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124 essential financial terms explained. No jargon, no fluff.
An investment strategy where a portfolio manager makes specific buy and sell decisions with the goal of outperforming a benchmark index.
Portfolio TheoryThe excess return of an investment relative to the return of a benchmark index.
PerformanceThe gradual reduction of a debt or intangible asset value over a set period through scheduled payments or write-downs.
AccountingThe simultaneous purchase and sale of the same or equivalent asset in different markets to profit from price discrepancies.
TradingThe process of dividing an investment portfolio among different asset categories such as stocks, bonds, and cash.
Portfolio TheoryA financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.
AccountingA unit of measurement equal to one-hundredth of a percentage point (0.01%), commonly used to express changes in interest rates and bond yields.
Fixed IncomeA financial market condition where prices are falling, typically defined as a 20% decline from recent highs.
MarketsA standard index or reference point against which the performance of a security, fund, or portfolio is measured.
PerformanceA measure of a stock's volatility relative to the overall market.
RiskShares of a large, well-established, and financially sound company with a history of reliable performance.
FundamentalsA technical analysis tool consisting of a middle moving average band with upper and lower bands set at a specified number of standard deviations away.
TechnicalA fixed-income instrument representing a loan from an investor to a borrower, typically a corporation or government, that pays periodic interest and returns principal at maturity.
Fixed IncomeThe net asset value of a company, calculated as total assets minus total liabilities, as reported on the balance sheet.
FundamentalsA financial market condition where prices are rising or expected to rise, typically defined as a 20% gain from recent lows.
MarketsA financial contract that gives the buyer the right, but not the obligation, to purchase an underlying asset at a specified strike price before a certain expiration date.
DerivativesThe profit realized when an asset is sold for more than its purchase price.
TradingThe loss incurred when an asset is sold for less than its purchase price.
TradingA financial model that describes the relationship between systematic risk and expected return for assets, particularly stocks.
Portfolio TheoryA financial statement that shows the inflows and outflows of cash and cash equivalents over a period, divided into operating, investing, and financing activities.
AccountingInterest calculated on both the initial principal and the accumulated interest from previous periods.
EconomicsA statistical measure ranging from -1 to +1 that describes how two securities move in relation to each other.
Portfolio TheoryA decline of 10% or more in the price of a security or market index from its most recent peak.
MarketsThe original value of an asset for tax purposes, usually the purchase price plus commissions and other acquisition costs.
TradingThe annual interest rate paid by a bond, expressed as a percentage of the face (par) value.
Fixed IncomeAn options strategy where an investor holds a long position in a stock and sells (writes) call options on that same stock to generate income.
DerivativesAn assessment of the creditworthiness of a borrower, typically assigned by rating agencies like Moody's, S&P Global, and Fitch.
Fixed IncomeThe practice of buying and selling financial instruments within the same trading day, closing all positions before the market closes.
TradingA financial leverage ratio that compares a company's total debt to its shareholders' equity.
FundamentalsThe risk that a borrower will be unable to make required payments on their debt obligations.
RiskA sustained decrease in the general price level of goods and services, resulting in an increase in the real value of money.
EconomicsThe accounting method of allocating the cost of a tangible asset over its useful life, reflecting its decline in value over time.
AccountingA financial instrument whose value is derived from the performance of an underlying asset, index, or rate.
DerivativesThe practice of spreading investments across various assets, sectors, and geographies to reduce overall portfolio risk.
Portfolio TheoryA distribution of a portion of a company's earnings to its shareholders, typically paid in cash on a quarterly basis.
IncomeThe annual dividend payment divided by the stock's current price, expressed as a percentage.
IncomeAn investment strategy of regularly investing a fixed dollar amount regardless of the asset's price, reducing the impact of volatility over time.
Portfolio TheoryThe peak-to-trough decline of an investment, portfolio, or fund during a specific period, usually expressed as a percentage.
RiskA measure of the sensitivity of a bond's price to changes in interest rates, expressed in years.
Fixed IncomeA company's net profit divided by the number of outstanding common shares.
FundamentalsEarnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's core operating profitability.
AccountingThe theory that asset prices fully reflect all available information, making it impossible to consistently outperform the market through stock selection or market timing.
Market StructureA measure of a company's total value, calculated as market capitalization plus total debt minus cash and cash equivalents.
ValuationA type of investment fund that trades on stock exchanges, holding assets such as stocks, bonds, or commodities.
InstrumentsThe date on which a stock begins trading without the right to receive the next declared dividend payment.
IncomeThe annual fee charged by a fund to cover management, administrative, and operating costs, expressed as a percentage of average assets under management.
InstrumentsThe central banking system of the United States, responsible for monetary policy, bank supervision, and maintaining financial stability.
EconomicsA person or entity legally obligated to act in the best financial interest of another party, putting the client's interests above their own.
RegulationThe cash a company generates from operations after accounting for capital expenditures needed to maintain or expand its asset base.
FundamentalsA method of evaluating a security by analyzing the financial and economic factors that influence its intrinsic value.
ValuationA standardized legal agreement to buy or sell an asset at a predetermined price at a specified time in the future, traded on exchanges.
DerivativesAn investment or strategy designed to reduce the risk of adverse price movements in an existing position or portfolio.
RiskThe tendency of investors to follow and mimic the actions of a larger group, regardless of whether the group's behavior is rational.
Behavioral FinanceA bond rated below investment grade (below BBB-/Baa3) that offers higher interest rates to compensate for greater default risk.
Fixed IncomeA financial statement that shows a company's revenues, expenses, and profits or losses over a specific period of time.
AccountingA type of mutual fund or ETF designed to track the performance of a specific market index by holding all or a representative sample of its constituent securities.
InstrumentsA sustained increase in the general price level of goods and services in an economy, reducing the purchasing power of money over time.
EconomicsThe buying or selling of a publicly traded security by someone who has access to material, non-public information about the company.
RegulationA measure of a company's ability to pay interest on its outstanding debt, calculated by dividing operating income (EBIT) by interest expense.
FundamentalsThe cost of borrowing money or the return earned on lending money, expressed as a percentage of the principal per year.
EconomicsThe estimated true or fundamental value of a security based on analysis of its underlying business, cash flows, and growth prospects, independent of its current market price.
ValuationThe process by which a private company offers shares to the public for the first time on a stock exchange.
Market StructureA company with a market capitalization of $10 billion or more, representing the largest and most established public companies.
MarketsThe use of borrowed money or financial instruments to amplify potential returns (and losses) on an investment.
RiskAn order to buy or sell a security at a specified price or better, giving the investor control over execution price but no guarantee of execution.
TradingThe ease with which an asset can be converted into cash quickly without significantly affecting its market price.
Market StructureThe psychological tendency for people to feel the pain of a loss roughly twice as strongly as the pleasure of an equivalent gain.
Behavioral FinanceA trend-following momentum indicator showing the relationship between two moving averages of a security's price.
TechnicalBorrowed money from a brokerage used to purchase securities, with the purchased securities serving as collateral for the loan.
TradingA demand from a broker for an investor to deposit additional funds or securities to bring a margin account back up to the required minimum maintenance level.
RiskThe difference between a security's estimated intrinsic value and its market price, representing a buffer against errors in analysis or unforeseen events.
ValuationThe total market value of a company's outstanding shares of stock.
FundamentalsThe recurring pattern of expansion (bull market), peak, contraction (bear market), and trough in financial markets and the broader economy.
MarketsA firm or individual that provides liquidity to a market by continuously quoting both buy and sell prices for a financial instrument, profiting from the bid-ask spread.
Market StructureAn order to buy or sell a security immediately at the best available current price, guaranteeing execution but not the price.
TradingA framework developed by Harry Markowitz that demonstrates how rational investors can construct portfolios to maximize expected return for a given level of risk through diversification.
Portfolio TheoryThe actions taken by a central bank to manage the money supply, interest rates, and credit conditions to achieve economic objectives like price stability and full employment.
EconomicsAn average of a security's price over a specific number of periods, updated as new data becomes available.
TechnicalA pooled investment vehicle that collects money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities, managed by a professional portfolio manager.
InstrumentsThe proportion of earnings paid out as dividends to shareholders, calculated by dividing dividends per share by earnings per share.
IncomeA valuation ratio comparing a company's stock price to its earnings per share.
ValuationThe price paid by the buyer of an options contract to the seller (writer) for the rights conveyed by the contract.
DerivativesA valuation ratio comparing a company's market price per share to its book value per share.
ValuationThe quantity of goods and services that can be purchased with a unit of currency, which decreases as inflation rises.
EconomicsA financial contract that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified strike price before a certain expiration date.
DerivativesThe process of realigning the weightings of portfolio assets back to a target allocation by buying or selling securities periodically.
Portfolio TheoryThe cognitive tendency to place disproportionate weight on recent events when making decisions, assuming current trends will continue indefinitely.
Behavioral FinanceA significant and sustained decline in economic activity, commonly defined as two consecutive quarters of negative GDP growth.
EconomicsAn SEC rule requiring broker-dealers to act in the best interest of retail customers when making a recommendation, going beyond the previous suitability standard.
RegulationA company that owns, operates, or finances income-producing real estate and distributes at least 90% of taxable income to shareholders as dividends.
InstrumentsA measure of financial performance calculated by dividing net income by shareholders' equity, indicating how effectively management generates profits from equity capital.
FundamentalsThe total amount of money generated by a company from its business activities (sales of goods or services) before any expenses are deducted.
AccountingThe theoretical return on an investment with zero risk of financial loss, typically represented by the yield on U.S. Treasury bills.
RiskThe degree of variability in investment returns that an individual is willing and able to withstand in pursuit of their financial goals.
Portfolio TheoryA momentum oscillator that measures the speed and change of price movements on a scale of 0 to 100.
TechnicalA simple formula for estimating how long it takes an investment to double in value: divide 72 by the annual rate of return.
EconomicsThe U.S. federal agency responsible for enforcing securities laws, regulating the securities industry, and protecting investors.
RegulationA measure of risk-adjusted return, calculated as the portfolio return minus the risk-free rate, divided by the standard deviation of returns.
PerformanceThe practice of selling borrowed shares with the expectation of buying them back at a lower price.
TradingA rapid increase in a stock's price caused by short sellers being forced to buy shares to cover their positions, further driving prices higher in a feedback loop.
TradingA company with a market capitalization typically between $300 million and $2 billion, representing smaller and often faster-growing public companies.
MarketsA market-capitalization-weighted index of 500 of the largest publicly traded companies in the United States, widely regarded as the best gauge of U.S. large-cap equity performance.
MarketsThe difference between two related prices, rates, or yields, most commonly the bid-ask spread (the gap between what buyers will pay and sellers will accept).
Market StructureA statistical measure of the dispersion of data points around the mean, used in finance to quantify the volatility of investment returns.
RiskA corporate action that increases the number of outstanding shares by dividing each share into multiple shares, proportionally reducing the price per share while maintaining total market capitalization.
Market StructureAn order placed with a broker to sell a security when it reaches a specified price, designed to limit an investor's loss on a position.
TradingThe predetermined price at which the holder of an option can buy (call) or sell (put) the underlying asset upon exercise.
DerivativesThe irrational tendency to continue investing in a losing position because of the resources already committed, rather than evaluating the decision based on future prospects.
Behavioral FinanceThe risk inherent to the entire market or market segment that cannot be eliminated through diversification, also called market risk or non-diversifiable risk.
RiskThe strategy of selling investments at a loss to offset capital gains and reduce taxable income, then reinvesting the proceeds in a similar (but not identical) asset.
TradingA method of evaluating securities by analyzing statistical trends from trading activity, such as price movement, volume, and chart patterns.
TechnicalThe financial principle that a sum of money is worth more today than the same sum in the future due to its potential earning capacity.
EconomicsThe difference in performance between a portfolio or fund and its benchmark index, measuring how closely a fund replicates the index it is designed to follow.
PerformanceA debt security issued by the U.S. Department of the Treasury with maturities ranging from 10 to 30 years, paying semiannual interest and backed by the full faith and credit of the U.S. government.
Fixed IncomeAn investment strategy that involves selecting stocks that appear to trade for less than their intrinsic value, based on fundamental analysis.
ValuationA statistical measure of the dispersion of returns for a given security or market index.
RiskThe total number of shares or contracts traded for a security during a given period of time.
Market StructureThe income return on an investment, expressed as a percentage of the investment's cost or current market value.
IncomeA graph showing the relationship between bond yields and maturities, typically plotting U.S. Treasury yields from short-term to long-term.
Fixed IncomeThe total return anticipated on a bond if it is held until it matures, accounting for all coupon payments, the purchase price, and the face value received at maturity.
Fixed Income