Welcome To Our Financial Glossary!

Here at FIA we know all too well that the words seen in the world of stocks aren't used in day to day conversation and it can be very off putting. In our financial glossary we've put together a list of those words and what they mean. So, take your time come back whenever you come across a word you don't understand yet and continue to improve your knowledge of the stock market! If you have come across a word you don't understand and it isn't here contact us and we will be sure to add it in!

         A

• Alpha – A measure of an investment's performance relative to a market index or benchmark. A positive alpha indicates the investment has outperformed the benchmark, while a negative alpha means it has underperformed.
   
• AMT (Alternative Minimum Tax) – A parallel tax system that ensures that individuals and corporations pay at least a minimum amount of tax, regardless of deductions and credits. It applies when regular tax calculations fall below a threshold.
   
• Annual Report – A comprehensive report detailing a company’s financial performance over the preceding year. It includes financial statements, management discussions, and auditor opinions.
   
• Arbitrage – The practice of exploiting price differences of the same asset in different markets by simultaneously buying in one market and selling in another to make a profit, usually with little or no risk.
   
• Ask Price – The price at which a seller is willing to sell a security. Also known as the "offer price," it is the opposite of the bid price, which is the price a buyer is willing to pay.
   
• Asset Allocation – The strategy of dividing investments across different asset classes (such as stocks, bonds, real estate) to manage risk and meet investment objectives based on factors like time horizon and risk tolerance.
   
• Asset Class – A category of assets with similar characteristics and behavior in the market, such as equities (stocks), fixed-income securities (bonds), real estate, and commodities.
  

          B 

• Balance Sheet – A financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time, providing a snapshot of its financial health.
   
• Beta – A measure of a stock's volatility in relation to the overall market (often represented by the S&P 500). A beta higher than 1 indicates the stock is more volatile than the market, while a beta less than 1 indicates it is less volatile.
   
• Bond – A debt security where the issuer (government or corporation) borrows money from the bondholder and agrees to pay interest over time and return the principal at maturity.
   
• Book Value – The net value of a company’s assets, calculated as total assets minus total liabilities. It represents the theoretical value of a company if it were liquidated.
   
• Bull Market – A market in which asset prices are rising or are expected to rise. Typically, a bull market is characterized by an overall positive sentiment and investor confidence.
  

          C 

• Capital Gain – The profit made from selling an asset (like stocks, bonds, or real estate) for more than its purchase price. If sold for less, it's considered a capital loss.
   
• Capital Loss – The loss incurred when an asset is sold for less than its purchase price. Capital losses can be used to offset capital gains for tax purposes.
   
• Cash Flow – The total amount of money coming into and going out of a business. Positive cash flow indicates the business is generating more cash than it is using, while negative cash flow indicates the opposite.
   
• CAGR (Compound Annual Growth Rate) – The rate at which an investment grows annually, assuming the growth is compounded over a specified period. It gives a smoothed annual rate of growth over time.
  

          D 

• Dividend – A payment made by a corporation to its shareholders, typically from profits. Dividends can be in the form of cash payments or additional shares of stock.
   
• Dividend Yield – A financial ratio that shows the annual dividend payment as a percentage of a company's current stock price. It’s used by investors to measure the return from dividends relative to the stock price.
   
• Discount Rate – The interest rate used to determine the present value of future cash flows in discounted cash flow (DCF) analysis. It reflects the time value of money and the risk of future cash flows.
   
• Diversification – The strategy of spreading investments across various financial instruments, industries, and other categories to reduce the risk of loss. Diversification helps mitigate the impact of poor performance in any single investment.
   
• Dollar-Cost Averaging – A strategy in which an investor invests a fixed amount of money in a particular asset at regular intervals, regardless of the asset’s price. This helps reduce the impact of market volatility.
  

          E

• EBIT (Earnings Before Interest and Taxes) – A measure of a company’s profitability that excludes interest and taxes. EBIT is often used as an indicator of a company's core operations and ability to generate earnings.
   
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) – A more refined profitability metric than EBIT, EBITDA excludes non-cash expenses such as depreciation and amortization, providing a clearer picture of operating performance.
   
• Earnings Per Share (EPS) – The portion of a company's profit allocated to each outstanding share of common stock. It’s a key indicator of a company's profitability.
   
• Equity – The ownership value in a company, represented by stock or shares. It also refers to the residual value of assets after subtracting liabilities, i.e., the owner's claim on the company’s net assets.
   
• Exchange-Traded Fund (ETF) – A type of fund that holds a collection of assets (such as stocks, bonds, or commodities) and is traded on stock exchanges, much like individual stocks. ETFs provide a way to invest in diversified portfolios with relatively low fees.
   
• Expense Ratio – The annual fee expressed as a percentage of the fund’s average assets under management (AUM) charged by mutual funds or ETFs. It covers operational expenses such as management fees and administrative costs.
   

          F

• Fair Value – The estimated market value of an asset or liability, determined using current market conditions or pricing models. It’s used in financial reporting to reflect the true value of assets and liabilities.
   
• FOMO (Fear of Missing Out) – The emotional reaction investors feel when they believe they might miss a profitable investment opportunity, often leading to impulsive decisions or buying at market peaks.
   
• Foreclosure – A legal process in which a lender takes possession of a property due to the borrower’s failure to make mortgage payments. It can result in the forced sale of the property to recover the loan.
   
• Forward P/E Ratio – A valuation ratio that uses the forecasted earnings of a company for the next 12 months, rather than trailing earnings, to determine its price-to-earnings ratio. It is a forward-looking indicator.
   
• Fundamental Analysis – A method of evaluating a security by examining the underlying economic and financial factors, including company performance, industry conditions, and broader economic indicators.
   
• Futures Contract – A standardized contract to buy or sell an asset (such as commodities, currencies, or stock indexes) at a predetermined future date and price. Futures are used for hedging or speculation.
  

          G

• Gearing – The level of a company’s debt relative to its equity capital, often measured by the debt-to-equity ratio. High gearing indicates higher financial risk, as it suggests more debt relative to equity.
   
• Gross Margin – A profitability metric calculated by subtracting the cost of goods sold (COGS) from total revenue, then dividing by total revenue. It shows the percentage of revenue remaining after direct production costs.
   
• Growth Stock – A stock in a company that is expected to grow at an above-average rate compared to other companies. Growth stocks typically reinvest earnings back into the company rather than paying dividends, which may lead to higher capital gains.
  

          H

• Hedge – An investment made to reduce the risk of adverse price movements in an asset. Hedging often involves taking an opposite position in a related asset to offset potential losses.
   
• High-Yield Bond – A bond with a lower credit rating (below BBB) that offers higher interest rates to compensate for higher default risk. Also known as "junk bonds."
  

          I

• Implied Volatility – The expected volatility of an asset's price, as implied by the price of options on that asset. It reflects market expectations of future price fluctuations.
   
• Index Fund – A type of mutual fund or ETF designed to replicate the performance of a specific market index, such as the S&P 500. Index funds offer broad market exposure at a low cost.
   
• Inflation – The rate at which the general level of prices for goods and services is rising, and, subsequently, the purchasing power of currency is falling.
   
• Initial Public Offering (IPO) – The process through which a private company offers shares to the public for the first time, transitioning to a publicly traded company.
   
• Intrinsic Value – The perceived or calculated value of an asset, based on fundamentals such as earnings, dividends, and growth potential. It can differ from the market value, which is determined by supply and demand.
   
• Interest Rate – The percentage at which interest is charged on borrowed funds or earned on investments. Central banks control interest rates to influence economic activity.
   
• Intrinsic Value of an Option – The value of an option if it were exercised today, calculated as the difference between the underlying asset's current price and the option’s strike price.
   

          K

• KPI (Key Performance Indicator) – A measurable value that demonstrates how effectively a company is achieving key business objectives. Investors often use KPIs to assess the financial health of a company.
   

          L

• Leverage – The use of borrowed funds to finance investments, increasing potential returns but also the risk of larger losses if the investments do not perform as expected.
   
• Liquidity – The ease with which an asset can be bought or sold in the market without affecting its price. Cash is considered the most liquid asset, while real estate is relatively illiquid.
   
• Liquidity Risk – The risk that an investor may not be able to buy or sell an asset quickly enough to avoid a loss, or at a price that reflects the asset’s true value.
   
• Long Position – The purchase of a security with the expectation that its price will rise. When an investor is "long," they own the asset.wards/distinctions, office locations, shareholder reports, whitepapers, media mentions and other pieces of content that don’t fit into a shorter, more succinct space.

         M

• Margin – The amount of equity an investor must put up to borrow funds from a broker to buy securities. It is typically expressed as a percentage of the total investment.
   
• Market Capitalization – The total value of a company's outstanding shares of stock, calculated by multiplying the current stock price by the number of shares. It is used to categorize companies as large-cap, mid-cap, or small-cap.
   
• Market Maker – A firm or individual that provides liquidity to the markets by buying and selling securities at quoted prices. They help ensure that there is enough supply and demand in the market.
   
• Market Order – An order to buy or sell a security immediately at the best available price. Market orders are executed quickly, but the price may fluctuate depending on market conditions.
   
• Maturity – The date on which a bond, loan, or other debt instrument must be repaid. Bonds with longer maturities usually offer higher yields to compensate for the greater time risk.
   
• Mean Reversion – A theory suggesting that asset prices tend to revert to their long-term average over time. If an asset is overvalued or undervalued, it is expected to return to its normal value eventually.
   
• Mid-Cap – Refers to companies with a market capitalization between $2 billion and $10 billion. These companies are often considered to have growth potential but with more risk than large-cap companies.
   
• Monte Carlo Simulation – A mathematical technique used to model the probability of different outcomes in processes that involve uncertainty. It is often used in risk analysis and financial modeling.
   
• Moving Average – A statistical calculation used to analyze data over a specific period. In stock trading, it refers to a trend-following indicator that smooths price data to identify the direction of the trend.
   
• Mutual Fund – An investment vehicle that pools funds from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Mutual funds are managed by professional portfolio managers.
   

          N

• NAV (Net Asset Value) – The value of a mutual fund or ETF's assets minus its liabilities. It represents the price at which shares of the fund can be bought or sold.
   
• Net Income – A company’s total earnings, calculated by subtracting expenses, taxes, and costs from total revenue. Net income is a key measure of a company’s profitability.
   

         O

• Option – A financial contract that gives the holder the right, but not the obligation, to buy or sell an asset at a specific price within a specific time frame. Options are used for speculation or hedging.
   
• Outperform – A rating or recommendation given to a stock or asset that is expected to perform better than the market or its peers. Analysts may rate stocks as outperform, market perform, or underperform.
   
• Overbought – A condition in which the price of an asset has risen too quickly and is expected to decline. This is often measured using technical indicators such as the Relative Strength Index (RSI).
   
• Oversold – A condition in which the price of an asset has fallen too quickly and is expected to rise. Like overbought conditions, this is also analyzed using technical indicators like RSI.
   

          P

• P/E Ratio (Price-to-Earnings Ratio) – A valuation ratio that compares a company’s current share price to its earnings per share (EPS). A high P/E ratio indicates that investors expect high future growth, while a low P/E may indicate undervaluation or poor growth prospects.
   
• Penny Stock – A stock that trades for less than $5 per share. Penny stocks are often highly speculative and volatile, with higher risk due to low liquidity and limited financial information.
   
• Portfolio – A collection of financial assets such as stocks, bonds, commodities, or real estate owned by an investor. A diversified portfolio aims to balance risk and return.
   
• Premium – The amount by which the price of a bond, option, or other asset exceeds its face value or intrinsic value. In options, the premium is the cost paid to purchase an option contract.
   
• Price Action – The movement of a security’s price over time, used by traders to make decisions based on patterns and trends, often without relying on fundamental or external factors.
   
• Price-to-Book Ratio (P/B Ratio) – A financial ratio used to compare a company’s market value (price) to its book value (assets minus liabilities). A low P/B ratio may suggest an undervalued stock.
   
• Private Equity – Investments in private companies that are not listed on public exchanges. Private equity firms often invest in or acquire companies to improve profitability before eventually selling them.
   
• Publicly Traded – Refers to companies whose stocks are listed and traded on stock exchanges. Publicly traded companies must disclose financial information to regulators and shareholders.
   
• Put Option – A financial contract that gives the holder the right to sell an asset at a specific price within a specified time frame. It is typically used as a form of insurance against price declines.
   

         Q

• Quantitative Easing (QE) – A monetary policy used by central banks to stimulate the economy by increasing the money supply and purchasing government securities to lower interest rates.
   
• Quick Ratio – A liquidity ratio that measures a company’s ability to pay its short-term liabilities with its most liquid assets. It’s a more conservative measure than the current ratio, as it excludes inventory from assets.
   

         R

• Rally – A period of sustained increases in the prices of a particular asset or group of assets, typically in the context of a stock market or a specific sector.
   
• Rate of Return (RoR) – The gain or loss made on an investment relative to the original amount invested, usually expressed as a percentage.
   
• Real Estate Investment Trust (REIT) – A company that owns, operates, or finances real estate that produces income. REITs allow individuals to invest in real estate without directly owning property.
   
• Recession – A period of economic decline typically characterized by negative GDP growth, rising unemployment, and reduced consumer and business activity.
   
• Risk-Reward Ratio – A ratio used to assess the potential return on an investment relative to the risk taken. A high risk-reward ratio suggests a higher potential return for taking on more risk.
   

          S

• Sector – A group of companies that operate in a similar industry or market segment, such as the technology sector or healthcare sector. Sector performance is often used to assess economic conditions.
   
• Short Selling – The practice of borrowing shares of stock from a broker and selling them with the intention of buying them back at a lower price to return to the lender. Short selling is used to profit from a decline in the price of a stock.
   
• S&P 500 – A stock market index that tracks the performance of 500 large publicly traded companies in the U.S. It is often used as a benchmark for the overall market's performance.
   
• Standard Deviation – A statistical measure of the volatility or risk of an investment, showing how much the returns of an asset deviate from its average return.
   
• Stock Split – A corporate action in which a company issues additional shares to shareholders, increasing the total number of shares outstanding while maintaining the overall value of the company.
   
• Stop-Loss Order – An order placed with a broker to sell a security once it reaches a certain price, limiting an investor’s loss on a position.
   
• Synthetic Position – A trading strategy that simulates the performance of a specific asset or portfolio using a combination of other financial instruments, such as options and futures.
   

          T

• Time Value of Money – The concept that money today is worth more than the same amount in the future due to its potential earning ability, which is the basis of most financial decisions.
   
• Treasury Bond – A long-term debt security issued by the U.S. government, typically with maturities ranging from 10 to 30 years. Treasury bonds are considered very low-risk investments.
   
• Treasury Yield – The return on investment for U.S. Treasury securities, often used as a benchmark for interest rates and risk-free rates.
   

         V

• Volatility – A statistical measure of the dispersion of returns for a given security or market index. Higher volatility indicates a higher degree of uncertainty or risk.
   
• Volume – The number of shares or contracts traded in a security or market during a given period. It is often used to gauge the activity level of a market.
   

         W

• Warrant – A financial instrument that gives the holder the right to purchase a company’s stock at a specific price before the warrant expires.
   
• Wash Sale – A sale of a security at a loss, followed by the purchase of the same or a substantially identical security within a short time frame. Wash sales are disallowed for tax purposes.
   

         Y

• Yield – The income generated by an investment, typically expressed as a percentage of the investment's cost or market value. For bonds, it's often the interest paid divided by the bond's price.
   
• Yield Curve – A graphical representation of interest rates across different maturities, often used as an indicator of economic expectations and the risk premium for different bond maturities.
  

         Z 

• Zero-Coupon Bond – A type of bond that does not pay periodic interest but is issued at a discount to its face value. The investor receives the full face value upon maturity.
   
• Z-Score – A statistical measure used to predict the likelihood of a company going bankrupt, calculated based on a variety of financial ratios, such as profitability, leverage, and liquidity.