Investing glossary
Plain-English definitions of common investing and stock market terms.
- Asset Allocation
- How an investor divides a portfolio among asset classes such as stocks, bonds and cash, based on goals, time horizon and risk tolerance.
- Bear Market
- A period when prices fall significantly, commonly defined as a drop of 20% or more from recent highs.
- Benchmark
- A standard, usually a market index, used to measure whether an investment is performing well.
- Bid-Ask Spread
- The difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask).
- Blue-Chip Stock
- A share in a large, well-established company with a long record of stable performance and often reliable dividends.
- Bond
- A loan you make to a government or company. It pays interest (the coupon) and returns your principal at maturity. Bonds are generally lower risk than stocks.
- Bull Market
- A period when stock prices are rising or expected to rise, typically with strong investor confidence.
- Candlestick Chart
- A price chart where each candle shows the open, high, low and close for a period. Traders use the pattern of candles to read price action.
- Capital Gain
- The profit made when an asset is sold for more than its purchase price.
- Compound Growth
- Earning returns on your earlier returns, so growth builds on itself over time. The longer money stays invested, the stronger the effect.
- Diversification
- Spreading investments across different assets, industries and regions so that one poor performer does not sink the whole portfolio.
- Dividend
- A portion of a company's profits paid out to shareholders, usually in cash and often every quarter. Not every company pays one.
- Dollar-Cost Averaging
- Investing a fixed amount at regular intervals regardless of price, which spreads purchases over time and reduces the impact of buying at a peak.
- EPS (Earnings Per Share)
- A company's profit divided by its number of shares outstanding. It shows how much profit is attributable to each share.
- ETF (Exchange-Traded Fund)
- A fund that holds a basket of assets, such as many stocks, and trades on an exchange like a single stock. ETFs offer instant diversification, often at low cost.
- Expense Ratio
- The annual fee a fund charges, expressed as a percentage of the money invested. Lower fees leave more of the return with the investor.
- Growth Stock
- A share in a company expected to grow faster than the overall market. Growth companies often reinvest profits instead of paying dividends.
- Index Fund
- A fund designed to match the performance of a market index such as the S&P 500, by holding the same companies in the same proportions.
- Inflation
- The general rise in prices over time, which reduces the purchasing power of money.
- IPO (Initial Public Offering)
- The first time a private company sells shares to the public on a stock exchange.
- Leverage
- Using borrowed money to increase the size of an investment. It magnifies both gains and losses.
- Limit Order
- An order to buy or sell only at a specified price or better. It gives price control but may not execute if the market never reaches that price.
- Liquidity
- How easily an asset can be turned into cash without a big change in its price. Stocks of large companies are usually highly liquid.
- Market Capitalization
- The total market value of a company's outstanding shares, calculated as share price multiplied by the number of shares. Often shortened to market cap.
- Market Order
- An order to buy or sell immediately at the best available current price. It prioritizes speed over price control.
- P/E Ratio (Price-to-Earnings)
- A company's share price divided by its earnings per share. It shows how much investors pay for each dollar of earnings and is used to compare valuations.
- Paper Trading
- Practicing buying and selling with virtual money at real market prices, so you can learn without risking real funds. Tradecraft is a paper trading app.
- Portfolio
- The collection of all the investments someone holds, such as stocks, bonds and funds.
- Rebalancing
- Adjusting a portfolio back to its target asset allocation after market moves have shifted the mix.
- Risk Tolerance
- How much loss in value an investor can accept, financially and emotionally, in pursuit of higher returns.
- S&P 500
- An index tracking 500 of the largest publicly traded US companies. It is widely used as a benchmark for the overall US stock market.
- Sector
- A group of companies in the same part of the economy, such as technology, healthcare or energy.
- Share
- One unit of ownership in a company. A company's total value divided by its number of shares gives a rough per-share value.
- Short Selling
- Borrowing shares to sell them now, hoping to buy them back cheaper later. Losses can be unlimited if the price rises, so it is a high-risk strategy.
- Stock
- A share of ownership in a company. Owning a stock makes you a part-owner, entitled to a share of the company's growth and, sometimes, its profits through dividends.
- Stop-Loss Order
- An order that sells a position automatically once its price falls to a set level, intended to cap potential losses.
- Trading Volume
- The number of shares traded during a given period. High volume usually signals strong interest and easier trading.
- Value Stock
- A share that appears to trade below its underlying worth based on measures such as earnings or assets, and may be undervalued by the market.
- Volatility
- How much and how quickly a price moves up and down. Higher volatility means larger swings and generally higher risk.
- Yield
- The income an investment returns, usually expressed as an annual percentage of its price or value, such as dividend yield or bond yield.
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Educational content only, not investment advice. Tradecraft is a simulator; no real securities are bought or sold.