Stock Market Glossary

AlphaThe part of a portfolio’s return that market risk and known factors can’t explain – a sign of genuine skill. Analyst ratingA bank analyst’s view on a stock – usually a verdict like buy, hold or sell plus a price target. AskThe lowest price a seller is currently asking – the price at which you can buy immediately. Asset allocationHow a portfolio is split between asset classes such as stocks, bonds and cash. ATXThe benchmark index of the Vienna Stock Exchange, containing Austria’s 20 most important stocks. AuctionA trading mechanism in which the exchange collects orders and sets a single price at which the largest number of...

Balance sheetA statement of what a company owns (assets) and how it is financed (liabilities and equity) on a given date. BankruptcyA company’s inability to pay its debts, triggering a court-supervised process. Bear marketA decline of at least 20% from a market’s last peak. Behavioral financeResearch into how psychological factors and mental errors influence investment decisions. Best executionBrokers’ duty to execute client orders on the most favourable terms reasonably available. BetaA measure of how strongly a stock or portfolio moves with the overall market. BidThe highest price a buyer is currently willing to pay – the price at which you can sell immediately. Bid-ask spreadThe difference between the ask and the bid – a hidden trading cost paid on every round trip. Binomial modelAn option pricing model in which the price can only go up or down in each time step. BitcoinThe first and largest cryptocurrency – digital, decentralised and capped at 21 million coins. Black-Scholes modelA model published in 1973 that calculates the fair price of European options from price, strike, time, interest rate... BlockchainA decentralised, tamper-resistant database that stores transactions in a chain of blocks. Blue chipShares of large, established, financially strong companies – as opposed to small caps. BondA tradable loan – the issuer pays regular interest and returns the face value at maturity. Book valueThe value of equity according to the balance sheet – assets minus liabilities at accounting values. BrokerA financial firm through which investors buy and sell securities. Brokerage accountAn account that holds securities such as stocks, ETFs and bonds. Bull marketA sustained period of rising prices, often measured from a gain of at least 20% off a low.

CAGRThe constant yearly return that would have produced the same end result over several years. Call optionAn option giving the right to buy an asset at the strike price. Candlestick chartA chart that shows each period’s open, high, low and close as a “candle”. CapexA company’s spending on long-lived assets such as equipment, buildings and software. Capital gains taxTax on the profit from selling an investment for more than you paid. CAPMA model in which an asset’s expected return depends on the risk-free rate, the market risk premium and its beta. Cash conversion cycleThe number of days between paying suppliers and receiving cash from customers – receivable days plus inventory days... Cash flow statementA statement showing how much cash actually flowed into and out of a company during a period. Central bankThe institution that runs monetary policy for a currency area – mainly through the policy rate – with the aim of... CFDA leveraged contract with a broker on the price change of an asset, without owning it. Circuit breakerAn automatic pause in trading when prices move too far too fast. ClearingNetting and guaranteeing trades through a central counterparty that steps between buyer and seller. Closing priceThe last official price of a trading day – usually set in a closing auction. Compound interestThe effect of reinvested returns earning returns themselves – wealth grows exponentially. Concentration riskThe risk arising when a large share of wealth depends on a single investment, sector, region or employer. Consensus estimateThe average of analysts’ or economists’ forecasts for a figure such as quarterly earnings or inflation. ContangoA situation in which later futures contracts cost more than nearer ones – funds lose money when they roll. ConvexityThe curvature of the price-yield curve of a bond – it makes price gains from falling yields larger than losses from... Core inflationThe inflation rate excluding volatile food and energy prices. CorrectionA decline of 10–20% from a market’s last high. CorrelationA measure between −1 and +1 of how similarly two investments move. CouponA bond’s fixed annual interest, expressed as a percentage of its face value. Covered callA strategy of owning a stock and selling a call on it to collect a premium. Credit ratingA rating agency’s assessment of how likely a borrower is to repay its debt fully and on time. Credit spreadThe extra yield a bond offers over a safe government bond of the same maturity – the price of default risk. Crypto walletSoftware or a device that manages the private keys for crypto assets. Currency hedgingNeutralising exchange rate fluctuations, usually with currency forwards. Currency riskThe risk that exchange rate changes reduce the value of foreign investments in your home currency. Cyclical stocksShares of companies whose profits swing strongly with the economy – as opposed to defensive stocks.

Dark poolA trading venue where buy and sell orders aren’t publicly visible before execution. DAXGermany’s benchmark index of the 40 largest listed German companies. DCF valuationA valuation method that values a company as the sum of its discounted future free cash flows. DeflationA sustained fall in the general price level. DelistingThe removal of a company’s shares from trading on an exchange. DeltaThe measure of how much an option’s price changes when the underlying rises by one unit. DilutionThe reduction in existing shareholders’ ownership when a company issues new shares. Discount rateThe interest rate used to discount future payments to today – reflecting risk and the level of rates. Disposition effectThe tendency to sell winners too early and hold losers too long. DiversificationSpreading money across many investments that don’t move in lockstep – to reduce risk. DividendThe portion of a company’s profit paid out to shareholders. Dividend yieldAnnual dividend per share divided by the share price. Dollar-cost averagingInvesting a fixed amount at regular intervals, which buys more shares when prices are low and fewer when they are high. Dow JonesThe oldest US stock index still calculated, with 30 large companies – weighted by share price rather than market value. DrawdownThe percentage loss from the last peak to the following trough. DuPont analysisThe breakdown of return on equity into net margin, asset turnover and financial leverage. DurationA measure of how strongly a bond’s price reacts to changes in interest rates. DV01The amount of money by which the value of a rate position changes when yields move by 0.01 percentage points.

Earnings per shareA company’s net income divided by its number of shares outstanding. Earnings qualityHow reliable and sustainable reported profits are – visible above all by comparing them with operating cash flow. Earnings reportA company’s regular publication of revenue, profit and outlook. Earnings seasonThe weeks after each quarter-end when most companies publish their results. EBITDAEarnings before interest, taxes, depreciation and amortisation – a measure of operating earning power before... Economic moatA durable competitive advantage that protects a company’s high returns from competition. Efficient frontierThe set of portfolios offering the highest expected return for each level of risk. Efficient market hypothesisThe theory that market prices reflect all available information, so it can’t be used to earn systematic excess returns. Emerging marketsEconomies in transition to developed status, such as China, India, Taiwan, Brazil or South Africa. Enterprise valueThe value of the entire business – market cap plus debt minus cash. Equity risk premiumThe extra return stocks are expected to earn over safe assets – compensation for bearing their swings. ESGEnvironmental, social and governance criteria used by sustainable funds to select companies. ETFAn exchange-traded fund, usually tracking an index – diversified, transparent and low-cost. EV/EBITDAEnterprise value divided by EBITDA – a valuation ratio that also accounts for debt. Ex-dividend dateThe day from which a stock trades without the right to the upcoming dividend – the price drops by roughly the dividend. Exchange rateThe price of one currency in terms of another – EUR/USD 1.10 means one euro costs 1.10 dollars. Exchange-traded commodityAn exchange-traded security tracking a single commodity – often structured as a note or trust rather than a fund. Expense ratioA fund’s annual running costs as a percentage of its assets.

Factor investingDeliberately investing in stocks with traits historically linked to higher returns – such as value, size, momentum... Fat tailsThe tendency of financial markets to produce extreme moves far more often than a normal distribution predicts. Fear and greed indexA sentiment indicator that combines several market signals into a number from 0 (extreme fear) to 100 (extreme greed). Follow-on offeringA listed company issues additional shares to raise more equity capital. Free cash flowThe cash a company has left after all investment – operating cash flow minus capex. Free cash flow yieldFree cash flow divided by market value – how much cash a company generates relative to its price. Free floatThe share of a company’s stock that is freely tradable on the market – excluding large stakes held by founders,... Futures contractA standardised, exchange-traded agreement to buy or sell a set quantity of an asset at a fixed price on a future date.

GammaThe measure of how fast an option’s delta changes when the underlying moves. GDPThe value of all goods and services produced in a country in a period – the broadest measure of economic output. GoldA precious metal that has served as a store of value for millennia and is held by investors as crisis protection. GoodwillThe premium a company paid in an acquisition above the book value of the business it bought. Government bondA bond issued by a national government to finance its spending. Growth vs. valueTwo investment styles – growth focuses on fast-growing, richly valued companies, value on cheaply valued ones. GuidanceA company’s outlook for revenue and profit in coming quarters or the fiscal year.

Hedge fundA lightly regulated investment fund for wealthy and institutional investors that may use leverage, short selling and... HedgingProtecting an existing position against adverse price moves, usually with derivatives. High-frequency tradingComputer-driven trading that places, changes and cancels orders within microseconds – often as electronic market making.

ImmunisationA strategy that matches the duration of a bond portfolio to the investment horizon to largely offset interest rate risk. Implied volatilityThe volatility the market expects for an asset – derived from option prices. Income statementA statement showing how a period’s revenue turns into profit after all costs, interest and taxes. IndexA number that summarises the price performance of a defined group of securities. InflationThe general rise in prices over time – money loses purchasing power as a result. Inflation-protected bondA bond whose principal and interest payments are tied to the inflation rate. Information ratioA portfolio’s active return relative to its index, divided by its tracking error. Insider tradingIllegal trading in securities based on material, non-public information. Interest rateThe price of borrowed money, expressed as a percentage per year. Investment planA written document setting out your goals, time horizons, asset allocation and fixed rules for investing. IPOA company’s first sale of shares to the public, which brings it onto the stock market. ISINA twelve-character international code that uniquely identifies every security.

Jobs reportThe monthly report on employment, unemployment and wages – in the US one of the most important market events.

Kelly criterionA formula that, given known odds, calculates the bet size that maximises long-term growth. Knock-out certificateA leveraged certificate, popular in Europe, that expires as soon as the underlying touches a set barrier.

LeverageUsing borrowed money or derivatives to multiply the effect of price moves on your own capital. Limit orderAn order with a price boundary – buy only at the limit or lower, sell only at the limit or higher. LiquidityHow easily a security can be bought or sold in size without moving its price much. Loss aversionThe tendency to feel losses about twice as strongly as equal gains.

Macaulay durationThe present-value-weighted average time until all of a bond’s payments are received. MarginCollateral that must be posted for leveraged positions – fall below the minimum and a margin call follows. Margin of safetyThe gap between estimated fair value and purchase price – a buffer against mistakes. Market capitalisationA company’s stock market value – share price multiplied by the number of shares outstanding. Market cycleThe recurring alternation of expansion and contraction in markets and the economy. Market makerA trader who continuously quotes both a buy and a sell price, providing liquidity to the market. Market orderAn order without a price limit that executes immediately at the best available price. Material disclosureA mandatory announcement by a listed company of information that could significantly move its share price. Mergers and acquisitionsThe purchase of one company by another, or the combination of two companies. MomentumThe tendency of assets that have risen strongly recently to keep outperforming in the short run – and vice versa. Money market fundA fund investing in very short-term, safe instruments such as Treasury bills and bank deposits. Money-weighted returnThe return an investor actually achieved, taking into account the timing and size of their contributions and withdrawals. Monte Carlo simulationA method that runs thousands of random future scenarios to estimate the probability of possible outcomes. Moving averageThe average of the last, say, 50 or 200 closing prices – it smooths the price line and shows the trend. MSCI WorldA stock index of around 1,300 large and mid-sized companies from 23 developed countries. Mutual fundA pool of money from many investors, invested according to fixed rules.

NasdaqThe second-largest US stock exchange – and the name of its indices, above all the tech-heavy Nasdaq-100. Net asset valueThe value of a fund’s assets minus liabilities, divided by the number of fund shares. Net debtTotal debt minus cash and cash equivalents.

Oil priceThe price of crude oil, usually measured by the benchmarks Brent (North Sea) and WTI (US), in dollars per barrel. OptionA contract giving the buyer the right, but not the obligation, to buy or sell an asset at a fixed price. Order bookThe list of all open buy and sell orders for a security, sorted by price. OverconfidenceThe tendency to overestimate one’s own knowledge and abilities – in investing, a cause of excessive trading.

P/E ratioShare price divided by earnings per share – how many years of earnings you pay for a company. Payment for order flowPayments a market maker makes to a broker for sending it customer orders to execute. Payout ratioThe share of earnings paid out as dividends. PEG ratioThe P/E ratio divided by expected annual earnings growth in percent. Penny stockA stock with a very low price and usually a tiny market value – often extremely risky. PMIA monthly survey of purchasing managers about orders, output and hiring – a key leading indicator for the economy. Policy rateThe interest rate set by a central bank at which banks borrow from or deposit with it – it steers the cost of money... Position sizingDeciding what share of your wealth goes into a single investment – the most important lever in risk management. Preferred stockA class of stock that usually has no voting rights but ranks ahead of common stock for dividends. Present valueThe value today of a future payment, found by discounting it at an interest rate. Price-to-book ratioMarket value divided by shareholders’ equity on the balance sheet. Price-to-sales ratioMarket value divided by annual revenue. Pricing powerA company’s ability to raise prices without losing many customers. Primary marketThe market in which securities are sold for the first time – buyers’ money goes directly to the issuer. Private equityEquity capital for companies not listed on an exchange, often used to buy entire businesses with heavy borrowing. Profit marginThe share of revenue left as profit at a given level of the income statement. Profit warningAn announcement that revenue or profit will fall well short of previous guidance or expectations. Protective putA strategy of owning a stock and buying a put to cap losses below the strike. Purchasing power parityThe theory that exchange rates adjust in the long run so that goods cost the same everywhere. Put-call parityThe fixed relationship between the prices of a call and a put with the same strike and expiry – call minus put... Put/call ratioThe ratio of traded put options to call options – a sentiment indicator. Put optionAn option giving the right to sell an asset at the strike price.

Quantitative easingLarge-scale bond purchases by a central bank to push down long-term rates and supply liquidity to the financial system.

Real interest rateThe interest rate after subtracting inflation – the actual gain in purchasing power. RebalancingPeriodically resetting a portfolio to its target mix after market moves have shifted it. RecessionA significant, prolonged decline in economic activity – by a rule of thumb, two consecutive quarters of falling GDP. REITA listed property company that must distribute most of its income and is taxed favourably in return. Return on equityNet income divided by shareholders’ equity. Risk-neutral valuationA calculation method that values derivatives as if all investors were risk-neutral and every asset earned the risk-free rate. Robo-advisorAn online service that automatically invests money in a portfolio of mostly low-cost ETFs based on a questionnaire. ROICAfter-tax operating profit divided by invested capital – how efficiently a company uses its capital. RSIAn indicator measuring, on a 0–100 scale, how strong recent gains have been relative to losses.

Safe withdrawal rateThe share of starting wealth you can withdraw each year, adjusted for inflation, without running out of money within... Secondary marketThe market where existing securities trade between investors – “the stock market” in everyday language. SectorA group of companies with similar businesses – the GICS standard defines eleven sectors. Sector rotationThe idea of shifting into whichever industries are favoured by the current phase of the business cycle. Segregation of client assetsThe legal separation of client securities from a broker’s or fund company’s own assets, so they are protected if the... Sequence-of-returns riskThe risk that poor returns early in a withdrawal phase permanently weaken a portfolio. SettlementThe final exchange of securities for cash after a trade. Share buybackA company buys its own shares on the market, reducing the number of shares outstanding. Shareholder meetingThe yearly meeting at which shareholders vote on board members, executive pay, major corporate actions and – in... Shareholders' equityThe difference between a company’s assets and liabilities – what belongs to the owners on paper. Sharpe ratioAn investment’s excess return over the risk-free rate divided by its volatility. Shiller P/EPrice divided by the average inflation-adjusted earnings of the past ten years – mostly used for whole markets. Short interestThe share of a company’s tradable stock that has been sold short. Short sellingSelling borrowed securities in the hope of buying them back more cheaply later. Short squeezeA sharp price rise triggered by short sellers being forced to buy back at the same time. SlippageThe difference between the expected price of a trade and the price actually achieved. Sortino ratioExcess return over the risk-free rate divided by downside volatility. Speculative bubbleA period in which prices rise far beyond what earnings justify – driven by expectations of still higher prices. Spin-offSeparating a business unit into an independent, listed company. StablecoinA crypto token designed to stay pegged to the value of a currency such as the US dollar. StagflationThe combination of a stagnating economy, high unemployment and high inflation. StockA security representing a fractional ownership stake in a company. Stock exchangeAn organised, regulated marketplace where securities trade under fixed rules. Stock splitDividing each share into several new shares – the price falls accordingly and total value stays the same. Stop-limit orderA stop order that creates a limit order rather than a market order once triggered. Stop orderAn order that only activates when the price reaches a trigger level – and then executes as a market order. Strike priceThe fixed price in an option at which the underlying can be bought or sold. S&P 500The most important US stock index, covering about 500 large American companies. Support and resistancePrice levels where buyers (support) or sellers (resistance) have halted a move in the past. Systematic riskRisk that affects the whole market and can’t be eliminated by diversification.

TariffsTaxes on imported goods that make them more expensive and are meant to protect domestic production. Technical analysisAnalysing price history and trading volume to infer future price movements. Term premiumThe extra return investors demand for holding long-term rather than short-term bonds. Terminal valueThe value of all cash flows after the explicit forecast period in a DCF valuation. ThetaThe daily loss in an option’s value from the passage of time, all else being equal. Ticker symbolA short letter code under which a security trades on an exchange, such as AAPL for Apple. Time-weighted returnA return calculation that removes the effect of contributions and withdrawals and so measures the fund manager’s performance. Total returnAn investment’s return including all income such as dividends and interest, not just the price change. Total return indexAn index that assumes all dividends are reinvested – unlike a price index, which tracks price changes only. Tracking differenceThe actual gap between an ETF’s return and its index’s return over a period. Tracking errorThe volatility of the return difference between a portfolio and its benchmark index. Trading appAn app-first broker with very low or zero commissions. Trailing stopA stop-loss whose trigger follows the price upward at a fixed distance.

Value investingAn investment approach that buys stocks trading below their estimated intrinsic value. VegaThe measure of how much an option’s price changes when implied volatility rises by one percentage point. Venture capitalCapital for young, fast-growing companies with high risk and high potential. VIXAn index derived from option prices that measures the expected volatility of the S&P 500 over the next 30 days –... VolatilityA measure of how much an investment’s returns swing around their average – usually given as annual standard deviation.

Working capitalThe capital tied up in day-to-day operations – inventory plus receivables minus trade payables.

XetraDeutsche Börse’s electronic trading system in Frankfurt – the reference market for German stocks and many European ETFs.

Yield curveA chart of government bond yields across different maturities. Yield to maturityA bond’s total annual return if you buy at today’s price, collect every coupon and hold it to the end.