Key Investment Terms You Should Know

Man with Stock Chart - Key Investment Terms You Should Know

Investing and trading is full of different jargon that can often confuse beginners. At times it almost sounds like investors are speaking in another language. To avoid a language barrier, every investor should learn the market lingo.

Learning the key investment terms that you’ll often encounter will put you at a great advantage. For many, it can be overwhelming at first but after familiarizing yourself, these terms will be far less intimidating. 

This comprehensive list contains the key investments terms you should know and can be used as a reference throughout your investing journey.

You may skip to specific sections using the table of contents. 

General Terms

Security: The term “security” refers to stocks, bonds, commodities, options and any other exchangeable financial instrument that has some sort of monetary value.

Ticker Symbol: A ticker symbol is a combination of letters or characters that represent a publicly traded security on an exchange. Every listed security has its own individual ticker symbol.

Portfolio: A portfolio is an arrangement of assets like stocks, bonds, cash, commodities, etc. A portfolio can also be comprised of real estate, collectibles, art and more. 

Open/Close: The market “open” means the opening of an exchange when regular trading hours begin. The market “close” means the closing of an exchange when regular trading hours end.

Brokerage: A brokerage company connects buyers and sellers to carry out market transactions. Most brokerage companies now offer commission-free trading but there are still some fees investors will pay for different services. 

Stockbroker: A stockbroker will execute trades for stocks and other securities on behalf of clients. They’re also known as investment/financial advisors or brokers.

Assets: An asset is simply anything with monetary or economic value. Assets are typically owned by individuals, companies, or countries.

Accredited Investor: Accredited investors are persons or businesses that meet the requirements to invest in private and less regulated investments. You will need a stable income of at least $200k per year and a minimum net worth of $1 million to be considered an accredited investor.

Hedge Fund: A hedge fund is an actively managed portfolio made up of alternative investments. Hedge funds use monies from multiple individual investors and sometimes businesses. You’ll most likely need to be an accredited investor in order to invest in a hedge fund.

Exchange: An exchange is simply a marketplace where financial instruments like stocks, bonds, commodities and other securities are traded. 

Sector: Sectors are economic segments that group similar businesses together. For example, there are tech sectors, health sectors, industrial sectors and more.

Initial Public Offering (IPO): An initial public offering is the transition process of a private company to a publicly traded company. If a company has an IPO, investors will then be able to purchase shares of the company through the stock exchange.

Secondary Offering: After a business has already made an initial public offering and wants to raise additional equity, they will often have a secondary offering. There are two different types of secondary offerings. A non-dilutive secondary offering is the sale of shares to the public from one or more of the major shareholders in the company. A dilutive offering is when the company issues new shares and offers them to the public. 

Foreign Exchange – Forex (FX): Forex or FX stands for Foreign Exchange which is the trading of currencies. A Forex trader will trade one countries currency for another’s on the Forex Market. The price of currencies like the Dollar or Euro can fluctuate which creates opportunities to make a profit.

Unrealized and Realized Gains/Losses: An unrealized gain or loss means that an investor has not sold their asset for a loss or gain yet. For example, if you buy a stock for $10 a share and the stock price goes to $9 dollars a share, you have an unrealized loss or paper loss of $1. If you decide to sell the stock for $9 you will realize the $1 loss.

Capital Gain: Realizing a profit from an asset is referred to as a “Capital Gain.” Profits realized in one year or less are deemed short-term capital gains, over 1 year or more it is considered long-term capital gains. The tax treatment differs for short- or long-term capital gains.

Asset Allocation: Asset allocation is the distribution of different assets to create a balanced portfolio that helps keep the risk and reward ratio aligned with an individual’s goals.

Expense Ratio (ER): An expense ratio measures how much a funds operating expenses will cost. It’s calculated by dividing the funds’ expenses by the average value of its assets. For example, a 2% expense ratio means you will pay $20 a year in expenses for every $1,000 invested. The expenses are taken straight from the income that’s generated from the funds’ assets. 

Premium: Premium has more than one meaning in finance. It is the difference between the price paid for a security and the security’s face value. For options, a premium is the overall cost to buy an option contract. In insurance, a premium is the amount of money that’s paid for an insurance policy. 

Investment and Savings Accounts

401k: A 401k plan is a retirement account offered by employers that allow employees to save for retirement through automatic payroll contributions. 401ks, like all retirement accounts, are tax advantaged. Two common types of 401k accounts are the Traditional and Roth 401k, the main difference between the two is how they are taxed by the IRS.

403b: A 403b is similar to a 401k but is only available through non-profit organizations.

457b: The 403b retirement account is similar to a 401k as well. It is only offered to government and state employees.

IRA: IRA stands for Individual Retirement Account. IRAs allow individuals to save for retirement in a tax advantaged account. Two common types of IRA accounts are Traditional and Roth IRA, the difference between the two is how they are taxed by the IRS.

HSA: A Health Savings Account (HSA) is a tax-advantaged savings account that is used to pay for medical costs. An individual must be enrolled in a high-deductible health plan to qualify for an HSA. Contributions to an HSA can be invested depending on the HSA provider.

529: A 529 plan is a tax advantaged savings account intended for education expenses.

Individual Taxable Account: An individual taxable account is a regular non-retirement, non-tax advantaged investing account.

Trust Account: A trust account involves a legal agreement with a third party for the benefit of the beneficiary which could be a single person or a group of people. 

Money Market Account: Many financial institutions like banks and credit unions offer money market accounts. A money market account allows for a better interest rate than a typical savings account. There are different regulations and requirements to use a money market account and they offer less flexibility than a regular checking/savings account.

High-Yield Savings Account (HYSA): A high-yield savings account usually pays over 20 times the national average interest vs a standard savings account. HYSAs are popular among internet-only banks and most services are only available online.

Types of Investments

Equity and Equities: Equity is ownership of assets and is often referred to as shareholder equity. Essentially, when you hear equity, you can think stock, or equities = stocks.

Commodity: A commodity is a raw material or primary basic good that can be bought or sold. For example, gold, coffee, oil and copper are all commodities.

Futures: The futures market consists of financial contracts that are traded based on an assets predefined price and specific future date.

Bond: A bond is a debt security between an investor and a borrower. Governments and corporations will issue bonds to raise money. The issuer owes the holders a debt and will pay them interest depending on the terms of the bond.

Treasuries: A treasury is a debt obligation issued by governments. There are three main US treasuries: Treasury Bonds (Long-term maturities also called T-bonds), Treasury Notes (Intermediate-term maturities also called T-notes) and Treasury Bills (Short-term maturities also called T-bills).

Preferred Stock and Common Stock: A stock represents ownership in a company or firm. Preferred stocks offer greater benefits when it comes to dividends and debt repayment vs common stocks. Preferred stockholders have an increased claim on assets and dividends but may have limited voting rights compared to common stockholders.

Derivative: A derivative is a financial contract between multiple parties that’s value is derived from an underlying asset.

Option: An option is a derivative contract between a buyer and seller, the owner or buyer has the right to either buy or sell the underlying securities at a pre-determined and agreed-upon price.

Call Option: A call option or a call gives the owner the right to buy the underlying security.

Put Option: A put option or a put gives the owner the right to sell the underlying security.

Blue Chip: Blue chip signifies a company or a company’s stock that’s considered to be a high quality and reliable investment.

Penny Stock: A penny stock is a stock from a small-cap or micro-cap company that trades less than $5 per share.

Mutual Fund: Mutual funds are investment programs that are actively managed by professionals and funded by multiple shareholders. The holdings are made up of diversified assets and are often considered low-risk, low-reward investments. The price at which you buy and sell a mutual fund is not like stocks. The buying/selling price is based on the net asset value (NAV) of the mutual funds’ assets.

Exchange-Traded Fund (ETF): ETF is short for exchange-traded fund which is a type of financial instrument that tracks an assortment of securities likes stocks and bonds. ETFs are traded on exchanges like stocks and they commonly track popular indexes, but they can also invest in several different market sectors and securities.

Index Funds: Index funds track specific indexes and are similar to mutual funds but with usually lower expenses. They are traded like mutual funds and not like stocks or ETFs.

Real Estate: Real estate is simply property that can consist of land and/or buildings.

Real Estate Investment Trusts (REITs): A real estate investment trust or REIT for short is a company that owns and/or operates real estate that produces income. The company collects profits from rents on their properties and then disperses them as dividends to shareholders.

Alternative Investment: An alternative investment is any monetary asset that is outside of the three major conventional investments which are stocks, bonds and cash. 

Active Trading Terms

Short Selling: Short selling or selling short is when a trader borrows shares and sells them. A short seller’s objective is that the price of the security will drop before they are forced to buy back the borrowed shares, thus resulting in a profit.

Bid: A bid is simply an offer made by a trader or investor when trying to purchase a financial asset like stocks or commodities.

Ask: The ask is the price a seller is asking for a financial asset; in other terms, it is the amount they are willing to sell for.

Bid-Ask Spread: A bid-ask spread is the difference between the bid price and ask price for a financial asset in the market. For example, if the bid for a stock is $15 and the ask for the stock is $16 the bid-ask spread is $1.

Buy: Buy has a couple of meanings in investment terms. An analyst can recommend a stock as a “buy” meaning they are bullish on the equity or it could simply mean the purchase of an asset i.e. a buy order.

Sell: Sell has a couple of meanings in investment terms. An analyst can recommend a stock as a “sell” meaning they are bearish on the equity or it could simply mean the selling of an asset i.e. a sell order.

Quote: A quote is the last or most recent price a financial asset was bought/sold for.

Return: A return is simply the amount of profit made or lost on an investment.

Execution: Execution is referring to when a buy or sell order for a financial asset is successfully completed or filled.

Day High and Low: The day high and day low is a metric that measures a security’s high and low for the trading day.

Margin: Margin is a loan from a brokerage firm that is used to purchase investments. The financial assets that are purchased by an investor act as collateral for the brokerage.

Types of Orders

Market Order: A market order is a buy or sell order of a security that will get executed at the best possible price in the current market. It is the fastest method of getting an order executed as it will sell for the current market price.

Limit Order:  A limit order is a buy or sell order for a security that allows an investor to stipulate the price they would like it to execute at. For example, a limit sell order placed for $20 will only get filled at $20 or above, a limit buy order for $20 will only get filled at $20 or below.

Good till Canceled (GTC) Order: A good till canceled order (GTC) is a buy or sell order for a security that will remain in place until it is executed, or until the trader cancels it. Most brokers will expire GTC orders if they are not filled after 30 to 90 days.

Day Order: A day order is a buy or sell order for a security that will expire at the end of the trading day if it does not get filled. Depending on the broker and investor preference, they can be set to expire after regular trading hours end or until after-hours trading ends.

Stop Loss: A stop-loss order is an order that will buy or sell once the security reaches a specific price. It is used to limit a trader’s or investor’s losses. For example, if you set a stop loss order for 15% it will limit your losses by 15% however, it is not guaranteed.

Trailing Stop: A trailing stop-loss order is commonly used to protect profits on winning trades. They can be used to lock in gains or limit losses on unsuccessful trades. A trailing stop is just like a stop-loss order except the defined trailing stop order moves as the security price moves. For example, if the price of the security moves up 20 cents the trailing stop will also move up by 20 cents. The trailing stop is designed not to move if the price of the security starts to fall.

Investing Terms

Yield: Yield is percentage-based profits that are realized on an investment over a specific time frame.

Rally: A rally is a period of constant increases in securities. “Stocks are rallying!” Means that equities are receiving a sustained upward price movement.

Leverage: Leverage refers to investing using borrowed funds. Buying on margin is an example of leverage. It can also refer to how much debt a company uses.

Dividend: A dividend is compensation paid by companies to its shareholders. Most dividends are paid out as cash, but sometimes companies will pay stock dividends that give shareholders additional stock in the company. 

Dividend Yield: A Dividend yield is the percentage of a company’s yearly dividend in comparison to its share price. It is calculated by dividing the annual dividend by the share price.

Ex-Dividend: Ex-dividend refers to a stock that is trading post dividend payment. It’s the day a stock will trade without the value of its next dividend payout. The dividend will be paid to those who have owned the stock before the ex-dividend date.

Capital: Capital is simply funds or cash; you can think of it as another word for money.

Lump-Sum Investing: A lump sum is one large sum of money, investing a large amount at once is known as lump-sum investing.

Dollar Cost Averaging (DCA): Instead of investing a large sum of money at once, dollar cost averaging is investing smaller amounts of money periodically throughout a specified timeline. Investing $100 every week is an example of dollar cost averaging.

Averaging Down: Averaging down is the process of buying additional shares of a stock or security that has fallen in price to lower your average cost.

Shares Outstanding: Outstanding shares are all of the shares of a financial asset that have been issued and are currently held by shareholders.

Float: The float is the number of shares that’s available for trading.

Insider Ownership: Insider ownership refers to the amount of insiders that own shares of the company. Insiders are directors, company officers or anyone that has access or knowledge of important company information before it’s made public.

Board of Directors: A team of elected officials that represent a company’s shareholders.

Wash Sale: Selling a security for a loss then repurchasing the same or identical security within 30 days is considered a wash sale. Wash sales have different tax implications than a regular realized loss.

Securities and Exchange Commission (SEC): The Securities and Exchange Commission is a United States government agency that regulates and oversees the securities market. They prevent investors and financial professionals from conducting insider trading, fraud and other illegal activities.

Proxy Statement: A proxy statement is a document that provides information to shareholders that’s required by the Securities and Exchange Commission (SEC).

Market Conditions

Bull Market: A bull market is the state of a financial market that demonstrates strong consistent rises in price or expected price increases.

Bear Market: A bear market is defined when the prices of securities fall 20% or more and investors are broadly pessimistic of the current state and future of financial markets.

Bullish: To be bullish or to be a “bull” means an investor is confident the market or a financial asset will rise in value.

Bearish: To be bearish or to be a “bear” means an investor is confident the market or a financial asset will fall in value.

Fundamentals: Fundamentals are financial data and information used to determine the stability and well-being of a security, financial market or economy.

Volatility: Volatility evaluates the fluctuations in price returns for a security or market to gauge how unpredictable or predictable future price movements will be.

Credit Risk: Credit risk is the chance of loss caused by a borrower’s failure to repay a loan. Borrowers that default on loans cause disruptions in a lenders’ cash flow.

Liquidity: Liquidity is how easy or quickly one can sell a financial asset in the market.

Recession: A recession is a period of decreased economic growth. A decline in a country’s GDP (gross domestic product) for two back to back quarters is considered a recession.

Depression: A depression is a severe and prolonged economic downturn that’s longer and harsher than a recession.

Fundamental Analysis Terms

Market Capitalization: Market capitalization is the value of a publicly traded company. It’s calculated by multiplying the share price by the number of shares outstanding.

Share Price: The price of a publicly traded stock or share of a company. 

Enterprise Value (EV): Enterprise value is a comprehensive measure of a company’s market value. It’s calculated by taking the market capitalization and adding its debt then subtracting its total cash and cash equivalents.

Income Statement: An income statement is an important financial document that provides a company’s financial performance over a specified timeframe.

Balance Sheet: A balance sheet is a financial report that discloses a company’s assets, equity and liabilities. It’s widely used for fundamental analysis.

Profit and Loss Statement (P&L): The profit and loss statement is a financial document that provides a company’s overall costs, revenues and expenses over a specific period.

Form 10-K: An important financial document required by the SEC that provides a comprehensive report of a public company’s financial health and performance

Earnings-Per-Share (EPS): Earnings per share is a calculation of a company’s income divided by the outstanding shares of its stock. It’s a common metric used to understand a company’s profitability.

Price-to-Earnings (PE) Ratio: The price to earnings ratio is a measurement of the share price in comparison to the annual net income. The P/E ratio tells you how much the market is willing to pay based on the company’s earnings history and projected earnings future.

Price-to-Earnings-Growth (PEG) Ratio: The price to earnings growth ratio evaluates a company’s growth rate compared to its P/E.

Price-to-Book (PB) Ratio: A metric used to compare a company’s book value or intrinsic value by its market value.

Debt-Equity Ratio (D/E): A metric used to get insight on a company’s financial burden. It’s determined by dividing a company’s total liabilities by its shareholder equity.

52-Week Low & 52-Week High: 52-week high and 52-week low are recorded price ranges of a security over the last 52 weeks.

Technical Analysis Terms

Trend: A trend is the overall direction of security or market.

Downtrend: A downtrend means the general direction of a security or market is going down.

Uptrend: An uptrend means the general direction of a security or market is going up.

Sideways Trend: A sideways trend means the general direction of a security or market is straight or flat. It’s sometimes referred to as consolidation.

Line Chart: A simple chart that represents a security’s historical price movement with a constant line.

Bar Chart: A bar chart uses price bars that break down price movements for a specific period.

Candlestick Chart: A candlestick chart illustrates the open, close, high and low price movements for a security over a specified time frame.

Support and Resistance: Support and resistance levels are price levels in which an asset doesn’t consistently fall below or break above. If a security falls below a historical level of support it is seen as bearish, if it breaks above a level of resistance it is seen as bullish.

Patterns: Patterns are distinguished formations that are formed by a security’s price movements and visualized in charts.

Double Top: A double top is a chart pattern that illustrates a price movement testing a top (usually a level of resistance) two different times and failing to break out. A double top reversal is a bearish technical indicator.

Double Bottom: A double bottom is a chart pattern that illustrates a price movement testing a bottom (usually a level of support) two different times and reversing. A double bottom reversal is a bullish technical indicator.

Triple Tops and Triple Bottoms: The same as a double top or double bottom but the price movement tests the level of support or resistance 3 separate times before reversing.

Head and Shoulders: A chart pattern that forms a left shoulder, a head and a right shoulder. A head and shoulders top, is a bearish indicator and a inverse head and shoulders or a head and shoulders bottom, is a bullish indicator.

Volume: The number of contracts or shares that are being bought and sold during a specific time frame. Trading volume is an important metric when confirming price movements.

Moving Average (MA): A commonly used technical indicator that averages out price swings based on historical price movements. The most widely used moving averages are the simple moving average (SMA) and the exponential moving average (EMA).

Moving Average Convergence Divergence (MACD): Moving average convergence divergence or MACD illustrates the relation between two moving averages of a stock price. It’s a momentum-based indicator that follows a security’s trend and is calculated by subtracting a longer MA but a shorter MA.

Bollinger Band®: Bollinger Bands are a technical indicator that uses a security’s standard deviation and simple moving average. Bollinger Band were created and copyrighted by John Bollinger.

Relative Strength Index (RSI): The relative strength index was developed to measure oversold and overbought conditions. It is a technical oscillator that ranges from 0 to 100 and is commonly used when conducting technical analysis.

Trading and Investing Styles

Value Investing: Value investing is a method of investing that involves purchasing securities that are undervalued or selling for less than their current intrinsic or book value.

Growth Investing: Growth investing is an investment strategy that involves buying securities that have a high expected rate of future growth.

Dividend or Income Investing: Dividend investing is an investment strategy that involves buying securities that pay a dividend to help create a passive flow of income.

Long-Term Investing: Long-term investing is a simple investing strategy that entails buying and holding financial assets for a period of 10 years or more.

Swing Trading: Swing trading is a trading strategy that consists of buying securities and holding them for a few days or weeks to capture a price movement that results in a profit.

Day Trading: Day trading is placing one or several trades throughout the trading day to capture profit.

Scalping: Scalping is an aggressive type of day trading that involves holding a trade for only few minutes or even less.

US Stock Market Exchanges

New York Stock Exchange (NYSE): The New York Stock Exchange is the world’s largest equities exchange and is based in New York and located on the famous Wall Street.

Nasdaq: The Nasdaq is the first electronic stock market index that has listed over 5000 companies. It is a known benchmark for US technology stocks.

Dow Jones Industrial Average (DJIA): The Dow Jones Industrial Average is a historic market index that measures 30 large companies that are publicly listed on the New York Stock Exchange.

The Standard & Poor 500 Index (S&P): The Standard & Poor’s 500 index also called the S&P 500, is a market-cap-weighted market index of the 500 biggest publicly traded US companies.

Russell 2000: The Russell 2000 Index tracks the performance of roughly 2,000 of the smallest publicly traded companies in the US. 

Central Banking

Monetary Policy: Monetary policy is a macroeconomic policy drafted and implemented by central banks and other key monetary officials.

Interest Rates: An interest rate is a percentage based charge to a borrower by a lender based on the principal amount of money lent. High-interest rates make it more expensive to borrow and low-interest rates make it less costly to get loans.

Federal Reserve: The Federal Reserve is the central bank of the United States. They are easily one of the most powerful and influential financial institutions in the world.

Treasury Department: The United States Treasury is a branch of government that’s in charge of issuing all treasury bills, treasury notes and treasury bonds.

Quantitative Easing (QE): Quantitative easing is a monetary policy that involves large-scale purchases of assets by central banks to inject liquidity into financial markets and reduce volatility.

Inflation: Inflation is the measurement of average price values and the rate in which they increase or decrease over a specified time frame.

Negative Interest Rate Policy (NIRP): A monetary policy that involves earning negative interest or getting charged for saving or storing funds at a bank or financial institution.

Credit Agency: A credit agency is a company that gathers data about businesses’ and individuals’ debt history and evaluates their credit score or creditworthiness.