Investing Glossary

Short, plain-English definitions of the terms used across StockMarketInvesting.com. For more detail, follow the links to the related guides or see the Investor.gov glossary.

Accredited investor: A person or entity that meets income, net worth or professional tests set by the SEC, and so may invest in certain private offerings such as many hedge funds.
Ask: The lowest price a seller is currently willing to accept for a security.
Asset allocation: How a portfolio is divided among categories such as stocks, bonds and cash.
Basis (cost basis): Generally what you paid for an investment, including fees. It is used to calculate a gain or loss when you sell.
Bear market: A broad, sustained decline in prices, often described as a drop of 20% or more from a recent high.
Bid: The highest price a buyer is currently willing to pay for a security.
Bond: A loan to a government or company that pays interest and returns the principal at maturity.
Broker-dealer: A firm that buys and sells securities for customers and for itself. In the U.S., broker-dealers register with the SEC and are FINRA members.
Bull market: A broad, sustained rise in prices.
Candlestick: A chart symbol showing a period's open, high, low and close, with a body between the open and close.
Capital gain: The profit from selling an investment for more than its cost basis.
Circuit breaker: A rule that pauses trading across the market, or in a single stock, after a large, rapid price move.
Diversification: Spreading money across many investments so that a problem in one does not sink the whole portfolio.
Dividend: A payment a company makes to shareholders, usually in cash.
Dollar-cost averaging: Investing a fixed amount on a regular schedule regardless of price.
Earnings per share (EPS): A company's profit divided by its number of shares outstanding.
ETF (exchange-traded fund): A fund that holds a basket of investments and trades on an exchange like a stock.
Ex-dividend date: The date on or after which a buyer of a stock is not entitled to the next dividend.
Expense ratio: The annual fee a fund charges, expressed as a percentage of assets.
FINRA: The Financial Industry Regulatory Authority, which writes and enforces rules for broker-dealers under SEC oversight.
Index: A measure of the value of a group of securities, such as the S&P 500.
Index fund: A mutual fund or ETF designed to track the performance of an index.
IPO (initial public offering): A company's first sale of shares to the public.
Leverage: Using borrowed money or derivatives to increase exposure. It magnifies both gains and losses.
Limit order: An order to buy or sell at a set price or better.
Liquidity: How easily an investment can be bought or sold without moving its price.
Margin: Money borrowed from a broker to buy securities, using the account as collateral.
Margin call: A demand from a broker to add money or securities when account equity falls below the required level.
Market capitalization: A company's share price multiplied by its number of shares outstanding.
Market order: An order to buy or sell right away at the best available price.
Mutual fund: A pooled investment priced once a day at its net asset value.
Net asset value (NAV): The value of a fund's assets minus its liabilities, divided by the number of shares.
Price-to-earnings ratio (P/E): A stock's price divided by its earnings per share. It is one rough gauge of how richly a stock is valued.
Prospectus: A legal document describing a fund or securities offering, including its objectives, risks and fees.
Rebalancing: Bringing a portfolio back to its target allocation.
Required minimum distribution (RMD): The minimum amount that must be withdrawn each year from most traditional retirement accounts after a set age.
Roth account: A retirement account funded with after-tax money, where qualified withdrawals are tax free.
SEC: The U.S. Securities and Exchange Commission, the federal agency that enforces securities laws.
Settlement: The final exchange of cash and securities after a trade. Most U.S. stock trades settle one business day after the trade (T+1).
Short selling: Selling borrowed shares in the hope of buying them back later at a lower price. Losses can be unlimited if the price rises.
SIPC: The Securities Investor Protection Corporation, which helps return customer assets, within limits, when a member brokerage firm fails. It does not cover market losses.
Spread: The difference between the bid and the ask price.
Stock: A share of ownership in a company.
Stop order: An order that becomes a market order once a set stop price is reached.
Volatility: How much and how quickly an investment's price moves up and down.
Volume: The number of shares traded during a period.
Wash sale: Selling at a loss and buying a substantially identical investment within 30 days before or after. The loss is deferred for tax purposes.
Yield: Income from an investment, such as dividends or interest, expressed as a percentage of its price.

Sources

Educational information. This page explains general concepts and is not investment, tax or legal advice. Rules, limits and fees are set by regulators and firms and can change, so confirm the details with the official sources listed before you act.

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