Investing glossary

Stock market terms in plain words.

A

ADX — Average Directional Index measures the strength of a price trend rather than its direction.
Ask — The ask is the lowest price currently offered by a seller.
ATR — Average True Range measures the typical size of price ranges, including gaps.

B

Backtest — A backtest applies a defined set of rules to historical data to calculate past results.
Balance sheet — A balance sheet shows a company's assets, liabilities and equity at a stated date.
Benchmark — A benchmark is a reference used to compare an investment's result.
Beta — Beta estimates how strongly an asset's returns have moved with a benchmark's returns.
Bid — The bid is the highest price currently offered by a buyer.
Bid–ask spread — The bid–ask spread is the difference between the best selling price and the best buying price.
Bollinger Bands — Bollinger Bands surround a moving average with bands based on recent price dispersion.
Bond — A bond is a tradable loan from investors to an issuer.
Breakout — A breakout occurs when a price moves beyond a previously observed range or level.

C

Candlestick — A candlestick shows the opening, highest, lowest and closing price for one chart interval.
Cash flow — Cash flow describes the money entering and leaving a business during a period.
Closing price — The closing price is the price recorded at the end of a trading session.
Compound growth — Compound growth means that earlier gains become part of the amount that can grow next.
Correlation — Correlation measures how closely two series tend to move together.
Currency risk — Currency risk is the effect that exchange-rate changes can have on an investment's value.

D

Derivative — A derivative is a contract whose value depends on an underlying asset, rate or index.
Dilution — Dilution means that existing shares represent a smaller portion of a company after more shares are issued.
Discount rate — A discount rate converts future amounts into an estimated value today.
Diversification — Diversification means spreading investments across different exposures.
Dividend — A dividend is a payment a company makes to its shareholders.
Dividend yield — Dividend yield is the annual dividend per share divided by the share price.
Drawdown — Drawdown measures the fall from a previous peak in an investment's value.

E

Earnings per share — Earnings per share divides profit attributable to ordinary shareholders by the average share count.
Earnings report — An earnings report summarises a company's financial result for a stated period.
EBITDA — EBITDA is earnings before interest, taxes, depreciation and amortisation.
EMA — An exponential moving average gives more weight to newer prices.
Enterprise value — Enterprise value combines a company's equity market value with debt and other financing claims, minus cash.
Equity — Reported equity is a company's assets minus its liabilities.
Exchange-traded fund — An ETF is a fund whose units trade on an exchange during the trading day.
Ex-dividend date — The ex-dividend date is the first trading day when a share trades without the upcoming dividend entitlement.

F

Free cash flow — Free cash flow usually means operating cash flow minus spending on long-term assets.
Free float — Free float is the part of a company's shares available for public trading.
Fund — A fund pools money from many investors into a collection of investments.
Fundamental analysis — Fundamental analysis examines a company's business, finances and valuation.
Futures contract — A futures contract sets terms for buying or selling an underlying asset at a future date.

G

Gap — A gap is a jump between price areas with no trading shown between them in the chosen chart.

I

Income statement — An income statement shows income, expenses and profit for a reporting period.
Index — An index tracks a selected group of securities using a stated calculation method.
Index fund — An index fund aims to follow the result of a specified index.
Inflation — Inflation is an increase in the general price level over time.
Initial public offering — An initial public offering is the first public sale of a company's shares as it enters the stock market.
Interest rate — An interest rate is the price of borrowing money, usually expressed as a yearly percentage.

L

Leverage — Leverage creates an exposure larger than the capital used to obtain it.
Limit order — A limit order sets the highest acceptable buying price or the lowest acceptable selling price.
Liquidity — Market liquidity describes how easily an asset can be traded without moving its price much.

M

MACD — MACD compares a fast exponential moving average with a slower one.
Margin — Margin is the collateral required to support a leveraged position.
Market capitalisation — Market capitalisation is the share price multiplied by the number of outstanding shares.
Market order — A market order asks to trade at the available market prices without a specified price limit.
Momentum — Momentum describes the pace and persistence of recent price changes.
Moving average — A moving average smooths a sequence of prices by averaging a rolling window.

N

Net debt — Net debt usually means interest-bearing debt minus cash and cash equivalents.

O

OBV — On-Balance Volume adds or subtracts trading volume according to the direction of the closing-price change.
Operating profit — Operating profit is the result of a company's operations before financing costs and income taxes.
Option — An option gives its holder a right to buy or sell an underlying asset under specified terms.
Order book — An order book shows available buying and selling orders at different prices.

P

Payout ratio — The payout ratio shows what share of earnings is paid as dividends.
Portfolio — A portfolio is a collection of investments held by a person or organisation.
Position — A position is the amount of an asset or contract held in an account.
Profit margin — A profit margin expresses a profit measure as a percentage of revenue.
P/B ratio — The P/B ratio compares market value with the company's reported equity.
P/E ratio — The P/E ratio divides a company's share price by its earnings per share.
P/S ratio — The P/S ratio compares a company's market value with its annual revenue.

R

Relative strength — Relative strength compares the performance of one asset with another asset or benchmark.
Resistance — Resistance is a price area where selling has previously slowed or stopped a rise.
Return — Return measures how much an investment has gained or lost over a period.
Return on equity — Return on equity compares profit attributable to owners with their reported equity.
Revenue — Revenue is the income from a company's sales during a period, before related expenses are deducted.
Revenue growth — Revenue growth measures how much a company's sales have changed between two periods.
Rights issue — A rights issue offers existing shareholders the right to buy new shares, usually in proportion to their holdings.
Risk — Risk is uncertainty about outcomes, including the possibility of losing money.
RSI — RSI measures recent price momentum on a scale from 0 to 100.

S

Sector — A sector groups companies with similar types of business.
Sector rotation — Sector rotation describes changes in which business sectors lead or lag the market.
Shares outstanding — Shares outstanding are the shares currently held by shareholders, excluding shares held by the company itself.
Share buyback — A share buyback is a company's purchase of its own shares.
Share class — A share class is a category of shares with specified ownership rights.
Share price — The share price is the price paid for one share.
Short selling — Short selling usually means selling borrowed shares with the obligation to return them later.
Slippage — Slippage is the difference between an expected trading price and the actual execution price.
SMA — A simple moving average gives every price in its window equal weight.
Stochastic oscillator — The stochastic oscillator compares the closing price with the recent high-to-low range.
Stock — A stock is a small ownership share in a company.
Stock exchange — A stock exchange is an organised marketplace for securities.
Stock split — A stock split divides each existing share into several shares without changing the holder's ownership percentage.
Stop order — A stop order becomes active when the market reaches a specified trigger price.
Support — Support is a price area where buying has previously slowed or stopped a decline.

T

Technical analysis — Technical analysis studies patterns and measures in price and trading volume.
Total return — Total return combines price changes with distributions such as dividends.
Trading session — A trading session is a period when a market is open for trading.
Trend — A trend is a sustained direction in a price series over a chosen period.

V

Valuation — Valuation is an assessment of what a company or asset is worth.
Volatility — Volatility describes how much prices or returns vary over a chosen period.
Volume — Trading volume is the amount of a security traded during a period.
VWAP — Volume-Weighted Average Price averages traded prices using their trading volume as weights.

W

WMA — A weighted moving average commonly assigns linearly increasing weights to newer prices.

Y

Yield — Yield expresses an income or return measure relative to the price paid for an asset.

Stock explanations