Investing Glossary: A to Z

136 investing terms in plain English. Pick a letter, or scroll. Each term has an example and links to related terms, guides and tools.

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401(k): A 401(k) is an employer-sponsored retirement account in the United States. You contribute from your paycheck, often before income tax, the money is invested in the funds…

A

After-Hours Trading: After-hours trading is buying and selling stocks after the regular market session ends. US exchanges are open 9:30 a.m. to 4:00 p.m. Eastern, and extended-hours trading…
Alpha: Alpha measures how much an investment or fund has returned above or below what its level of market risk would predict, usually compared with a benchmark index. Positive…
Annual Percentage Yield (APY): Annual percentage yield is the yearly return on a savings or deposit product including the effect of compounding. A higher compounding frequency gives a higher APY than…
Ask Price: The ask price is the lowest price a seller is currently willing to accept for a security. It is also called the offer. If you place a market order to buy, you will…
Asset Allocation: Asset allocation is how you divide your investments among broad categories such as stocks, bonds and cash. The mix largely determines how much your portfolio can grow and…
Assets Under Management (AUM): Assets under management is the total market value of the investments a fund, manager or firm looks after for clients. It rises and falls with both market moves and money…

B

Balance Sheet: A balance sheet is a financial statement showing what a company owns (assets), what it owes (liabilities) and the difference (shareholders’ equity) on a specific date.
Basis Point: A basis point is one hundredth of one percentage point, or 0.01%. One hundred basis points equal one percentage point.
Bear Market: A bear market is a decline of 20% or more in a market or index from a recent high, usually accompanied by widespread pessimism.
Beta: Beta measures how much a stock tends to move compared with the overall market. A beta of 1 means it moves in line with the market, above 1 means bigger swings, and below…
Bid Price: The bid price is the highest price a buyer is currently willing to pay for a security. If you place a market order to sell, you will usually receive the bid.
Bid-Ask Spread: The bid-ask spread is the difference between the highest price a buyer will pay (the bid) and the lowest price a seller will accept (the ask).
Blue-Chip Stock: A blue-chip stock is a share in a large, well-established company with a long record of stable earnings and, often, regular dividends.
Bond: A bond is a loan you make to a government or company. In return, the issuer pays you interest (the coupon) and returns your principal on a set maturity date.
Book Value: Book value is a company’s total assets minus its total liabilities, which is the accounting value of shareholders’ equity. Dividing it by the number of shares gives book…
Brokerage Account: A brokerage account is an account with a licensed firm that lets you buy and sell investments such as stocks, ETFs and bonds. It can be taxable or held inside a…
Bull Market: A bull market is a sustained period of rising prices and optimism in a market or index, often defined loosely as a rise of 20% or more from a recent low.

C

Call Option: A call option gives its holder the right, but not the obligation, to buy a stock at a set price (the strike) before a certain date (expiration). Buyers pay a premium for…
Candlestick Chart: A candlestick chart shows four prices for each period: open, high, low and close. The body spans the open to the close, and thin wicks reach to the high and low.
Capital Gain: A capital gain is the profit you make when you sell an investment for more than you paid. If you sell for less, it is a capital loss.
Cash Flow: Cash flow is the money moving into and out of a business over a period. Operating cash flow measures cash generated by normal business activity, separate from accounting…
Certificate of Deposit (CD): A certificate of deposit is a savings product offered by banks that pays a fixed interest rate if you leave your money in for a set term, from a few months to several…
Circuit Breaker: A circuit breaker is a rule that temporarily halts trading when prices fall by a preset percentage, giving investors time to absorb information and slowing panic selling.
Compound Interest: Compound interest is interest earned on both your original money and the interest it has already earned. Growth builds on itself, so it speeds up over time.
Consumer Price Index (CPI): The Consumer Price Index measures the average change over time in prices paid by consumers for a basket of goods and services. It is the most widely quoted measure of…
Coupon: A coupon is the fixed interest a bond pays its holder, usually stated as a percentage of the bond’s face value each year.
Credit Rating: A credit rating is an independent grade of how likely a borrower, such as a company or government, is to repay its debts. Higher ratings mean lower perceived risk.
Cryptocurrency: A cryptocurrency is a digital asset that uses cryptography and a distributed ledger, such as a blockchain, to record ownership and transfers without a central bank.
Cyclical Stock: A cyclical stock belongs to a company whose profits rise and fall with the economy, such as automakers, airlines and retailers of non-essentials.

D

Day Trading: Day trading means buying and selling securities within the same day, aiming to profit from small price moves and typically closing all positions before the market closes.
Defensive Stock: A defensive stock belongs to a company that sells products people need in any economy, such as food, household goods, utilities and healthcare. Its earnings tend to hold…
Diversification: Diversification is spreading your money across many different investments so that no single one can hurt you badly.
Dividend: A dividend is a payment a company makes to its shareholders out of its profits, usually in cash and usually every quarter.
Dividend Yield: Dividend yield is a stock’s annual dividend per share divided by its share price, shown as a percentage.
Dollar-Cost Averaging: Dollar-cost averaging means investing a fixed amount of money on a regular schedule, regardless of the price.
Dow Jones Industrial Average: The Dow Jones Industrial Average is an index of 30 large US companies. Unlike most indexes, it is price-weighted, so stocks with higher share prices have more influence.
Drawdown: A drawdown is the decline from a peak to a later low in the value of an investment or portfolio, usually shown as a percentage.

E

Earnings Per Share (EPS): Earnings per share is a company’s profit divided by its number of shares outstanding. It shows how much profit belongs to each share.
Earnings Report: An earnings report is the quarterly statement in which a public company discloses its revenue, profit, earnings per share and outlook.
Emerging Markets: Emerging markets are countries with developing economies that are growing quickly, such as India, Brazil and others, and whose financial markets are less mature than…
Equity: Equity means ownership. In investing, it usually means stocks. In a company’s accounts, shareholders’ equity is assets minus liabilities.
Ex-Dividend Date: The ex-dividend date is the cutoff for receiving the next dividend. You must own the stock before this date to get the payment.
Exchange-Traded Fund (ETF): An ETF is a fund that holds a basket of investments, such as stocks or bonds, and trades on an exchange like a single stock throughout the day.
Expense Ratio: The expense ratio is the annual fee a fund charges, shown as a percentage of the money you have invested in it.

F

Federal Reserve: The Federal Reserve, or Fed, is the central bank of the United States. It sets short-term interest-rate targets and oversees the banking system, with goals of stable…
Fixed Income: Fixed income refers to investments that pay a set stream of interest, mainly bonds, certificates of deposit and similar debt.
Float: A stock’s float is the number of its shares available for the public to trade, excluding those held by insiders, employees and strategic holders.
Free Cash Flow: Free cash flow is the cash a company generates after paying for the investments needed to maintain and grow its business, commonly operating cash flow minus capital…
Fundamental Analysis: Fundamental analysis is judging a company’s value by studying its financial statements, business, competition and economic conditions.
Futures Contract: A futures contract is an agreement to buy or sell an asset, such as oil, gold or an index, at a set price on a future date.

G

Gross Domestic Product (GDP): Gross domestic product is the total value of goods and services a country produces in a period. It is the broadest measure of the size and growth of an economy.
Growth Stock: A growth stock belongs to a company expected to grow its sales and earnings faster than the market average, so it usually reinvests profits rather than paying dividends.

H

Hedge: To hedge is to take a position that offsets possible losses in another investment, much like insurance.
Hedge Fund: A hedge fund is a privately run investment pool for wealthy or institutional investors that can use strategies such as short selling and leverage.

I

Index Fund: An index fund is a mutual fund or ETF that aims to match the performance of a market index by holding the same securities.
Individual Retirement Account (IRA): An IRA is a tax-advantaged US retirement account you open yourself. In a traditional IRA, contributions may be tax-deductible and withdrawals are taxed. See Roth IRA for…
Inflation: Inflation is the rate at which prices for goods and services rise over time, reducing what each dollar can buy.
Initial Public Offering (IPO): An IPO is the first time a private company sells its shares to the public on a stock exchange.
Insider Trading: Insider trading usually means trading a company’s securities based on important information that has not been made public. This is illegal. Company insiders can legally…
Institutional Investor: An institutional investor is an organization that invests large sums for others, such as pension funds, insurers, endowments and mutual funds.
Interest Rate: An interest rate is the cost of borrowing money, or the return on lending it, expressed as a percentage per year.
Intrinsic Value: Intrinsic value is an estimate of what a company is truly worth based on its future cash flows and fundamentals, regardless of its current market price.

J

Junk Bond (High-Yield Bond): A junk bond, or high-yield bond, is a bond rated below investment grade, which means a higher chance the issuer will fail to repay.

L

Large-Cap Stock: A large-cap stock belongs to a company with a market capitalization commonly above about $10 billion.
Leverage: Leverage means using borrowed money or financial instruments to increase the size of an investment beyond what you could afford with your own cash.
Limit Order: A limit order is an instruction to buy or sell a security only at a set price or better. A buy limit will not pay more than your price, and a sell limit will not accept…
Liquidity: Liquidity is how easily an asset can be bought or sold quickly at a fair price without moving the price much.
Long Position: A long position means owning a security, in the expectation that its price will rise. It is what most people mean by investing.
Lump-Sum Investing: Lump-sum investing means putting all available money into the market at once rather than spreading it out over time.

M

Margin: Buying on margin means borrowing money from your broker to buy securities, using your existing holdings as collateral.
Market Capitalization: Market capitalization is a company’s total market value: its share price multiplied by the number of shares outstanding.
Market Correction: A correction is a decline of 10% to 20% from a recent peak in a market or index.
Market Index: A market index is a published list of securities used to measure how a market or segment is performing, such as the S&P 500 for large US stocks.
Market Maker: A market maker is a firm that continuously quotes both a buy and a sell price for a security, earning the spread and keeping trading smooth.
Market Order: A market order is an instruction to buy or sell immediately at the best available price.
Maturity: Maturity is the date on which a bond or other debt comes due and the issuer must repay the principal.
Mid-Cap Stock: A mid-cap stock belongs to a company with a market capitalization commonly between about $2 billion and $10 billion.
Momentum Investing: Momentum investing is buying securities that have recently risen in price, on the belief that they will keep rising for a while, and selling those that have fallen.
Moving Average: A moving average smooths a stock’s price by averaging the last set number of days, such as 50 or 200, and updates every day.
Mutual Fund: A mutual fund pools money from many investors to buy a diversified portfolio of stocks, bonds or other assets, run by a manager or tracking an index.

N

Nasdaq: Nasdaq is a US stock exchange known for listing many technology and growth companies. The Nasdaq Composite covers all its listed stocks, and the Nasdaq-100 covers the 100…
Net Asset Value (NAV): Net asset value is the per-share value of a fund: the total value of its holdings minus liabilities, divided by the number of fund shares.
New York Stock Exchange (NYSE): The New York Stock Exchange is the largest stock exchange in the world by market value, home to many of the biggest and oldest US companies.

O

Option: An option is a contract that gives its holder the right, but not the obligation, to buy (call) or sell (put) an asset at a set price by a certain date.
Outstanding Shares: Outstanding shares are all the shares of a company that are currently held by investors, including insiders. They are the number used in market cap and EPS.
Overbought and Oversold: Overbought describes a security that has risen so quickly that some think it is due for a pullback. Oversold describes one that has fallen so far that some think it is…

P

Payout Ratio: The payout ratio is the share of a company’s earnings paid out as dividends, calculated as dividends divided by earnings.
PEG Ratio: The PEG ratio divides a stock’s P/E ratio by its expected earnings growth rate. It adjusts the P/E for how fast the company is expected to grow.
Penny Stock: A penny stock is a very low-priced share, commonly under $5 and often in tiny companies that trade over the counter.
Portfolio: A portfolio is the collection of all your investments, such as stocks, bonds, funds and cash.
Pre-Market Trading: Pre-market trading is buying and selling before the regular session opens at 9:30 a.m. Eastern, usually starting in the early morning.
Preferred Stock: Preferred stock is a type of share that typically pays a fixed dividend and ranks ahead of common stock if the company is liquidated, but usually has no voting rights.
Price-to-Book (P/B) Ratio: The price-to-book ratio compares a stock’s market price with its book value per share.
Price-to-Earnings (P/E) Ratio: The P/E ratio is a stock’s share price divided by its earnings per share. It shows how much investors pay for each dollar of profit.
Principal: Principal is the original amount of money invested or borrowed, excluding interest or gains. For a bond, it is the face value repaid at maturity.
Put Option: A put option gives its holder the right, but not the obligation, to sell a stock at a set price by a certain date.

Q

Quantitative Easing (QE): Quantitative easing is when a central bank creates money to buy government bonds and other assets, aiming to lower longer-term interest rates and support lending and…

R

Real Estate Investment Trust (REIT): A REIT is a company that owns, and usually operates, income-producing real estate such as apartments, warehouses or cell towers, and must pay out most of its income as…
Rebalancing: Rebalancing is periodically buying and selling to bring your portfolio back to its target mix, for example 60% stocks and 40% bonds.
Recession: A recession is a significant, widespread decline in economic activity lasting more than a few months. A common rule of thumb is two consecutive quarters of falling GDP.
Relative Strength Index (RSI): The relative strength index is a momentum indicator that scores recent price gains versus losses on a scale of 0 to 100. By convention, readings above 70 are called…
Return on Equity (ROE): Return on equity measures how much profit a company generates for each dollar of shareholders’ equity, calculated as net income divided by shareholders’ equity.
Revenue: Revenue is the total money a company brings in from selling its goods or services before any expenses are subtracted. It is also called sales or the top line.
Risk Tolerance: Risk tolerance is how much loss in your investments you can accept, financially and emotionally, without abandoning your plan.
Roth IRA: A Roth IRA is a US retirement account funded with after-tax money. Qualified withdrawals in retirement, including growth, are generally tax-free.

S

S&P 500: The S&P 500 is an index of about 500 of the largest US public companies, weighted by market value. It is the most common benchmark for the US stock market.
Sector: A sector is a group of companies that do a similar kind of business, such as technology, healthcare or energy. Standard systems divide the market into 11 sectors.
Share: A share is a unit of ownership in a company. Owning shares makes you a part-owner entitled to a slice of its profits and, usually, a vote.
Share Buyback: A buyback, or share repurchase, is when a company buys its own shares from the market, reducing the number of shares outstanding.
Short Selling: Short selling is borrowing shares to sell them, hoping to buy them back later at a lower price and keep the difference.
Short Squeeze: A short squeeze happens when a heavily shorted stock rises sharply, forcing short sellers to buy shares to limit losses, which pushes the price up even further.
Small-Cap Stock: A small-cap stock belongs to a company with a market capitalization commonly below about $2 billion.
Stock: A stock is an investment that represents partial ownership of a company. If the company does well, the value of the stock and its dividends can rise.
Stock Exchange: A stock exchange is a regulated marketplace where buyers and sellers trade securities, such as the NYSE and Nasdaq in the US.
Stock Quote: A stock quote shows the latest price information for a security, typically the last price, the bid and ask, the day’s range, the change and the volume.
Stock Split: A stock split increases the number of a company’s shares and lowers the price per share in proportion. In a 2-for-1 split, you receive two shares for each one you hold,…
Stop-Loss Order: A stop-loss order is an instruction to sell a security automatically if its price falls to a set level, aiming to limit a loss.
Support and Resistance: Support is a price area where a falling stock has tended to stop and bounce. Resistance is a price area where a rising stock has tended to stall.

T

Tax-Loss Harvesting: Tax-loss harvesting is selling an investment at a loss to offset taxable gains elsewhere, then reinvesting in a similar but not identical holding.
Technical Analysis: Technical analysis studies past price and volume patterns on charts to try to anticipate future moves, using tools such as trend lines and moving averages.
Ticker Symbol: A ticker symbol is a short code that identifies a publicly traded security, such as AAPL for Apple or SPY for the SPDR S&P 500 ETF.
Total Return: Total return is the full gain or loss from an investment, including price change plus dividends or interest received, over a period.
Trading Volume: Trading volume is the number of shares or contracts traded in a period, usually a day.
Treasury Securities: Treasuries are debt issued by the US government. Bills mature in a year or less, notes in 2 to 10 years and bonds in 20 to 30 years.

U

Undervalued: A stock is undervalued when its market price looks lower than its estimated intrinsic value, for example based on earnings or assets.
Unrealized Gain or Loss: An unrealized gain or loss is the change in value of an investment you still hold. It becomes realized only when you sell.

V

Valuation: Valuation is the process of estimating what a company or asset is worth, using methods such as earnings multiples, discounted cash flows or asset values.
Value Stock: A value stock appears cheap relative to its earnings, assets or dividends, often with a low P/E or price-to-book ratio.
VIX (Volatility Index): The VIX is an index from Cboe that estimates the market’s expected volatility of the S&P 500 over the next 30 days, based on option prices. It is often called the fear…
Volatility: Volatility is how much and how quickly a price moves up and down. High volatility means large swings.

W

Wash Sale: A wash sale is a US tax rule situation in which you sell a security at a loss and buy the same or a substantially identical one within 30 days before or after the sale.…
Watchlist: A watchlist is a list of securities you want to follow without owning them.

Y

Yield: Yield is the income an investment pays, shown as a percentage of its price or value. It includes dividend yield for stocks and interest yield for bonds.
Yield Curve: The yield curve plots the interest rates, or yields, of bonds of the same quality at different maturities, most often US Treasuries from short to long terms.

Z

Zero-Coupon Bond: A zero-coupon bond pays no regular interest. It is sold at a discount to its face value and pays the full face value at maturity, with the difference as your return.

Definitions are general education, not investment, tax or legal advice. Read our disclosures.