Investing Glossary

Plain English definitions of 65 stock market terms, from asset allocation to yield curve.

A

Ask: The lowest price a seller will accept for a share right now.
Asset allocation: How you divide your money between stocks, bonds, cash and other assets.
Averaging down: Buying more of a stock after it falls to lower your average cost. It can help with strong companies and hurt with weak ones.

Balance sheet: A snapshot of what a company owns, what it owes and what is left for shareholders.
Bear market: A drop of 20 percent or more in prices from a recent high.
Beta: A measure of how much a stock tends to move compared with the overall market. A beta above 1 means bigger swings.
Bid: The highest price a buyer will pay for a share right now.
Blue chip: A large, well established company with a long record of stable results.
Bond: A loan you make to a company or government in return for interest and repayment of principal.
Book value: A company assets minus its liabilities, as shown on its balance sheet.
Bull market: A sustained rise in prices, often defined as a gain of 20 percent or more from a recent low.

Capital expenditure: Money a company spends on equipment, buildings and other long term assets. Also called capex.
Capital gain: The profit you make when you sell an investment for more than you paid.
Cash flow: The money moving into and out of a business over a period.
Compound interest: Earning returns on your original money and on the returns already earned.
Convertible note: A loan that can be exchanged for shares of stock, sometimes at a discount to the market price.
Correction: A decline of 10 percent or more, but less than 20 percent, from a recent high.

Dilution: A drop in each existing shareholder ownership percentage when a company creates new shares.
Diversification: Spreading money across many investments so no single one can do too much damage.
Dividend: A portion of company profit paid to shareholders, usually in cash and often every quarter.
Dividend yield: The annual dividend divided by the share price.
Dollar cost averaging: Investing a fixed amount on a regular schedule regardless of price.

Earnings per share: A company profit divided by its number of shares. Often shortened to EPS.
Enterprise value: Market cap plus debt minus cash. A fuller measure of what a business is worth.
ETF: An exchange traded fund: a basket of investments that trades on an exchange like a stock.
Ex-dividend date: The cutoff date. Buy on or after it and you do not receive the next dividend payment.
Expense ratio: The yearly fee a fund charges, shown as a percentage of your investment.

Float: The number of a company shares available for the public to trade.
Free cash flow: Cash from operations minus capital expenditures. The cash left over for owners.

Going concern: An auditor warning that a company may not survive the next twelve months without new funding.
Gross margin: The share of sales left after the direct cost of making the product or service.
Growth stock: A company expected to grow sales and profits faster than average, often reinvesting rather than paying dividends.

Index fund: A fund built to copy a market index such as the S&P 500.
Inflation: A general rise in prices that reduces what your money can buy.
Insider transactions: Reported buying and selling of company shares by officers and directors, filed with regulators. Trading on secret information is illegal.
IPO: Initial public offering: the first time a company sells shares to the public.

Limit order: An order to buy or sell at a set price or better.
Liquidity: How easily you can buy or sell something without moving its price.

Margin: Borrowing money from a broker to invest. It magnifies both gains and losses.
Market cap: Share price times shares outstanding. The value the market puts on a company.
Market order: An order to buy or sell right away at the best available price.
Micro cap: A company with a market value of roughly 50 million to 300 million dollars.
Mutual fund: A pooled investment priced once a day, bought and sold through the fund company.

Operating margin: Operating profit as a percentage of sales.
OTC market: Over the counter: a network where smaller or non-listed company shares trade outside major exchanges.

Payout ratio: The share of earnings a company pays out as dividends.
P/E ratio: Price to earnings: the share price divided by earnings per share.
Penny stock: A low priced stock, usually under 5 dollars, that is often thinly traded and risky.
Position size: How much money you put into a single investment.
Pump and dump: A scheme where promoters hype a stock, then sell into the buying they created.

Rebalancing: Adjusting your holdings back to your target mix.
Return on investment: Gain or loss on an investment as a percentage of what you put in. Also called ROI.
Reverse split: A move that reduces the share count and raises the price per share in proportion.
Risk to reward: Comparing how much you could lose with how much you could gain on a trade.
Rule of 72: A shortcut: divide 72 by your yearly return to estimate years needed to double your money.

Short interest: The number of shares that investors have sold short and not yet bought back.
Short selling: Borrowing shares to sell them, hoping to buy them back cheaper later.
Short squeeze: A rapid price jump caused by short sellers buying back shares to limit losses.
Small cap: A company with a market value of roughly 300 million to 2 billion dollars.
Spread: The gap between the bid and ask price.
Stop loss: An order that sells a stock if it falls to a set price.

Yield curve: A chart comparing interest rates on government bonds of different lengths.

Learn how these ideas work in practice in our start here guides, try the investor tools or test yourself in Stock Jeopardy. For education only, not investment advice.