Stock Market Dictionary
Whether you're a novice investor or an experienced trader, having a comprehensive dictionary is essential for quick clarification of specific terms and for enhancing your stock market knowledge. Our Stock Market Dictionary of financial and investing terms enables you to search through a wide array of definitions related to the stock market. This resource, meticulously curated and powered by expert insights, provides extensive terms to support your investment journey.
A
Arbitrage: The simultaneous purchase and sale of an asset to profit from a difference in the price. It exploits price differences of identical or similar financial instruments on different markets or in different forms.
Ask Price: The lowest price a seller is willing to accept for an asset. It's also known as the offer price.
B
Bear Market: A market condition where prices are falling or are expected to fall, typically by 20% or more from recent highs, leading to widespread pessimism.
Bid Price: The highest price a buyer will pay for an asset.
Blue-Chip Stocks: Shares of large, well-established, and financially sound companies with a history of reliable performance. Examples include companies like Apple, Microsoft, and Coca-Cola.
Bull Market: A market condition where prices are rising or are expected to rise, often characterized by investor confidence and expectations of strong future financial performance.
Buy and Hold: An investment strategy where an investor buys stocks and holds them for a long period, regardless of market fluctuations, to gain long-term returns.
C
Carry Trade: A carry trade is an investment strategy in which an investor borrows money in a currency or asset with a low interest rate and invests it in another currency or asset that offers a higher return. The goal is to profit from the difference between the borrowing cost and the investment earnings. This strategy is popular in the forex market but can also apply to bonds, commodities, and stocks. While this strategy can be highly profitable, carry trades are risky due to possible changes in interest rates and market conditions.
Capital Gain: The profit earned from selling an asset, such as stocks, bonds, or real estate, where the sale price exceeds the purchase price.
D
Dividend: A portion of a company's earnings paid to shareholders, usually regularly. Dividends can be in the form of cash payments, shares of stock, or other property.
Diversification: A risk management strategy that mixes various investments within a portfolio. The rationale is that a diversified portfolio will, on average, yield higher returns and pose a lower risk than any individual investment.
Dollar-Cost Averaging: An investment strategy where a fixed dollar amount of stocks or other securities is purchased at regular intervals, regardless of the share price. This reduces the impact of volatility over time.
Discounted Cash Flow (DCF): A valuation method used to estimate the value of an investment based on its expected future cash flows, which are discounted back to their present value.
E
Earnings Per Share (EPS): A company's profit divided by the outstanding shares of its common stock. EPS indicates a company's profitability and is often used by investors to determine the financial health of a company.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's overall financial performance and is used as an alternative to net income. It provides a clearer view of a company's operational profitability by excluding non-operating expenses.
Exchange-Traded Fund (ETF): A type of investment fund traded on stock exchanges, much like stocks. ETFs hold assets such as stocks, commodities, or bonds and generally operate with an arbitrage mechanism to keep trading close to its net asset value.
Ex-Dividend Date: When a stock begins trading without the value of its next dividend payment. Buyers of the stock on or after this date will not receive the dividend.
F
Fair Value: The estimated worth of an asset, stock, or investment based on its current market price, fundamentals, and potential future earnings. Investors use fair value to determine whether an asset is undervalued or overvalued compared to its market price, helping them make informed buying or selling decisions. It combines various factors, including financial statements, market conditions, and economic indicators, to evaluate an asset's worth.
I
Index Fund: A type of mutual fund or ETF designed to replicate the performance of a specific index, such as the S&P 500. Index funds offer broad market exposure, low operating expenses, and low portfolio turnover.
Initial Public Offering (IPO): The process through which a private company offers shares to the public for the first time. It allows the company to raise capital from public investors.
Intrinsic Value: The actual worth of a company or an asset based on an underlying perception of its true value, including all aspects of the business, in tangible and intangible factors.
L
Liquidity: The ease with which an asset can be converted into cash without affecting its market price. High liquidity means the asset can be quickly sold, whereas low liquidity means the asset might take time to sell.
Long Position: Buying a security with the expectation that its price will rise. A long position is the opposite of a short position.
M
Market Capitalization (Market Cap): The total market value of a company's outstanding shares of stock. It is calculated by multiplying the current market price of one share by the total number of shares outstanding.
MOAT: In the stock market, a MOAT refers to a company's ability to maintain a competitive edge over its rivals, protecting its market share and profitability from competitors. The term "MOAT" was popularised by Warren Buffett, who likened it to the medieval moats surrounding castles, providing a defence against invaders. Similarly, a company with a strong MOAT can fend off competition, ensuring its long-term success and stability.
Mutual Fund: An investment vehicle that pools money from many investors to purchase securities such as stocks, bonds, and other assets. Professional money managers manage mutual funds.
Moving Average: A stock indicator commonly used in technical analysis, moving average helps smooth out price data by creating a constantly updated average price.
P
P/E Ratio (Price-to-Earnings Ratio): A company's current share price valuation ratio compared to its per-share earnings. A high P/E ratio could mean a company's stock is overvalued or investors expect high future growth rates.
Portfolio: A range of investments held by an individual or institution. A well-diversified portfolio includes different asset classes and securities to minimize risk.
Price Target: The projected price level of a financial security stated by an investment analyst or advisor. It represents the analyst's expectation of where the price of a stock is headed.
R
Return on Investment (ROI): A measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. It is calculated by dividing the net profit by the initial cost of the investment.
Risk: The potential for losing some or all of the original investment. Different investments carry different levels of risk, and higher risk often comes with the potential for higher returns.
Risk Tolerance: The degree of variability in investment returns that an investor is willing to withstand. It is an important factor in determining an appropriate investment strategy.
S
Short Selling: The sale of a security that the seller has borrowed, with the intention of buying it back later at a lower price. This strategy is used when an investor anticipates declining security prices.
Stock: A type of security that signifies ownership in a corporation and represents a claim on the part of the corporation's assets and earnings. Stocks are also known as "shares" or "equity."
Stop-Loss Order: An order placed with a broker to buy or sell once the stock reaches a specific price. It is used to limit an investor's loss of a position.
Swing Trading: A style of trading that aims to capture short- to medium-term gains in a stock (or any financial instrument) over a few days to several weeks.
T
Technical Analysis: The evaluation of securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts use charts and other tools to identify patterns that can suggest future activity.
Ticker Symbol: An abbreviation used to uniquely identify publicly traded shares of a particular company on a specific stock market. For example, Apple's ticker symbol is AAPL.
Total Return: The full return on an investment over a given period, including capital gains, dividends, and interest. It provides a complete picture of an investment's performance.
V
Volatility: A statistical measure of the dispersion of returns for a given security or market index. High volatility means the asset's price can change dramatically over a short period, while low volatility means the price tends to be more stable.
Volume: The number of shares or contracts traded in a security or market during a given period. It is an important indicator of market activity and liquidity.
Y
Yield: The income return on an investment, such as the interest or dividends from holding a particular security. Yield is usually expressed as an annual percentage rate based on the investment's cost, current market value, or face value.
Yield Curve: A line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. It is used as a benchmark for other debt in the market, such as mortgage or bank lending rates.