Financial Glossary

A sustained period of declining prices, typically defined as a 20% or greater drop from recent highs in a major index, accompanied by widespread pessimism.

A sustained period of rising prices, typically defined as a 20% or greater advance in a major index from recent lows, accompanied by broad optimism.

Interest calculated on both the initial principal and the accumulated interest from previous periods. Enables exponential (rather than linear) growth over time.

A cash (or occasionally stock) payment a company makes to shareholders, typically quarterly, distributing a portion of profits. Optional and can be cut.

A trading strategy that profits when a security's price falls: borrow shares, sell them, then buy back later at a hopefully lower price to return to the lender.

Earnings Before Interest, Taxes, Depreciation, and Amortization. A proxy for operating cash flow that strips out financing and accounting choices.

The cash a business generates after all operating expenses and capital expenditures — money available for dividends, buybacks, debt repayment, or acquisitions.

Net income divided by shareholder equity, expressed as a percentage. Measures how efficiently a company generates profit from shareholder capital.

A corporate action that divides existing shares into multiple new shares, reducing the price per share proportionally. Does not change total market value.

A debt security where the issuer (government or corporation) borrows money from investors and promises to pay periodic interest plus principal at maturity.

The difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). Represents implicit trading cost and liquidity.

A basket of securities — usually stocks or bonds — that trades on an exchange like a single stock, offering diversification and intraday liquidity at low cost.

The process by which a private company first sells shares to public investors, listing on a stock exchange and becoming publicly traded.

The rate at which the general level of prices for goods and services rises, eroding purchasing power over time. Central banks typically target 2% annual inflation.

A significant, widespread decline in economic activity lasting more than a few months. Commonly signaled by two consecutive quarters of negative GDP growth.

A line plotting bond yields against their maturity dates. Its shape encodes market expectations about growth, inflation, and monetary policy.

A contract giving the buyer the right (but not obligation) to buy a stock at a specific price (strike) before a specific date (expiration). Bullish position.

A contract giving the buyer the right (but not obligation) to sell a stock at a specific price (strike) before a specific date (expiration). Bearish position or portfolio hedge.

The practice of spreading investments across different assets, sectors, or geographies to reduce exposure to any single risk. 'Don't put all your eggs in one basket.'

The excess return an investment generates over its expected return based on risk (beta). Positive alpha = outperformance; negative alpha = underperformance.

A measure of a stock's volatility relative to the broader market. Beta = 1 moves with the market; > 1 amplifies moves; < 1 dampens them; negative beta moves opposite.

A measure of risk-adjusted return: excess return over the risk-free rate, divided by the portfolio's standard deviation. Higher is better.

A statistical measure of how much a security's returns vary over time. Commonly expressed as annualized standard deviation. Higher volatility means larger swings up and down.

The average price of a security over a defined lookback period (e.g., 50 or 200 days), recalculated as new data arrives. Used to identify trend direction.

A momentum oscillator ranging from 0 to 100 that measures the speed and magnitude of recent price changes. Above 70 = overbought, below 30 = oversold.

Annual dividend per share divided by share price, expressed as a percentage. Represents the cash income a shareholder receives relative to what they paid.

The total dollar value of a company's outstanding shares — share price multiplied by shares outstanding. Determines a company's size classification.

A valuation metric comparing a company's current share price to its per-share earnings. A higher P/E implies investors expect stronger future growth or accept lower earning yields.