call from his broker when his account balance fell below the required minimum due to declining stock prices.
Learn more about margin calls
What is a Market capitalization (Market Cap)?
Market capitalization (or Market Cap) is the total value of a company’s outstanding shares of stock, calculated by multiplying the share price by the total number of outstanding shares. It is used to classify companies as large-cap, mid-cap, or small-cap.
Example: Apple’s market capitalization surpassed $2 trillion, making it one of the largest companies in the world.
Learn more about Market Cap
Example: Apple’s market capitalization surpassed $2 trillion, making it one of the largest companies in the world.
Learn more about Market Cap
What is a Market order?
A market order is the simplest type of trade that instructs your broker to complete the transaction as quickly as possible at the best available price. This order type prioritizes speed over price, ensuring immediate execution. There are two types of market orders: Buy and Sell.
Example: Jane placed a market order to buy 100 shares of a company, and her broker executed the trade at the current market price within seconds.
Example: Jane placed a market order to buy 100 shares of a company, and her broker executed the trade at the current market price within seconds.
What is a Market price?
The market price is the current price at which a security is trading in the market. It reflects the most recent transaction price, which fluctuates based on supply and demand.
Example: The market price of the stock changed throughout the day due to fluctuations in supply and demand.
Example: The market price of the stock changed throughout the day due to fluctuations in supply and demand.
What is Market value?
The market value is the value of an asset in the marketplace, determined by the price at which it can be bought or sold. It represents the current worth of the asset based on market conditions.
Example: The market value of the real estate increased significantly over the past year, allowing the owner to sell it at a profit.
Example: The market value of the real estate increased significantly over the past year, allowing the owner to sell it at a profit.
What is a Merger?
A merger is the combining of two companies into one entity, often undertaken to gain market share, resources, or competitive advantages. Mergers can help companies grow faster by pooling assets and expertise.
Example: The merger between the two technology firms created a larger, more competitive company in the market.
Example: The merger between the two technology firms created a larger, more competitive company in the market.
What is a Mid-cap company?
A mid-cap company is a business with a medium market capitalization, generally between $2 billion and $10 billion. These companies are often in a growth phase and offer a balance of risk and return compared to small-cap and large-cap companies.
Example: The mid-cap company showed steady growth, making it an attractive investment for those seeking moderate risk and potential returns.
Example: The mid-cap company showed steady growth, making it an attractive investment for those seeking moderate risk and potential returns.
What is Modified Adjusted Gross Income (MAGI)?
Modified Adjusted Gross Income (MAGI) is an adjusted measure of gross income that considers specific deductions and exclusions. It is used to determine eligibility for various tax benefits, credits, or deductions.
Example: To qualify for certain tax benefits, John calculated his modified adjusted gross income (MAGI) for the year.
Example: To qualify for certain tax benefits, John calculated his modified adjusted gross income (MAGI) for the year.
What is a Monte Carlo simulation?
A Monte Carlo simulation is a computational algorithm used to model the probability of different outcomes in financial forecasts or risk analysis by using random sampling. It helps in assessing risk and predicting the range of potential outcomes for complex systems.
Example: Analysts used Monte Carlo simulations to estimate the future performance of the investment portfolio under various market conditions.
Example: Analysts used Monte Carlo simulations to estimate the future performance of the investment portfolio under various market conditions.
What is a Mutual fund?
A mutual fund is an investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. It offers individual investors the ability to diversify their investments and gain professional management.
Example: Investing in mutual funds allows individuals to diversify their investments without having to buy individual stocks or bonds.
Example: Investing in mutual funds allows individuals to diversify their investments without having to buy individual stocks or bonds.
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What is a Naked option?
A naked option is an options strategy where the seller does not hold the underlying asset, exposing them to higher risk. If the market moves against the seller, they may face substantial losses since they are not protected by owning the asset.
Example: Selling a naked option can result in significant losses if the market moves unfavorably, as the seller is not protected by holding the asset.
Example: Selling a naked option can result in significant losses if the market moves unfavorably, as the seller is not protected by holding the asset.
What is Nasdaq?
The Nasdaq is a major U.S. stock exchange known for its high concentration of high-tech stocks, operating as a global electronic marketplace. It is a popular platform for technology and growth companies.
Example: Many technology companies, including Apple and Amazon, are listed on the Nasdaq.
Example: Many technology companies, including Apple and Amazon, are listed on the Nasdaq.
What is Nasdaq-100?
The Nasdaq-100 Index is a stock market index that tracks 100 of the largest non-financial companies listed on the Nasdaq stock exchange. It is heavily weighted toward technology and innovation-driven companies.
Example: The Nasdaq-100 index includes major companies such as Tesla, Microsoft, and Alphabet.
Example: The Nasdaq-100 index includes major companies such as Tesla, Microsoft, and Alphabet.
What is a Negative carry?
Negative carry occurs when the cost of holding a position, such as borrowing costs, exceeds the income generated by that position. This can result in a net loss for the investor.
Example: The investor faced a negative carry on their investment, as the interest on the borrowed funds exceeded the returns.
Example: The investor faced a negative carry on their investment, as the interest on the borrowed funds exceeded the returns.
What is Net Asset Value (NAV)?
The Net Asset Value (NAV) is the per-share value of a mutual fund or exchange-traded fund (ETF), calculated by dividing the fund's total assets by the number of outstanding shares. It represents the price at which investors can buy or sell shares of the fund.
Example: The mutual fund's net asset value (NAV) was updated daily based on the value of the underlying securities.
Example: The mutual fund's net asset value (NAV) was updated daily based on the value of the underlying securities.
What is Net income?
Net income is a company's total profit after all expenses, taxes, and costs have been subtracted from its revenue. It represents the company's bottom line and overall profitability.
Example: The company's net income increased this quarter, reflecting its strong financial performance.
Learn more about net income
Example: The company's net income increased this quarter, reflecting its strong financial performance.
Learn more about net income
What is Net short?
A net short position is when an investor has sold more securities than they own, intending to profit from a decline in the price of those securities. This strategy benefits from falling market prices.
Example: The trader took a net short position in the market, expecting a downturn in stock prices.
Example: The trader took a net short position in the market, expecting a downturn in stock prices.
What is а Neutral strategy?
A neutral strategy is an investment approach that seeks to minimize exposure to market direction by balancing long and short positions. The goal is to reduce risk from market fluctuations while focusing on stock selection.
Example: The fund manager adopted a neutral strategy, balancing long positions in tech stocks with short positions in other sectors to mitigate market risks.
Example: The fund manager adopted a neutral strategy, balancing long positions in tech stocks with short positions in other sectors to mitigate market risks.
What is а New issue?
A new issue is the first offering of a new security to the public, typically associated with initial public offerings (IPOs). It represents the company's first sale of stock or other securities to raise capital from investors.
Example: The new issue of shares was met with high investor interest, leading to a successful IPO for the company.
Example: The new issue of shares was met with high investor interest, leading to a successful IPO for the company.
What is Nikkei 225?
The Nikkei 225 Index is a stock market index that tracks 225 large, publicly traded companies listed on the Tokyo Stock Exchange. It is widely used as a benchmark for the performance of the Japanese stock market.
Example: The Nikkei 225 index is often used as a benchmark to measure the performance of the Japanese stock market.
Example: The Nikkei 225 index is often used as a benchmark to measure the performance of the Japanese stock market.
What is a No-load fund?
A no-load fund is a mutual fund that does not charge sales fees when you buy or sell shares, making it more cost-effective for investors. These funds help investors avoid commission fees, thereby maximizing potential returns.
Example: Jane preferred investing in a no-load fund to avoid paying extra fees, allowing her to maximize her investment returns.
Example: Jane preferred investing in a no-load fund to avoid paying extra fees, allowing her to maximize her investment returns.
What is Noise?
Noise refers to unexplained or random market fluctuations that can obscure trends and patterns, often seen as irrelevant to long-term investors. It is the day-to-day volatility that does not reflect the true value or direction of an asset.
Example: The short-term noise in the market made it difficult to identify the underlying trend in stock prices.
Example: The short-term noise in the market made it difficult to identify the underlying trend in stock prices.
What is a Nominal GDP?
Nominal GDP is the total value of all goods and services produced by a country at current market prices, unadjusted for inflation. It reflects the economic output based on the current prices of goods and services.
Example: The country's nominal GDP increased this year, reflecting the higher value of goods and services produced.
Example: The country's nominal GDP increased this year, reflecting the higher value of goods and services produced.
What is a Nominal value?
The nominal value is the face value of a financial instrument, such as a bond, which does not account for inflation or other factors. It represents the amount to be repaid at maturity or the stated value of the instrument.
Example: The nominal value of the bond was £1,000, representing the amount to be repaid at maturity.
Example: The nominal value of the bond was £1,000, representing the amount to be repaid at maturity.
What is a Non-Deliverable Forward (NDF)?
A non-deliverable forward (NDF) is a foreign exchange contract in which settlement takes place at a future date, but the contract is non-deliverable, and settled in cash based on the difference between the agreed rate and the actual market rate at the time of settlement.
Example: The companies used a non-deliverable forward (NDF) to hedge their currency exposure in countries with restrictions on foreign exchange.
Example: The companies used a non-deliverable forward (NDF) to hedge their currency exposure in countries with restrictions on foreign exchange.
What is a Non-discretionary account?
A non-discretionary account is an investment account where the account holder must approve all buy and sell transactions, often used for self-directed investing. The broker provides advice, but the account holder has the final say on all trades.
Example: In his non-discretionary account, David made all the trading decisions, approving each transaction his broker suggested.
Example: In his non-discretionary account, David made all the trading decisions, approving each transaction his broker suggested.
What is Non-farm payrolls (NFP)?
Non-farm payrolls (NFP) is a key U.S. economic indicator that measures the number of jobs added or lost in the economy during the previous month, excluding the agricultural sector.
Example: The non-farm payrolls (NFP) report showed strong job growth, signalling a healthy economy.
Example: The non-farm payrolls (NFP) report showed strong job growth, signalling a healthy economy.
What are Non-fungible tokens (NFTs)?
Non-fungible tokens (NFTs) are digital assets or collectibles that exist on a blockchain and represent ownership of a unique item, such as art or real estate.
Example: The artist sold their digital artwork as a non-fungible token (NFT), granting the buyer proof of ownership on the blockchain.
Example: The artist sold their digital artwork as a non-fungible token (NFT), granting the buyer proof of ownership on the blockchain.
What are Non-qualified stock options (NQSOs)?
Non-qualified stock options (NQSOs) are stock options that do not qualify for favorable tax treatment under U.S. tax law, often offered as part of employee compensation.
Example: The company granted non-qualified stock options (NQSOs) to employees, which could be exercised but were subject to income tax.
Example: The company granted non-qualified stock options (NQSOs) to employees, which could be exercised but were subject to income tax.
What is Non-systematic risk?
Non-systematic risk is the risk specific to a particular company or industry, which can be reduced through diversification.
Example: By investing in a variety of industries, Jane was able to minimize non-systematic risk in her portfolio.
Example: By investing in a variety of industries, Jane was able to minimize non-systematic risk in her portfolio.
What are Normal market conditions?
Normal market conditions refer to market conditions in which securities are bought and sold without extreme volatility or other unusual factors affecting prices.
Example: During normal market conditions, trades are executed smoothly, with prices reflecting the true value of securities.
Example: During normal market conditions, trades are executed smoothly, with prices reflecting the true value of securities.
What is Notional value?
Notional value is the total value of a leveraged position in a derivative, often used to calculate margin requirements.
Example: The notional value of the futures contract was £100,000, determining the size of the margin required for the trade.
Example: The notional value of the futures contract was £100,000, determining the size of the margin required for the trade.
O
What is Offer price?
Offer price is the price at which a security is offered for sale by a seller in the market.
Example: The offer price for the shares was set at £50 each, based on current market conditions and demand.
Example: The offer price for the shares was set at £50 each, based on current market conditions and demand.
What is an Offshore account?
An offshore account is a bank account located outside the country of residence of the account holder, often used for tax or privacy reasons.
Example: John opened an offshore account to diversify his assets internationally and take advantage of favorable tax regulations.
Example: John opened an offshore account to diversify his assets internationally and take advantage of favorable tax regulations.
What is On-balance volume (OBV)?
On-balance volume (OBV) is a technical analysis tool that uses volume flow to predict changes in stock price direction, measuring buying and selling pressure.
Example: Investors used the On-Balance Volume (OBV) indicator to confirm trends and potential reversals in stock prices.
Example: Investors used the On-Balance Volume (OBV) indicator to confirm trends and potential reversals in stock prices.
What is an One-cancels-the-other (OCO) order?
A one-cancels-the-other (OCO) order is a type of order where two orders are placed simultaneously, but only one is executed. Once one order is filled, the other is automatically canceled.
Example: Sarah placed an OCO order to either buy a stock at a lower price or sell it if it reached a target price, depending on market movements.
Learn more about OCO orders
Example: Sarah placed an OCO order to either buy a stock at a lower price or sell it if it reached a target price, depending on market movements.
Learn more about OCO orders
What is Open interest?
Open interest refers to the total number of outstanding derivative contracts, such as options or futures, that have not yet been settled.
Example: A high open interest in the options market often indicates a high level of activity and investor interest.
Example: A high open interest in the options market often indicates a high level of activity and investor interest.
What are Open market operations (OMO)?
Open market operations (OMO) are activities conducted by central banks to buy or sell government securities in the open market to influence the money supply.
Example: The central bank engaged in open market operations to inject liquidity into the economy by purchasing government bonds.
Example: The central bank engaged in open market operations to inject liquidity into the economy by purchasing government bonds.
What is an Open order?
An open order is an order to buy or sell a security that remains active until it is executed or canceled by the investor.
Example: Mark placed an open order to buy shares at a specific price, and it stayed active until the market reached that level.
Example: Mark placed an open order to buy shares at a specific price, and it stayed active until the market reached that level.
What is Operating margin?
A financial ratio that measures a company's profitability by comparing its operating income to its net sales.
Example: A higher operating margin indicates that the company is efficiently managing its costs relative to its revenue.
Example: A higher operating margin indicates that the company is efficiently managing its costs relative to its revenue.
What is OpEx?
Operating expenses, which include the costs required to run a business's daily operations.
Example: The company's OPEX covered costs such as salaries, utilities, and office supplies, reflecting its ongoing operational needs.
Learn more about OpEx
Example: The company's OPEX covered costs such as salaries, utilities, and office supplies, reflecting its ongoing operational needs.
Learn more about OpEx
What is Opportunity cost?
Opportunity cost is the cost of an alternative that must be forgone to pursue a certain action or investment.
Example: By investing in the new project, the company considered the opportunity cost of not investing those funds in other profitable ventures.
Example: By investing in the new project, the company considered the opportunity cost of not investing those funds in other profitable ventures.
What is an Option?
Option is a financial derivative that gives the holder the right, but not the obligation, to buy or sell an asset at a set price before a specified date.
Example: The call option allowed Alice to buy 100 shares of the company at a predetermined price within six months.
Example: The call option allowed Alice to buy 100 shares of the company at a predetermined price within six months.
What is an Option chain?
Option chain is a list of all available option contracts for a specific security, detailing their strike prices, expiration dates, and premiums.
Example: Before making an options trade, David reviewed the option chain to evaluate the best contract based on price and expiration.
Example: Before making an options trade, David reviewed the option chain to evaluate the best contract based on price and expiration.
What is an Option premium?
Option premium is the price that an investor pays for an option contract, representing the cost of holding the option.
Example: The option premium for the call option was £5 per share, making the total cost £500 for the 100-share contract.
Example: The option premium for the call option was £5 per share, making the total cost £500 for the 100-share contract.
What is an Option price?
Option price is the price at which an option contract can be exercised, allowing the holder to buy or sell the underlying asset.
Example: The option price was set at £30 per share, giving the investor the right to purchase the stock at this price within the option's timeframe.
Example: The option price was set at £30 per share, giving the investor the right to purchase the stock at this price within the option's timeframe.
What is an Option writer?
Option writer is an investor who sells options, either call or put options, hoping to profit from the premiums received.
Example: As an option writer, Mark sold call options, aiming to collect the premium if the stock price remained below the strike price.
Example: As an option writer, Mark sold call options, aiming to collect the premium if the stock price remained below the strike price.
What is an Order book?
Order book is a record of all buy and sell orders for a specific security, typically maintained by a stock exchange or trading platform.
Example: The order book showed a high volume of buy orders for the stock, indicating strong market demand.
Example: The order book showed a high volume of buy orders for the stock, indicating strong market demand.
What are Ordinary shares?
Ordinary shares represent equity ownership in a company, giving shareholders voting rights and a claim on profits through dividends.
Example: Holding ordinary shares in the company, Alice had the right to vote at the annual general meeting and receive dividends.
Example: Holding ordinary shares in the company, Alice had the right to vote at the annual general meeting and receive dividends.
What is Out-of-the-money (OTM)?
Out-of-the-money (OTM) is a term used in options trading where the strike price is less favorable than the current market price.
Example: The call option was out-of-the-money, as the stock's current market price was lower than the option's strike price.
Example: The call option was out-of-the-money, as the stock's current market price was lower than the option's strike price.
What is Over-the-counter (OTC)?
Over-the-counter (OTC) refers to a decentralized market where securities are traded directly between parties without the involvement of an exchange.
Example: Many smaller companies' stocks are traded over-the-counter (OTC), outside the formal stock exchanges.
Example: Many smaller companies' stocks are traded over-the-counter (OTC), outside the formal stock exchanges.
What is Overbought?
Overbought is a condition where the price of a security has risen too quickly and is expected to correct.
Example: The stock appeared overbought, prompting investors to consider selling before a potential price drop.
Example: The stock appeared overbought, prompting investors to consider selling before a potential price drop.
What is Oversold?
Oversold is a condition where the price of a security has fallen too quickly and is expected to bounce back.
Example: Technical analysts identified the stock as oversold, suggesting it might soon rebound.
Example: Technical analysts identified the stock as oversold, suggesting it might soon rebound.
P
What is Par value?
Par value is the nominal value of a bond, stock, or other security as stated by the issuer, not reflecting market value.
Example: The bond's par value was £1,000, which is the amount that the issuer would repay at maturity.
Example: The bond's par value was £1,000, which is the amount that the issuer would repay at maturity.
What is Payout ratio?
Payout ratio is a financial ratio that shows the percentage of a company's earnings paid out to shareholders as dividends.
Example: With a payout ratio of 60%, the company distributed 60% of its earnings to shareholders in the form of dividends.
Example: With a payout ratio of 60%, the company distributed 60% of its earnings to shareholders in the form of dividends.
What is a Penny stock?
Penny stock is a low-cost stock, usually priced below $5, often representing companies with high risk and potential for volatility.
Example: Investing in penny stocks can be risky due to their price volatility and the lack of financial stability of the issuing companies.
Example: Investing in penny stocks can be risky due to their price volatility and the lack of financial stability of the issuing companies.
What are Performance stock units (PSUs)?
Performance stock units (PSUs) are a type of equity compensation where employees are granted company shares based on performance goals.
Example: Jane received performance stock units (PSUs) that would vest only if the company achieved specific financial targets.
Example: Jane received performance stock units (PSUs) that would vest only if the company achieved specific financial targets.
What is a Portfolio?
Portfolio is a collection of financial assets such as stocks, bonds, or mutual funds held by an investor or financial institution.
Example: Mark diversified his portfolio by investing in a mix of domestic and international equities, bonds, and real estate.
Example: Mark diversified his portfolio by investing in a mix of domestic and international equities, bonds, and real estate.
What are Pretax contributions?
Pretax contributions are contributions made before taxes are deducted, typically applied to retirement savings accounts like a 401(k).
Example: John's pretax contributions to his 401(k) plan reduced his taxable income, providing tax benefits for his retirement savings.
Example: John's pretax contributions to his 401(k) plan reduced his taxable income, providing tax benefits for his retirement savings.
What is a Preferred stock?
Preferred stock is a class of stock that typically provides a fixed dividend and priority over common stock in asset distribution upon liquidation.
Example: In the event of company liquidation, holders of preferred stock are paid before common shareholders.
Example: In the event of company liquidation, holders of preferred stock are paid before common shareholders.
What is Price elasticity of demand?
Price elasticity of demand is a measure of how sensitive the quantity demanded of a good is to changes in its price.
Example: The price elasticity of demand for luxury cars is high, as a small change in price can significantly affect sales volumes.
Example: The price elasticity of demand for luxury cars is high, as a small change in price can significantly affect sales volumes.
What is Price-to-book ratio (P/B)?
Price-to-book ratio (P/B) is a financial ratio used to compare a company’s market price to its book value, indicating whether a stock is undervalued or overvalued.
Example: A low price-to-book ratio (P/B) might suggest that a company’s stock is undervalued relative to its assets.
Example: A low price-to-book ratio (P/B) might suggest that a company’s stock is undervalued relative to its assets.
What is Price-to-earnings ratio (P/E)?
Price-to-earnings ratio (P/E) is a financial ratio that compares a company's current share price to its earnings per share, used to assess value.
Example: A company with a high price-to-earnings ratio (P/E) is often considered overvalued or expected to have high growth in the future.
Example: A company with a high price-to-earnings ratio (P/E) is often considered overvalued or expected to have high growth in the future.
What is Price-to-sales ratio (P/S)?
Price-to-sales ratio (P/S) is a financial ratio that compares a company's stock price to its revenue, often used to gauge valuation.
Example: Investors use the price-to-sales ratio (P/S) to determine if a company's stock price is justified by its sales performance.
Example: Investors use the price-to-sales ratio (P/S) to determine if a company's stock price is justified by its sales performance.
What is a Profit margin?
Profit margin is a profitability ratio that measures how much of a company’s revenue remains after subtracting costs and expenses.
Example: The company's profit margin increased, indicating improved efficiency in controlling costs relative to its revenue.
Example: The company's profit margin increased, indicating improved efficiency in controlling costs relative to its revenue.
What is a Put option?
Put option is an option that gives the holder the right to sell an asset at a predetermined price within a specific time frame.
Example: Jane bought a put option to protect her portfolio from a potential decline in the stock price.
Example: Jane bought a put option to protect her portfolio from a potential decline in the stock price.
What is a Put-call parity?
Put-call parity is a principle in options pricing that defines the relationship between the prices of put and call options of the same class.
Example: Traders use put-call parity to identify arbitrage opportunities in the options market.
Example: Traders use put-call parity to identify arbitrage opportunities in the options market.
Q
What is Quad witching?
Quad witching refers to the simultaneous expiration of stock options, stock index futures, stock index options, and single stock futures.
Example: Quad witching days can lead to increased volatility as traders close or roll over their positions.
Example: Quad witching days can lead to increased volatility as traders close or roll over their positions.
What are Qualified stock options?
Qualified stock options are stock options that meet certain requirements set by the IRS, offering favorable tax treatment for employees.
Example: Qualified stock options allow employees to defer taxes until the shares are sold, potentially resulting in lower tax rates.
Example: Qualified stock options allow employees to defer taxes until the shares are sold, potentially resulting in lower tax rates.
What is Quantitative easing (QE)?
Quantitative easing (QE) is a monetary policy where central banks buy government securities to increase the money supply and stimulate the economy.
Example: The central bank implemented quantitative easing (QE) to encourage lending and investment by injecting liquidity into the financial system.
Example: The central bank implemented quantitative easing (QE) to encourage lending and investment by injecting liquidity into the financial system.
What are Quasi-sovereign bonds?
Quasi-sovereign bonds are bonds issued by entities that are partially but not fully backed by a sovereign government, often carrying slightly higher risk than sovereign bonds.
Example: Quasi-sovereign bonds typically offer higher yields than government bonds due to the added risk.
Example: Quasi-sovereign bonds typically offer higher yields than government bonds due to the added risk.
What is a Quote?
Quote refers to the latest price at which a security was traded, or the price at which it is being offered for sale.
Example: The stock's quote was £45, showing the most recent trade price on the exchange.
Example: The stock's quote was £45, showing the most recent trade price on the exchange.
R
What is a Rally?
Rally is a period of sustained increases in asset prices, often driven by strong investor demand and optimism.
Example: The stock market experienced a rally, with share prices surging across multiple sectors.
Example: The stock market experienced a rally, with share prices surging across multiple sectors.
What is a Rate of return?
Rate of return is the percentage of return earned on an investment relative to its cost, often expressed on an annual basis.
Example: Sarah calculated the rate of return on her investment portfolio to assess its performance over the past year.
Example: Sarah calculated the rate of return on her investment portfolio to assess its performance over the past year.
What is a Real rate of return?
Real rate of return is the return on an investment adjusted for inflation, providing a more accurate measure of purchasing power.
Example: After accounting for inflation, the real rate of return on Emily's investment was 3%, giving a true sense of her purchasing power increase.
Example: After accounting for inflation, the real rate of return on Emily's investment was 3%, giving a true sense of her purchasing power increase.
What is a Realized gain?
Realized gain is the profit realized from selling an asset at a price higher than its purchase price.
Example: John sold his shares in the company and recorded a realized gain of £500, representing the difference between the selling price and the original cost.
Example: John sold his shares in the company and recorded a realized gain of £500, representing the difference between the selling price and the original cost.
What is Rebalancing?
Rebalancing is the process of adjusting a portfolio to match a target asset allocation, often done periodically to maintain investment strategy.
Example: Sarah rebalanced her portfolio at the end of the year to ensure her investments stayed aligned with her risk tolerance and financial goals.
Example: Sarah rebalanced her portfolio at the end of the year to ensure her investments stayed aligned with her risk tolerance and financial goals.
What is a Recession?
Recession is a period of economic decline characterized by falling GDP, rising unemployment, and reduced consumer spending.
Example: During the recession, many businesses faced lower sales, leading to cost-cutting measures and increased unemployment rates.
Example: During the recession, many businesses faced lower sales, leading to cost-cutting measures and increased unemployment rates.
What is a Reinvestment risk?
Reinvestment risk is the risk that an investor will not be able to reinvest interest payments or dividends at the same rate of return as the original investment.
Example: The investor was concerned about reinvestment risk as interest rates dropped, affecting the returns on future reinvestments.
Example: The investor was concerned about reinvestment risk as interest rates dropped, affecting the returns on future reinvestments.
What is a Relative strength index (RSI)?
Relative strength index (RSI) is a technical indicator used to assess whether a stock is overbought or oversold by comparing its recent gains to its recent losses.
Example: Traders used the Relative Strength Index (RSI) to identify potential buying opportunities when the stock appeared oversold.
Example: Traders used the Relative Strength Index (RSI) to identify potential buying opportunities when the stock appeared oversold.
What is a Repurchase agreement (Repo)?
Repurchase agreement (Repo) is a short-term borrowing agreement where securities are sold with a promise to buy them back at a later date.
Example: Banks frequently use repurchase agreements (repos) to manage their short-term funding needs while holding collateral.
Example: Banks frequently use repurchase agreements (repos) to manage their short-term funding needs while holding collateral.
What is a Required Minimum Distribution (RMD)?
Required Minimum Distribution (RMD) is the minimum amount that must be taken from retirement accounts, like IRAs or 401(k)s, after reaching a certain age to avoid tax penalties.
Example: Jane calculated her Required Minimum Distribution (RMD) to withdraw the correct amount from her retirement account, avoiding potential tax penalties.
Example: Jane calculated her Required Minimum Distribution (RMD) to withdraw the correct amount from her retirement account, avoiding potential tax penalties.
What is Resistance?
Resistance is a price level where a rising stock is expected to face selling pressure and struggle to move higher.
Example: The stock approached a resistance level of £150, where previous upward movements had been halted by selling pressure.
Example: The stock approached a resistance level of £150, where previous upward movements had been halted by selling pressure.
What are Restricted Stock Awards (RSAs)?
Restricted stock awards are a form of equity compensation where shares are granted to employees but subject to vesting conditions.
Example: Mark received restricted stock awards (RSAs) as part of his compensation package, which would vest over three years.
Example: Mark received restricted stock awards (RSAs) as part of his compensation package, which would vest over three years.
What is Return on Capital Employed (ROCE)?
Return on capital employed (ROCE) is a measure of a company's profitability that shows how efficiently it uses its capital to generate profits.
Example: The company's ROCE improved this year, indicating better efficiency in generating profits from its capital.
Example: The company's ROCE improved this year, indicating better efficiency in generating profits from its capital.
What is Return on equity (ROE)?
Return on equity is a financial ratio that measures a company's profitability by dividing net income by shareholders' equity.
Example: The company's return on equity (ROE) was 15%, showing how effectively it was using shareholders' funds to generate profits.
Example: The company's return on equity (ROE) was 15%, showing how effectively it was using shareholders' funds to generate profits.
What is a Reverse stock split?
A reverse stock split is a corporate action where a company reduces the number of its outstanding shares, increasing the share price proportionally.
Example: The company executed a reverse stock split, combining every four shares into one, resulting in a higher share price.
Example: The company executed a reverse stock split, combining every four shares into one, resulting in a higher share price.
What is Risk management?
Risk management is the process of identifying, assessing, and mitigating financial risks within a company or portfolio.
Example: Effective risk management helped the firm navigate market volatility by implementing strategies like diversification and hedging.
Example: Effective risk management helped the firm navigate market volatility by implementing strategies like diversification and hedging.
What is Risk tolerance?
Risk tolerance is the degree to which an investor is comfortable with risk when making investment decisions, influencing portfolio choices.
Example: David's risk tolerance was moderate, so his financial advisor recommended a balanced portfolio of stocks and bonds.
Example: David's risk tolerance was moderate, so his financial advisor recommended a balanced portfolio of stocks and bonds.
What is Risk-adjusted return?
Risk-adjusted return is a measure of return on an investment that takes into account the risk involved, often used to compare different investments.
Example: The risk-adjusted return of a high-risk stock was evaluated to determine if its potential reward justified the investment risk.
Example: The risk-adjusted return of a high-risk stock was evaluated to determine if its potential reward justified the investment risk.
What is a Robo-advisor?
A robo-advisor is an automated investment service that builds and manages portfolios based on an individual's preferences and risk tolerance.
Example: John used a robo-advisor to create a diversified investment portfolio tailored to his long-term financial goals.
Example: John used a robo-advisor to create a diversified investment portfolio tailored to his long-term financial goals.
What is a Rollover IRA?
A Rollover IRA is an individual retirement account that allows you to move funds from a previous employer-sponsored retirement plan without penalties.
Example: After changing jobs, Sarah rolled over her 401(k) into a Rollover IRA to continue managing her retirement savings tax-deferred.
Example: After changing jobs, Sarah rolled over her 401(k) into a Rollover IRA to continue managing her retirement savings tax-deferred.
What is a Roth IRA?
A Roth IRA is a type of IRA where contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free.
Example: Jane contributed to a Roth IRA, knowing she could withdraw the money tax-free during retirement.
Example: Jane contributed to a Roth IRA, knowing she could withdraw the money tax-free during retirement.
What is the Russell 2000 Index?
The Russell 2000 Index is a stock market index that tracks the performance of the 2,000 smaller companies included in the Russell 3000 Index.
Example: The Russell 2000 Index is often used as a benchmark for the performance of small-cap stocks in the U.S. market.
Example: The Russell 2000 Index is often used as a benchmark for the performance of small-cap stocks in the U.S. market.
S
What is a Sale price?
Sale price refers to the price at which a security or asset is sold in the market.
Example: The investor set a target sale price of £100 per share to secure profits from their stock holding.
Example: The investor set a target sale price of £100 per share to secure profits from their stock holding.
What is a Secondary offering?
A secondary offering is an additional offering of shares by a company after its initial public offering, typically to raise more capital.
Example: The company announced a secondary offering to raise funds for expansion, issuing more shares to the public.
Example: The company announced a secondary offering to raise funds for expansion, issuing more shares to the public.
What is the Securities and Exchange Commission (SEC)?
The Securities and Exchange Commission (SEC) is the U.S. government agency responsible for regulating the securities markets and protecting investors.
Example: The Securities and Exchange Commission (SEC) enforces laws to ensure transparency and fairness in the financial markets.
Example: The Securities and Exchange Commission (SEC) enforces laws to ensure transparency and fairness in the financial markets.
What is a Security?
A security is a financial instrument representing ownership (stocks), debt agreements (bonds), or the rights to ownership as represented by an option.
Example: Stocks and bonds are common types of securities traded in financial markets.
Example: Stocks and bonds are common types of securities traded in financial markets.
What is a Sell limit order?
A sell limit order is an order to sell a security at a specified price or better.
Example: Mark placed a sell limit order to sell his shares if the stock price reached £120, securing potential gains.
Example: Mark placed a sell limit order to sell his shares if the stock price reached £120, securing potential gains.
What is a Settlement risk?
Settlement risk is the risk that one party in a transaction will fail to deliver the terms of the contract, such as failing to pay or deliver securities.
Example: Settlement risk was a concern during the international trade transaction due to differences in banking regulations.
Example: Settlement risk was a concern during the international trade transaction due to differences in banking regulations.
What is Shadow banking?
Shadow banking refers to a system of lending by financial institutions that operate outside traditional regulatory frameworks, often involving high risk.
Example: Shadow banking can contribute to financial instability due to its lack of regulation and oversight.
Example: Shadow banking can contribute to financial instability due to its lack of regulation and oversight.
What is a Share?
A share is a unit of ownership in a company or financial asset, giving shareholders certain rights such as voting and dividends.
Example: By purchasing shares of the company, investors gained partial ownership and voting rights at shareholder meetings.
Example: By purchasing shares of the company, investors gained partial ownership and voting rights at shareholder meetings.
What is Sharpe ratio?
The Sharpe ratio is a measure of risk-adjusted return that compares the excess return of an investment to its standard deviation.
Example: The portfolio's Sharpe ratio was calculated to assess whether its returns were sufficient given the level of risk taken.
Example: The portfolio's Sharpe ratio was calculated to assess whether its returns were sufficient given the level of risk taken.
What is Short selling?
Short selling is the practice of selling a borrowed security with the expectation that its price will fall, allowing it to be bought back at a lower price for profit.
Example: Mark engaged in short selling by borrowing shares of a company, selling them at the current market price, and planning to buy them back at a lower price if the stock declined.
Example: Mark engaged in short selling by borrowing shares of a company, selling them at the current market price, and planning to buy them back at a lower price if the stock declined.
What is a Simple moving average (SMA)?
A simple moving average (SMA) is a moving average that gives equal weight to all prices in a data set, used to smooth price trends in technical analysis.
Example: Traders used the 50-day simple moving average (SMA) to identify the long-term trend of the stock’s price.
Example: Traders used the 50-day simple moving average (SMA) to identify the long-term trend of the stock’s price.
What is Socially responsible investing (SRI)?
Socially responsible investing (SRI) is an investment strategy that seeks to generate both financial return and social or environmental impact.
Example: Sarah focused on socially responsible investing (SRI) by selecting funds that prioritised environmental sustainability and ethical business practices.
Example: Sarah focused on socially responsible investing (SRI) by selecting funds that prioritised environmental sustainability and ethical business practices.
What is Speculation?
Speculation is the act of trading financial assets based on speculative assumptions or market trends, often involving higher risk.
Example: Speculation in the cryptocurrency market can lead to high returns, but it also carries a significant risk of loss.
Example: Speculation in the cryptocurrency market can lead to high returns, but it also carries a significant risk of loss.
What is a Spread?
Spread is the difference between the bid and ask price of a security or asset.
Example: The spread on the stock was £0.50, indicating the difference between what buyers were willing to pay and sellers were asking.
Learn more about spread
Example: The spread on the stock was £0.50, indicating the difference between what buyers were willing to pay and sellers were asking.
Learn more about spread
What is the Standard and Poor's S&P 500® Index?
Standard and Poor's S&P 500® Index is a stock market index that tracks the performance of 500 large publicly traded companies in the U.S.
Example: Investors often use the S&P 500 Index as a benchmark for the overall health of the U.S. stock market.
Example: Investors often use the S&P 500 Index as a benchmark for the overall health of the U.S. stock market.
What is a Statistical arbitrage?
Statistical arbitrage is a market-neutral investment strategy that uses statistical models to exploit inefficiencies in the prices of related securities.
Example: The hedge fund employed statistical arbitrage to identify and trade on short-term pricing anomalies between correlated assets.
Example: The hedge fund employed statistical arbitrage to identify and trade on short-term pricing anomalies between correlated assets.
What is a Stock?
Stock is a type of security that represents ownership in a corporation and gives shareholders rights to vote on corporate matters and receive dividends.
Example: By purchasing stock in the company, Jane became a part-owner and gained voting rights at shareholder meetings.
Example: By purchasing stock in the company, Jane became a part-owner and gained voting rights at shareholder meetings.
What is a Stock appreciation rights (SARs)?
Stock appreciation rights (SARs) are a form of equity compensation where employees can receive compensation based on the increase in stock price.
Example: Mark received stock appreciation rights (SARs) as part of his bonus, allowing him to profit if the company’s stock price increased.
Example: Mark received stock appreciation rights (SARs) as part of his bonus, allowing him to profit if the company’s stock price increased.
What is a Stock option?
A stock option is a contract that gives the holder the right to buy or sell a stock at a specified price within a certain time frame.
Example: The employee received stock options, enabling them to purchase company shares at a set price after a specified period.
Example: The employee received stock options, enabling them to purchase company shares at a set price after a specified period.
What are Stock slices?
Stock slices are fractional shares of stock that allow investors to buy a portion of a share rather than a whole share.
Example: Stock slices made it possible for Jane to invest in high-priced companies like Apple without needing to buy a full share.
Example: Stock slices made it possible for Jane to invest in high-priced companies like Apple without needing to buy a full share.
What is Stock split?
A stock split is a corporate action that increases the number of outstanding shares by issuing additional shares to current shareholders.
Example: The company announced a 2-for-1 stock split, doubling the number of shares each shareholder owned while halving the stock's price.
Example: The company announced a 2-for-1 stock split, doubling the number of shares each shareholder owned while halving the stock's price.
What is a Stock symbol?
A stock symbol is a unique series of letters or characters representing a publicly traded company or financial instrument on an exchange.
Example: Amazon’s stock symbol on the Nasdaq exchange is AMZN.
Example: Amazon’s stock symbol on the Nasdaq exchange is AMZN.
What is a Stock ticker?
A stock ticker is a shorthand identifier for a publicly traded company's stock, used in stock exchanges
Example: The stock ticker for Tesla is TSLA, which appears on trading platforms and financial news tickers.
Example: The stock ticker for Tesla is TSLA, which appears on trading platforms and financial news tickers.
What is a Stop-loss order?
A stop-loss order is an order to sell a security if its price falls below a certain level, designed to limit an investor's loss.
Example: To protect her investment, Lisa set a stop-loss order at £50, ensuring her shares would be sold if the price dropped to that level.
Learn more about stop-loss orders
Example: To protect her investment, Lisa set a stop-loss order at £50, ensuring her shares would be sold if the price dropped to that level.
Learn more about stop-loss orders
What is a Strike price?
The strike price is the price at which an option can be exercised, allowing the holder to buy or sell the underlying asset.
Example: The call option had a strike price of £100, giving the holder the right to buy the stock at that price.
Example: The call option had a strike price of £100, giving the holder the right to buy the stock at that price.
What is Support?
Support is a price level at which a declining stock is expected to find support and stop falling.
Example: The stock found support at £50, where buyers stepped in to prevent further price decline.
Example: The stock found support at £50, where buyers stepped in to prevent further price decline.
What is a Swap?
A swap is a financial agreement where two parties exchange the cash flows or other benefits of one asset for another.
Example: Companies often use interest rate swaps to manage exposure to fluctuations in interest rates.
Example: Companies often use interest rate swaps to manage exposure to fluctuations in interest rates.
What is Swing trading?
Swing trading is a short-term trading strategy that attempts to profit from small price movements in stocks or other securities.
Example: Swing trading involves holding positions for a few days to capture price swings in the market.
Example: Swing trading involves holding positions for a few days to capture price swings in the market.
T
What is a Takeover?
A takeover is the acquisition of one company by another, often through purchasing a majority stake in the company.
Example: The tech firm announced a takeover of its smaller competitor to expand its market share.
Example: The tech firm announced a takeover of its smaller competitor to expand its market share.
What is Tax-deferred?
Tax-deferred refers to an investment where taxes on the earnings or profits are deferred until the funds are withdrawn.
Example: Contributions to a traditional IRA grow tax-deferred until retirement withdrawals are made.
Example: Contributions to a traditional IRA grow tax-deferred until retirement withdrawals are made.
What is Tax-loss harvesting?
Tax-loss harvesting is a strategy where investors sell securities at a loss to offset capital gains and reduce tax liability.
Example: John used tax-loss harvesting at the end of the year to minimize his capital gains taxes.
Example: John used tax-loss harvesting at the end of the year to minimize his capital gains taxes.
What is Technical analysis?
Technical analysis is the study of past price and volume data of financial assets to predict future price movements using charts and indicators.
Example: Traders use technical analysis to identify trends and potential entry or exit points in the market.
Example: Traders use technical analysis to identify trends and potential entry or exit points in the market.
What is Thematic investing?
Thematic investing is an investment strategy that focuses on themes or sectors with long-term growth potential, like renewable energy or technology.
Example: Thematic investing allowed Sarah to align her portfolio with the global trend towards clean energy.
Example: Thematic investing allowed Sarah to align her portfolio with the global trend towards clean energy.
What is a Ticker symbol?
Ticker symbol is a unique code assigned to a publicly traded security, representing it on stock exchanges.
Example: The ticker symbol for Microsoft is MSFT on the Nasdaq exchange.
Example: The ticker symbol for Microsoft is MSFT on the Nasdaq exchange.
What is a Time horizon?
Time horizon is the length of time an investor expects to hold an investment before selling or using the funds for a financial goal.
Example: With a 10-year time horizon, Mark invested in growth stocks to maximize long-term returns.
Example: With a 10-year time horizon, Mark invested in growth stocks to maximize long-term returns.
What is Time value of money (TVM)?
Time value of money (TVM) is a financial concept that measures the value of money over time, accounting for the opportunity cost of investing or spending money now versus in the future.
Example: The time value of money means £100 today is worth more than £100 in the future due to its potential earning capacity.
Learn more about TVM
Example: The time value of money means £100 today is worth more than £100 in the future due to its potential earning capacity.
Learn more about TVM
What is a Total return?
Total return is the total return on an investment, including income from interest or dividends as well as capital appreciation.
Example: The stock's total return over five years included both the rise in its share price and the dividends paid.
Example: The stock's total return over five years included both the rise in its share price and the dividends paid.
What is a Tracking stock?
Tracking stock is a class of stock issued by a parent company, representing ownership in a specific division or subsidiary.
Example: The company issued tracking stock to allow investors to directly invest in the performance of its technology division.
Example: The company issued tracking stock to allow investors to directly invest in the performance of its technology division.
What is a Traditional IRA?
Traditional IRA is a type of retirement account where contributions are tax-deductible and taxes are deferred until the money is withdrawn.
Example: Contributions to a traditional IRA reduced John's taxable income for the year.
Example: Contributions to a traditional IRA reduced John's taxable income for the year.
What are Treasury bonds?
Treasury bonds are U.S. government bonds with a maturity of more than 10 years, considered low-risk investments.
Example: Investors bought treasury bonds to add a stable, long-term component to their investment portfolio.
Example: Investors bought treasury bonds to add a stable, long-term component to their investment portfolio.
What are Treasury inflation-protected securities (TIPS)?
Treasury inflation-protected securities (TIPS) are U.S. Treasury securities that are indexed to inflation, protecting investors from inflationary erosion of purchasing power.
Example: TIPS are popular among investors looking for a hedge against inflation.
Example: TIPS are popular among investors looking for a hedge against inflation.
U
What is an Underlying asset?
Underlying asset is the financial asset on which a derivative, such as an option or futures contract, is based.
Example: The underlying asset for the option contract was 100 shares of the company's stock.
Example: The underlying asset for the option contract was 100 shares of the company's stock.
What is an Undervalued stock?
Undervalued stock is a stock that is considered to be trading below its intrinsic value, making it a potentially profitable investment.
Example: The investor identified an undervalued stock that had strong fundamentals but was priced lower than its fair market value.
Example: The investor identified an undervalued stock that had strong fundamentals but was priced lower than its fair market value.
What is Underwater?
Underwater is when the market price of a security falls below the option's strike price, rendering it worthless.
Example: The employee's stock options were underwater as the market price was lower than the exercise price.
Example: The employee's stock options were underwater as the market price was lower than the exercise price.
What is Underwriting?
Underwriting is the process of underwriting securities for a company, including assuming the risk of selling new issues to the public.
Example: The investment bank was responsible for underwriting the company's new bond issuance.
Example: The investment bank was responsible for underwriting the company's new bond issuance.
What is an Unsecured bond?
Unsecured bond is a bond that is not backed by collateral and depends solely on the issuer's creditworthiness.
Example: Unsecured bonds generally offer higher interest rates to compensate for the lack of collateral backing.
Example: Unsecured bonds generally offer higher interest rates to compensate for the lack of collateral backing.
What is an Unvested grant?
Unvested grant is a stock or option grant that has not yet met the vesting conditions and cannot be sold or transferred.
Example: The unvested grant will become available to the employee after completing three years of service.
Example: The unvested grant will become available to the employee after completing three years of service.
V
What is Value investing?
Value investing is an investment strategy focused on buying stocks that appear to be undervalued by the market.
Example: Value investing led the investor to buy shares of companies that were trading below their intrinsic value.
Example: Value investing led the investor to buy shares of companies that were trading below their intrinsic value.
What is a Value trap?
Value trap is a situation where a stock appears undervalued but may actually be a poor investment due to fundamental issues.
Example: The stock was a value trap, as its low price was due to declining business performance, not market mispricing.
Example: The stock was a value trap, as its low price was due to declining business performance, not market mispricing.
What is Venture capital?
Venture capital is a form of private equity financing where investors provide capital to startups and small businesses in exchange for equity.
Example: Venture capitalists funded the tech startup in exchange for an equity stake in the company.
Example: Venture capitalists funded the tech startup in exchange for an equity stake in the company.
What is Vesting?
Vesting is the process of earning ownership of stock options or shares over time as an employee meets certain conditions.
Example: The employee's stock options will vest over a four-year period based on their continued employment.
Example: The employee's stock options will vest over a four-year period based on their continued employment.
What is a Vested grant?
Vested grant is stock or options that have met vesting conditions and are fully owned by the employee.
Example: After the vesting period ended, the employee's grant became a vested grant, allowing them to sell the shares.
Example: After the vesting period ended, the employee's grant became a vested grant, allowing them to sell the shares.
What is a Vesting period?
Vesting period is the period of time an employee must wait before they earn full rights to their stock options or grants.
Example: The vesting period for the company's stock options was set at three years.
Example: The vesting period for the company's stock options was set at three years.
What is a Vesting schedule?
Vesting schedule is the schedule that determines when employees will receive ownership of stock options or shares over time.
Example: The company's vesting schedule outlined that 25% of the shares would vest each year over four years.
Example: The company's vesting schedule outlined that 25% of the shares would vest each year over four years.
What is VIX (Volatility Index)?
VIX (Volatility Index) is a volatility index that measures market expectations of future volatility, often referred to as the "fear gauge".
Example: When the market became uncertain, the VIX (Volatility Index) spiked, indicating increased market volatility.
Example: When the market became uncertain, the VIX (Volatility Index) spiked, indicating increased market volatility.
What is Volatility?
Volatility is a measure of the frequency and intensity of price movements in a financial market or asset.
Example: The high volatility of cryptocurrency prices makes them attractive to speculative traders.
Example: The high volatility of cryptocurrency prices makes them attractive to speculative traders.
What is а Volatility smile?
Volatility smile is a graphical representation of implied volatility, showing a smile-shaped curve for different strike prices.
Example: The volatility smile indicated that options at strike prices far from the current stock price had higher implied volatility.
Example: The volatility smile indicated that options at strike prices far from the current stock price had higher implied volatility.
What is Volume?
Volume is the number of shares or contracts traded in a security or market over a given period of time.
Example: The stock's volume surged during the earnings report, reflecting heightened investor activity.
Example: The stock's volume surged during the earnings report, reflecting heightened investor activity.
What are Voting rights?
Voting rights are the rights of shareholders to vote on corporate matters such as board elections and mergers.
Example: Owning common shares granted shareholders voting rights to influence key company decisions.
Example: Owning common shares granted shareholders voting rights to influence key company decisions.
W
What is W-8BEN?
W-8BEN is a tax form used by non-U.S. persons to certify foreign status for tax purposes.
Example: The investor, a foreign national, submitted a W-8BEN form to the broker to claim tax treaty benefits.
Example: The investor, a foreign national, submitted a W-8BEN form to the broker to claim tax treaty benefits.
What is W-9?
W-9 is a tax form used by U.S. persons to certify their taxpayer identification number and avoid backup withholding.
Example: Mark filled out a W-9 form for his bank to ensure that his interest income was correctly reported to the IRS.
Example: Mark filled out a W-9 form for his bank to ensure that his interest income was correctly reported to the IRS.
What is a Wash sale?
Wash sale refers to the transaction where an investor sells a security at a loss and then repurchases the same or a substantially similar security within 30 days. This practice is often scrutinized because, in some jurisdictions like Australia, it is considered illegal when used to artificially claim tax benefits.
Example: John engaged in a wash sale by selling his stock at a loss and repurchasing a similar stock shortly thereafter, a practice that may be subject to legal penalties in some countries due to its potential misuse for tax advantages.
Example: John engaged in a wash sale by selling his stock at a loss and repurchasing a similar stock shortly thereafter, a practice that may be subject to legal penalties in some countries due to its potential misuse for tax advantages.
What is Wealth management?
Wealth management is the management of an individual's or family's wealth through investments, tax planning, and financial planning.
Example: The couple sought wealth management services to create a financial plan, invest their assets, and manage their estate efficiently.
Example: The couple sought wealth management services to create a financial plan, invest their assets, and manage their estate efficiently.
What is Weighted Average Cost of Capital (WACC)?
Weighted average cost of capital (WACC) is the average rate of return a company is expected to pay its shareholders and debt holders, weighted by the proportions of equity and debt in the capital structure.
Example: The company's WACC was calculated to assess the cost of financing new projects, balancing both equity and debt.
Example: The company's WACC was calculated to assess the cost of financing new projects, balancing both equity and debt.
What is a Whipsaw?
Whipsaw is a sharp reversal in market direction, typically caused by a sudden shift in investor sentiment or market conditions.
Example: The stock market experienced a whipsaw as prices rapidly fell, only to reverse and surge within a short period.
Example: The stock market experienced a whipsaw as prices rapidly fell, only to reverse and surge within a short period.
What is Working capital?
Working capital is the difference between a company's current assets and its current liabilities, representing short-term liquidity.
Example: The company's working capital was positive, indicating it had enough assets to cover its short-term obligations.
Example: The company's working capital was positive, indicating it had enough assets to cover its short-term obligations.
What is Write-off?
Write-off is a deduction from a company's earnings, typically for bad debts or other liabilities that are unlikely to be recovered.
Example: The business wrote off £5,000 in unpaid invoices, reducing its taxable income for the year.
Example: The business wrote off £5,000 in unpaid invoices, reducing its taxable income for the year.
Y
What is Yield?
Yield is the income generated by an investment, typically expressed as a percentage of the investment's current price.
Example: The bond's yield was 4%, providing the investor with a steady stream of income.
Example: The bond's yield was 4%, providing the investor with a steady stream of income.
What is a Yield curve?
Yield curve is a graph showing the relationship between interest rates and the maturity of debt securities.
Example: The yield curve steepened, indicating higher interest rates for long-term bonds compared to short-term ones.
Example: The yield curve steepened, indicating higher interest rates for long-term bonds compared to short-term ones.
What is a Yield spread?
Yield spread is the difference between the yields of two debt securities with different credit qualities or maturities.
Example: The yield spread widened between government bonds and corporate bonds, reflecting higher perceived risk in the corporate sector.
Example: The yield spread widened between government bonds and corporate bonds, reflecting higher perceived risk in the corporate sector.
What is a Yield to call (YTC)?
Yield to call (YTC) is the rate of return on a callable bond if it is called before maturity, allowing investors to estimate their returns.
Example: The investor calculated the bond's yield to call (YTC) to understand the potential returns if the bond was called in five years.
Example: The investor calculated the bond's yield to call (YTC) to understand the potential returns if the bond was called in five years.
What is a Yield to maturity?
Yield to maturity is the total return on a bond if held until it matures, including both interest payments and capital gains.
Example: The bond's yield to maturity was 3%, reflecting the total earnings an investor would receive by holding the bond until it matured.
Example: The bond's yield to maturity was 3%, reflecting the total earnings an investor would receive by holding the bond until it matured.
Z
What is Z-score?
Z-score is a statistical measure that describes a company’s financial health by assessing the likelihood of bankruptcy based on key financial metrics.
Example: A low Z-score indicated that the company was at higher risk of financial distress.
Example: A low Z-score indicated that the company was at higher risk of financial distress.
What is a Zero-beta portfolio?
Zero-beta portfolio is a portfolio constructed to have zero correlation with market movements, typically used in hedging strategies.
Example: The investor built a zero-beta portfolio to hedge against market fluctuations, aiming for stability regardless of market direction.
Example: The investor built a zero-beta portfolio to hedge against market fluctuations, aiming for stability regardless of market direction.
What is a Zero-coupon bond?
Zero-coupon bond is a bond that does not pay periodic interest payments and is sold at a deep discount to face value.
Example: The investor purchased a zero-coupon bond at a discount, which would be redeemed at its full face value at maturity.
Example: The investor purchased a zero-coupon bond at a discount, which would be redeemed at its full face value at maturity.
What is a Zombie company?
Zombie company is a company that is unable to generate enough revenue to cover its debt obligations and may require external funding to stay afloat.
Example: The struggling retailer became a zombie company, surviving on borrowed funds without making a profit.
Example: The struggling retailer became a zombie company, surviving on borrowed funds without making a profit.
What is a 1099-B?
A 1099-B is a tax form that reports capital gains or losses from selling stocks, bonds, or other investments.
Example: If you sold shares of a stock in 2023, you'll receive a 1099-B form from your broker showing the capital gain or loss from the sale.
Example: If you sold shares of a stock in 2023, you'll receive a 1099-B form from your broker showing the capital gain or loss from the sale.
What is a 401(k) plan?
A 401(k) is a retirement savings plan offered by employers where employees can contribute a portion of their salary, often with employer matching contributions, and enjoy tax benefits.
Example: Sarah contributes 6% of her salary to her 401(k) plan, and her employer matches 3%, helping her save for retirement with tax-deferred growth.
Example: Sarah contributes 6% of her salary to her 401(k) plan, and her employer matches 3%, helping her save for retirement with tax-deferred growth.
What is a 529 plan?
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education expenses, such as college tuition and fees.
Example: John opened a 529 plan to save for his daughter's future college expenses, allowing his savings to grow tax-free if used for qualified education costs.
Example: John opened a 529 plan to save for his daughter's future college expenses, allowing his savings to grow tax-free if used for qualified education costs.
In conclusion, understanding the basics of trading terminology is essential for anyone aiming to succeed in the ever-changing world of trading and investing. This glossary is your go-to guide, breaking down complex financial concepts into simple, clear explanations of key trading terms. By mastering these fundamentals, you will not only expand your knowledge but also gain the confidence to navigate various trading markets, strategies, and tools effectively.
Whether you are just starting out as a trader or are a seasoned professional refining your skills, understanding the right trading terminology can make a significant difference in your decision-making and risk management. From grasping market trends and platforms to exploring strategies such as long-term investing or day trading, this glossary is designed to support traders and investors at every stage. With a solid grasp of these trading definitions, you will be better equipped to trade smarter, reduce risks, and seize opportunities in today’s fast-moving trading environment.
Whether you are just starting out as a trader or are a seasoned professional refining your skills, understanding the right trading terminology can make a significant difference in your decision-making and risk management. From grasping market trends and platforms to exploring strategies such as long-term investing or day trading, this glossary is designed to support traders and investors at every stage. With a solid grasp of these trading definitions, you will be better equipped to trade smarter, reduce risks, and seize opportunities in today’s fast-moving trading environment.
