Reference

Invest Glossary

Plain-English definitions of investing and stock-market terms — read one, and you will understand it for good.

Plain-English definitions, written by an independent investor

E

EPS (Earnings Per Share)EPS shows how much profit a company made for each share you own. It is net income divided by the number of shares out…
ETF (Exchange-Traded Fund)An ETF is a basket of securities that trades on an exchange like a single stock, giving instant diversification.
Expense RatioThe expense ratio is the annual fee a fund charges, taken from your returns as a percentage.
EBITDAEBITDA is earnings before interest, tax, depreciation, and amortisation — a rough view of core operating cash earning.
ExchangeAn exchange is the regulated venue where stocks, bonds, or derivatives are listed and traded.
EV/EBITDAEV/EBITDA values a whole business (debt included) against its core earnings, for cleaner cross-firm comparison.
Enterprise ValueEnterprise value is the total takeover price: market cap plus debt minus cash.
EquityEquity is ownership value — shareholders’ residual claim after debts are paid.

P

P/E Ratio (Price-to-Earnings)The P/E ratio tells you how much investors pay for each dollar a company earns. A higher P/E means the market expects…
PEG RatioPEG adjusts the P/E ratio for expected earnings growth, so a stock’s price looks fairer once growth is considered.
P/B Ratio (Price-to-Book)P/B compares a stock’s price with the accounting value of its net assets per share.
Penny StockA penny stock trades at a very low price, often under a dollar, usually for tiny, speculative companies.
Payout RatioThe payout ratio is the share of earnings a company returns as dividends.
P/S Ratio (Price-to-Sales)The P/S ratio compares a company’s value to its revenue, useful when earnings are thin or negative.

M

Market CapitalizationMarket cap is the total value of a company’s shares: its share price multiplied by the number of shares outstanding.
Market OrderA market order buys or sells immediately at the best available price, with no price limit.
Mutual FundA mutual fund pools investor money to buy a managed basket of securities, priced once daily after the market closes.
Moving AverageA moving average smooths price over a window so trends are easier to see through the noise.
MaturityMaturity is the date a bond or loan must be repaid in full.
Market IndexA market index tracks a basket of stocks to represent a slice or the whole market’s performance.
Mid-Cap StockA mid-cap stock sits between small and large, typically a few billion in market value — the “middle child.”
Margin of SafetyMargin of safety is the gap between an asset’s intrinsic value and its price — your cushion against error.
Market CorrectionA correction is a drop of 10%–20% from a recent high — a routine shakeout, milder than a bear.
Market CrashA crash is a sudden, severe drop in prices over days, driven by panic, not fundamentals alone.

B

Beta (Stock Volatility vs Market)Beta measures how much a stock tends to move compared with the overall market. 1.0 moves with the market; above 1 swi…
Bond YieldBond yield is the return an investor gets from a bond, usually as a percentage of its price.
Bull Market vs Bear MarketA bull market trends up and feeds optimism; a bear market falls 20% or more from recent highs and saps confidence.
Blue Chip StockA blue chip is a large, well-known company with a long record of stability and often a steady dividend.
Book ValueBook value is a company’s net worth on paper: total assets minus liabilities.
Bid and AskThe bid is the highest price buyers will pay; the ask is the lowest sellers will take. The gap is the spread.
Bond DurationDuration estimates how much a bond’s price moves for a 1% change in interest rates.

A

AlphaAlpha is the return a stock or fund delivered beyond what its risk level predicted. Positive alpha beat the expectation.
AnnuityAn annuity is a contract, usually with an insurer, that pays a stream of income for a set period or life.
Asset AllocationAsset allocation is how you split money across stocks, bonds, cash, and alternatives.

C

CAGR (Compound Annual Growth Rate)CAGR is the smooth yearly growth rate that would take an investment from its start value to its end value over a period.
Compound InterestCompound interest is earning returns on your prior returns, not just your original money — the engine behind long-ter…
CommodityA commodity is a standardised raw material — oil, gold, wheat — traded on its grade, not its brand.
Coupon RateThe coupon rate is a bond’s stated annual interest as a percentage of its face value.
Credit RatingA credit rating is an agency’s grade of a borrower’s ability to repay debt, from rock-solid to distressed.
Common vs Preferred StockCommon stock votes and rides the upside; preferred stock pays a fixed dividend and ranks ahead on payouts but rarely …
Closed-End FundA closed-end fund issues a fixed number of shares that trade on exchange like a stock, often at a discount or premium…
Current RatioThe current ratio measures short-term solvency: current assets over current liabilities.
CorrelationCorrelation measures how two assets move together, from −1 (opposite) to +1 (lockstep).
CovarianceCovariance shows whether two assets tend to move together and by how much.

R

ROI (Return on Investment)ROI is the basic percentage gain or loss on money you put to work, before fees and taxes.
ROA (Return on Assets)ROA shows how efficiently a company turns its assets into profit.
ROE (Return on Equity)ROE measures profit generated for each dollar of shareholders’ equity.
REITA REIT is a company that owns or finances income property and must pay out most profit as dividends.
RSI (Relative Strength Index)RSI gauges recent momentum on a 0–100 scale to flag when a stock may be overbought or oversold.
Russell 2000The Russell 2000 is a benchmark of roughly 2,000 small U.S. companies, the standard small-cap gauge.
Robo-AdvisorA robo-advisor is software that builds and rebalances a diversified portfolio from a short risk quiz.
Rule of 72The Rule of 72 estimates doubling time by dividing 72 by the annual return or rate.
RebalancingRebalancing resets a portfolio back to its target weights by trimming winners and adding laggards.
RallyA rally is a sharp, sustained rise in prices, often after a downturn or within a bear.
RecessionA recession is a broad, sustained downturn in economic activity, loosely two straight quarters of shrinking GDP.

D

Dividend YieldDividend yield is the annual cash dividend as a percentage of the share price.
DiversificationDiversification is spreading money across assets so one bad bet cannot sink the whole portfolio.
DividendA dividend is a portion of a company’s profit paid out to shareholders, usually in cash per share.
DrawdownDrawdown is the peak-to-trough loss from a high point to the next low, a blunt measure of pain.
DerivativeA derivative is a contract whose value is derived from an underlying asset like a stock, rate, or commodity.
Dow Jones Industrial AverageThe Dow is a price-weighted index of 30 large U.S. companies, the oldest market gauge in the news.
Dividend AristocratA Dividend Aristocrat is a company that has raised its dividend for at least 25 straight years.
Debt-to-Equity RatioThe debt-to-equity ratio compares borrowed money to owners’ equity, a leverage gauge.
Dollar-Cost AveragingDollar-cost averaging invests a fixed amount on a schedule, buying more shares when prices are low.
DeflationDeflation is falling prices, which sounds nice but can choke spending and deepen debt burdens.

S

SpreadA spread is the gap between two prices, rates, or yields — most famously the difference between two bond maturities.
Stock SplitA stock split increases share count and cuts the price per share by the same ratio, leaving total value unchanged.
Share BuybackA buyback is when a company uses cash to repurchase its own shares, reducing the count and lifting per-share metrics.
SectorA sector groups companies by business type — tech, energy, healthcare — so you can see where performance comes from.
Sharpe RatioThe Sharpe ratio measures excess return per unit of total risk, so you can compare funds on equal risk footing.
Short SellingShort selling borrows shares to sell now, hoping to buy them back cheaper and pocket the difference.
Stop-Loss OrderA stop-loss automatically sells a holding once it falls to a set price, capping further damage.
S&P 500The S&P 500 is a cap-weighted index of 500 large U.S. companies, the default gauge of the American market.
Small-Cap StockA small-cap stock is a company with a relatively small market value, typically under about $2 billion.
Stock (Share)A stock is a slice of ownership in a company; holders share in its profits and losses.
Strike PriceThe strike price is the fixed price at which an option lets you buy or sell the underlying stock.
Standard DeviationStandard deviation measures the typical spread of returns around the average — the common risk number.
Sortino RatioThe Sortino ratio is like Sharpe but only penalises downside volatility, not upside.
SlippageSlippage is the gap between the price you expected and the price you actually got filled at.

L

LiquidityLiquidity is how quickly an asset can be sold for cash without moving its price much.
Limit OrderA limit order only executes at your specified price or better, protecting you from bad fills.
LeverageLeverage is using borrowed money or derivatives to control a larger position than your capital alone.
Large-Cap StockA large-cap stock is a big, established company, typically worth tens of billions or more.
Lump-Sum InvestingLump-sum investing puts all the capital to work at once, capturing the market immediately.

V

VolatilityVolatility is how much a price swings up and down over time, usually measured by standard deviation.
VarianceVariance is the average of squared deviations from the mean — the squared cousin of standard deviation.
VIX (Volatility Index)The VIX is the market’s gauge of expected near-term volatility, often called the “fear index.”

I

Index FundAn index fund aims to match a market index’s return rather than beat it, by holding the same stocks in the same weights.
IPO (Initial Public Offering)An IPO is a private company’s first sale of shares to the public, listing it on an exchange.
Interest CoverageInterest coverage shows how easily a company pays its interest from operating profit.
Intrinsic ValueIntrinsic value is the real worth of an asset based on fundamentals, not its market price.
Information RatioThe information ratio measures excess return per unit of tracking error versus a benchmark.
InflationInflation is the rise in prices over time, quietly shrinking the buying power of cash.
Interest RateAn interest rate is the cost of borrowing or the reward for lending, set by markets and central banks.

F

Face Value (Par Value)Face value is the amount a bond or note promises to repay at maturity, printed on the instrument.
Free Cash FlowFree cash flow is the cash a business generates after spending to maintain and grow itself.
FloatFloat is the number of shares actually available to trade, excluding those locked up by insiders or the government.
ForexForex is the global market for trading currencies in pairs, where you buy one money with another.
Federal Funds RateThe federal funds rate is the key U.S. policy rate banks charge each other overnight, set by the Fed.

G

Growth vs Value StocksGrowth stocks are expected to expand earnings fast; value stocks look cheap relative to current fundamentals. Two end…
GoodwillGoodwill is the premium paid in an acquisition above the target’s tangible net assets — the value of brand, talent, a…
Gross MarginGross margin is the share of revenue left after the direct cost of making the product.

N

Nominal vs Real ReturnNominal return is the raw percentage gain; real return subtracts inflation to show what your money actually buys.
NasdaqNasdaq is a major U.S. exchange known for listing tech and growth companies, also an index of those stocks.
Net MarginNet margin is the bottom-line profit left as a percentage of revenue after everything.
NAV (Net Asset Value)NAV is a fund’s per-share value: total assets minus liabilities divided by shares.

O

Operating MarginOperating margin is the share of revenue left after running costs but before interest and tax.
OptionsOptions are contracts giving the right, not the obligation, to buy or sell a stock at a set price before a date.
Option PremiumThe premium is the price paid to buy an option contract.

T

Trading VolumeVolume is the number of shares traded in a period; it shows how much attention and liquidity a stock has.
Trading on MarginMargin is borrowing from your broker to buy more than your cash allows, amplifying both gains and losses.
Target-Date FundA target-date fund auto-shifts from stocks to bonds as a chosen retirement year approaches.
Ticker SymbolA ticker is the short code (like AAPL) that uniquely identifies a listed security.
Treynor RatioThe Treynor ratio measures return per unit of market risk (beta), for diversified portfolios.

H

HedgeA hedge is a position taken to offset risk elsewhere, like insurance that caps a loss at a cost.

Y

Yield CurveThe yield curve plots bond yields across maturities; its slope signals growth and rate expectations.
YieldYield is the income return on an investment, usually as a percentage of its price.

W

Working CapitalWorking capital is the cash buffer from short-term assets minus short-term liabilities.

Q

Quick RatioThe quick ratio is a stricter solvency test that excludes inventory from current assets.
Quantitative EasingQE is a central bank buying bonds to push down long rates and add cash to the system.