Financial Terms for Investors

Our financial glossary provides simple answers to your most common questions.

A B C D E F G H I J K L M N O P Q R S T U V Y

B

Bear Market

A market condition where prices are falling or are expected to fall, indicating pessimism and negative investor sentiment.

Bid-Ask Spread

The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask).

Bull Market

A market condition where prices are rising or are expected to rise, reflecting optimism and positive investor sentiment.

C

Cash Account

A trading account where investors use only their available cash to buy securities. This offers simplicity and reduced risk compared to a margin account.

Covered Calls

A long options strategy where the trader holds a position on a stock and sells a call option on the same stock to earn premiums.

D

Dividend

A portion of a company’s earnings paid to shareholders, typically on a regular basis, representing a share of the company’s profits.

E

Exchange-traded fund (ETF)

A type of security that tracks an index, commodity, bonds, or a basket of assets like an index fund but trades like a stock on an exchange.

I

Initial Public Offering (IPO)

The process through which a private company goes public by selling its shares to the public for the first time.

L

Leverage

The use of borrowed capital to increase the potential return of an investment, amplifying both gains and losses.

Limit Order

An order to buy or sell a stock at a specific price or better, providing control over the price at which the order is executed.

M

Margin Trading

Trading with borrowed funds/securities, allowing a trader to open larger positions with their capital. This is also sometimes referred to as a “margin account.”

Market Order

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

O

Options

Financial derivatives that give buyers the right, but not the obligation, to buy or sell an asset at an agreed-upon price and date.

P

P/E Ratio

Price-to-Earnings Ratio, a valuation metric comparing a company’s current share price to its per-share earnings.

Portfolio

A collection of various investments, such as stocks, bonds, and commodities, owned by an individual or institution.

Portfolio Diversification

The practice of spreading investments among various financial instruments to reduce risk.

R

Risk Tolerance

An investor’s ability or willingness to endure declines in the value of their investments.

S

Scalping

Scalping is a short-term trading strategy focused on making numerous small trades to exploit minor price fluctuations. Traders employing scalping aim to profit from quick and frequent market movements, often holding positions for seconds to minutes, relying on tight spreads and rapid executions to accumulate gains.

Units of ownership in a company or financial asset, representing a proportionate claim on its earnings and assets.

Short Selling

The sale of a security that is not owned by the seller, with the intention of buying it back later at a lower price.

Stop-Loss Order

An order placed with a broker to buy or sell once the stock reaches a certain price, used to limit a trader’s losses.

Swing Trading

A short to medium-term trading strategy where investors aim to capture price “swings” or fluctuations in a financial instrument’s value, holding positions for a few days to weeks. It combines elements of technical analysis to identify trends and capitalize on price movements, allowing traders to take advantage of both upward and downward market trends.

T

Technical Analysis

The study of past market data, primarily through charts, to forecast future price movements.

V

Volume

The number of shares or contracts traded in a security or an entire market during a given period.

Y

Yield

The income returned on an investment, such as the interest or dividends received from holding a particular security.