Glossary
Short, plain definitions of the terms you meet in markets, earnings reports and Fed decisions.
- Terms
- 150
- Categories
- 8
- Links Between Terms
- 359
Valuation & Fundamentals
29 Terms- Book ValueTotal assets minus total liabilities, which equals shareholders' equity on the balance sheet.
- Capital ExpenditureCapexMoney a company spends on long-lived assets such as factories, equipment or data centers.
- Current RatioCurrent assets (cash, receivables, inventory and other assets expected to turn into cash within a year) divided by current liabilities.
- Debt-to-Equity RatioD/EA company's debt divided by its shareholders' equity, showing how much of the business is financed with borrowed money.
- Diluted EPSEarnings per share calculated as if everything that could turn into shares (employee stock options, restricted stock units, convertible bonds) already had.
- Discounted Cash FlowDCFA valuation method that estimates a company's future free cash flows and discounts them back to today at a chosen rate, then adds them up.
- DividendA cash payment a company makes to its shareholders out of its profits.
- Dividend Payout RatioDividends paid as a share of net income.
- Dividend YieldThe annual dividend per share divided by the share price.
- Earnings per ShareEPSNet income for the period (after any preferred dividends) divided by the weighted average number of shares outstanding.
- EBITDAEarnings before interest, taxes, depreciation and amortization: net income with interest expense, taxes, and depreciation and amortization added back.
- Enterprise ValueEVMarket capitalization plus the company's debt, minus its cash and cash equivalents; some calculations also add preferred stock and minority interests.
- EV/EBITDAEnterprise value divided by annual EBITDA.
- Free Cash FlowFCFOperating cash flow minus capital expenditures.
- Gross MarginGross profit (revenue minus the cost of goods sold) as a percentage of revenue.
- Market CapitalizationThe share price multiplied by the total number of shares outstanding.
- Net Profit MarginNet income, what remains after interest, taxes and every other expense, as a percentage of revenue.
- Non-GAAP MeasuresFigures that start from results under US accounting standards (GAAP) and adjust them by removing or adding items the company chooses; adjusted EPS is the most common example.
- Operating Cash FlowThe net cash a company's core operations bring in over a period.
- Operating MarginOperating income, what remains after operating expenses such as research and development, marketing and general administration are subtracted from gross profit, as a percentage of revenue.
- PEG RatioThe P/E ratio divided by the expected annual growth rate of earnings per share, expressed in percent.
- Price-to-Book RatioP/BA company's market capitalization divided by its shareholders' equity, or book value.
- Price-to-Earnings RatioP/EThe share price divided by earnings per share.
- Price-to-Sales RatioP/SMarket capitalization divided by annual revenue.
- Return on AssetsROANet income divided by total assets.
- Return on EquityROENet income divided by shareholders' equity, usually the average equity over the period.
- RevenueThe total amount a company takes in from its main business, selling goods and services, over a period; it is reported net of returns and discounts, which is why it is also called net sales.
- Share BuybackA company buying its own shares in the market.
- Share DilutionThe shrinking of existing shareholders' ownership stake when a company issues new shares and the share count rises.
Market Mechanics
32 Terms- After-Hours TradingAfter-hours trading is buying and selling after the regular session closes at 4:00 p.m.
- American Depositary ReceiptADRAn ADR is a certificate that represents shares of a non-US company and trades in the US in dollars; a US depositary bank holds the underlying shares and issues ADRs against them.
- Bear MarketA bear market is a prolonged, deep decline in prices.
- BetaBeta is a coefficient that shows how much a stock has moved relative to the overall market, usually the S&P 500.
- Bid and AskThe bid is the highest price buyers are currently willing to pay for a stock; the ask is the lowest price sellers are currently willing to accept.
- Bid-Ask SpreadThe bid-ask spread is the gap between the ask and the bid.
- BrokerageA brokerage is the firm that routes your orders to exchanges or other trading venues and holds the shares and cash in your account.
- Bull MarketA bull market is a prolonged period of rising prices.
- Circuit BreakerA circuit breaker is a rule that temporarily halts trading during a sharp decline.
- DiversificationDiversification means spreading money across many assets that do not move together, so that one company's or sector's bad run hurts the portfolio less.
- Exchange-Traded FundETFAn ETF is an investment fund that trades on an exchange throughout the day like a single stock.
- Fractional ShareA fractional share is ownership of part of a share rather than a whole one.
- Free FloatFree float is the part of a company's shares that can trade freely in the market; shares held by executives, founders, strategic holders or under selling restrictions are excluded.
- Initial Public OfferingIPOAn IPO is the first time a company offers its shares for sale to the public on a stock exchange.
- LeverageLeverage is using borrowed money or derivatives to hold a position larger than your own capital.
- Limit OrderA limit order sets the highest price you will pay when buying or the lowest price you will accept when selling.
- LiquidityLiquidity is how quickly and easily an asset can be bought or sold without moving its price much.
- Margin AccountA margin account lets you borrow from your broker against the securities in your account, and you pay interest on the loan.
- Market CorrectionA correction is the common term for a decline of 10% to 20% from a recent peak in an index or stock.
- Market MakerA market maker is a firm that continuously quotes both a bid and an ask for a stock and stands ready to trade on either side.
- Market OrderA market order is an instruction to buy or sell immediately at the best price available, without naming a price.
- Pre-Market TradingPre-market trading is trading in US stocks before the regular session opens.
- Reverse Stock SplitA reverse stock split combines several shares into one.
- Short SellingShort selling means borrowing shares you do not own from your broker, selling them, and later buying them back to return; it is done in the expectation that the price will fall.
- Short SqueezeA short squeeze happens when a heavily shorted stock rises and short sellers are forced to buy shares back to cut their losses, and that buying pushes the price even higher.
- Special Purpose Acquisition CompanySPACA SPAC is a company with no operating business that raises money in an IPO in order to merge with a private company within a set time.
- Stock IndexA stock index tracks the combined price movement of a defined group of stocks as a single number.
- Stock SplitA stock split divides each existing share into several shares.
- Stop OrderA stop order waits until the stock trades at a price you set and then becomes a market order; it is mostly used on the sell side to limit losses.
- T+1 SettlementT+1 means a stock trade settles, with shares and cash formally changing hands, one business day after the trade date.
- Trading VolumeTrading volume is the number of shares that change hands over a period, usually reported per day.
- VolatilityVolatility measures how sharply and often a price swings; it is usually calculated as the standard deviation of returns and quoted as an annualized percentage.
Macro & the Fed
26 Terms- Basis PointA basis point is one hundredth of a percentage point: 100 basis points equal 1 percentage point.
- Consumer Price IndexCPIThe CPI tracks the change in the price of a basket of goods and services bought by households.
- Core InflationCore inflation is inflation measured after removing food and energy, whose prices swing sharply and often temporarily.
- Dot PlotThe dot plot shows, as one dot per FOMC participant, where each thinks the policy rate should be at the end of each of the next few years and over the longer run.
- DoveA dove is a central banker, or a stance, that puts growth and employment first and leans toward cutting rates or keeping them low.
- Federal Open Market CommitteeFOMCThe FOMC is the Fed committee that sets interest rate policy.
- Gross Domestic ProductGDPGDP is the value of all final goods and services produced in a country over a period, the basic measure of the size of an economy.
- HawkA hawk is a central banker, or a stance, that puts fighting inflation first and leans toward keeping rates high or raising them.
- Inverted Yield CurveAn inverted yield curve is when short-term yields rise above long-term ones; the most watched measures are the 10-year minus 2-year and 10-year minus 3-month spreads.
- Job Openings and Labor Turnover SurveyJOLTSJOLTS is a monthly BLS survey measuring job openings, hires and separations in the US, with quits and layoffs reported separately.
- Nonfarm PayrollsNFPNonfarm payrolls is the number of paid jobs the US economy added or lost in a month, excluding farm workers, private household employees and the self-employed.
- Personal Consumption Expenditures Price IndexPCEThe PCE price index, published monthly by the Bureau of Economic Analysis (BEA), measures price changes across consumer spending.
- Policy Rate (Federal Funds Rate)The federal funds rate is the rate banks charge each other to lend reserves held at the Fed overnight, and the FOMC sets a target range for it a quarter of a percentage point wide.
- Producer Price IndexPPIThe PPI measures the average change in the prices that domestic producers receive for the goods and services they sell.
- Purchasing Managers' IndexPMIA PMI is an index built from a monthly survey that asks company purchasing managers about orders, output, employment and prices.
- Quantitative EasingQEQuantitative easing is a central bank buying large amounts of bonds with newly created reserves; the Fed's purchases have been mainly Treasuries and mortgage-backed securities.
- Quantitative TighteningQTQuantitative tightening is a central bank shrinking its balance sheet.
- Real Interest RateThe real interest rate is the nominal rate minus inflation, the return measured in actual purchasing power.
- RecessionA recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months.
- Retail SalesRetail sales is a monthly Census Bureau report on total sales at US retail and food service businesses.
- Sahm RuleNamed after economist Claudia Sahm, the Sahm rule is a recession indicator.
- Unemployment RateThe unemployment rate is the share of the labor force that has no job, is available to work and has actively looked for work in the past four weeks.
- US Dollar IndexDXYThe dollar index measures the US dollar against six major currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
- US Treasury SecuritiesTreasuries are the debt securities the US Treasury issues to borrow money.
- Weekly Jobless ClaimsInitial jobless claims count the people filing for unemployment insurance for the first time in a given week in the US.
- Yield CurveThe yield curve lines up the yields of bonds from the same issuer (usually the US Treasury) from the shortest maturity to the longest.
Technical Analysis
20 Terms- Average True RangeATRATR is a volatility indicator that measures, in price units, how much a stock typically moves in a period.
- Bollinger BandsBollinger Bands are two bands drawn 2 standard deviations above and below a 20-period moving average of price.
- BreakoutA breakout is when price moves clearly above a resistance level or below a support level.
- Candlestick ChartA candlestick chart shows each period's open, high, low and close as a single "candle".
- Death CrossA death cross is when the 50-day moving average crosses below the 200-day moving average.
- Exponential Moving AverageEMAAn EMA is a moving average that gives more weight to recent prices than to older ones.
- Fibonacci RetracementFibonacci retracements are horizontal levels showing how much of a significant rise or fall price might give back.
- Golden CrossA golden cross is when the 50-day moving average crosses above the 200-day moving average.
- Moving AverageA moving average is the average of the last set number of closing prices; each new day pushes the oldest one out, so the average "moves" with the price.
- Moving Average Convergence DivergenceMACDMACD is a momentum indicator equal to the 12-day exponential moving average minus the 26-day exponential moving average.
- OverboughtOverbought describes a price that has risen so fast in a short time that a momentum indicator (most often RSI above 70) has crossed its conventional threshold.
- OversoldOversold describes a price that has fallen so fast in a short time that a momentum indicator (most often RSI below 30) has dropped under its conventional threshold.
- Pivot PointA pivot point is a reference level calculated as the average of the previous period's (usually the previous day's) high, low and close.
- Price GapA price gap is when price opens entirely above or below the previous period's trading range, leaving an empty space on the chart where no trades happened.
- Relative Strength IndexRSIRSI is a momentum indicator that moves between 0 and 100, calculated from the ratio of average gains to average losses over a set period.
- Resistance LevelA resistance level is a price zone where rallies have stopped several times in the past and sellers took over.
- Risk/Reward RatioThe risk/reward ratio compares the potential loss you accept on a trade with the potential gain you target.
- Support LevelA support level is a price zone where declines have stopped several times in the past and buyers stepped in.
- TrendlineA trendline is a straight line drawn on a chart through successive lows (in an uptrend) or successive highs (in a downtrend).
- Volume-Weighted Average PriceVWAPVWAP is the average price of the day's trades weighted by their volume; it starts from scratch at the beginning of each trading day.
Earnings Season
14 Terms- Consensus EstimateThe consensus estimate is the average or median of forecasts that analysts covering a company make for items such as earnings per share and revenue.
- Earnings CallAn earnings call is a conference call or webcast that management holds shortly after releasing results, open to analysts and investors.
- Earnings SeasonEarnings season is the stretch of a few weeks in which public companies report the results of the quarter that just ended, one after another.
- Earnings SurpriseAn earnings surprise is how far reported earnings per share land from the consensus estimate, usually stated as a percentage.
- Ex-Dividend DateThe ex-dividend date is the first trading day on which a buyer of the stock is not entitled to an announced dividend.
- Fiscal QuarterA fiscal quarter is one of the three-month blocks of a company's fiscal year, referred to as Q1, Q2, Q3 and Q4.
- Fiscal YearA fiscal year is the twelve-month period a company uses for its annual financial reporting.
- Form 10-KThe 10-K is the annual report US public companies file with the SEC and the most comprehensive official document about a company.
- Form 10-QThe 10-Q is the quarterly report US public companies file with the SEC for the first three quarters of their fiscal year; the fourth quarter is covered in the annual 10-K.
- Form 8-KThe 8-K is a current report a company files with the SEC when a significant event occurs that investors should know about.
- GuidanceGuidance is management's own forecast for the coming quarter or fiscal year for items such as revenue, earnings or margins, usually given as a range.
- Quarter over QuarterQoQQuarter over quarter compares a quarter's figure with the quarter immediately before it.
- Record DateThe record date is the date a company uses to determine which shareholders receive a dividend: everyone on the company's books as a shareholder that day gets paid.
- Year over YearYoYYear over year compares a period's figure with the same period a year earlier.
Options
14 Terms- Call OptionA call option gives its holder the right to buy a stock at the strike price until expiration.
- Covered CallA covered call means selling one call option for every 100 shares you own.
- DeltaDelta shows roughly how much an option's premium changes when the stock moves $1.
- Expected MoveThe expected move is the approximate price range that option prices imply for a stock through a given date.
- Expiration DateThe expiration date is when an option stops being valid; after it, the right can no longer be exercised.
- Implied VolatilityImplied volatility is backed out of option prices and shows how much volatility the market expects in a stock over the coming period, quoted as an annualized percentage.
- Moneyness (ITM, ATM, OTM)Moneyness describes where an option's strike sits relative to the stock price.
- OptionAn option is a contract that gives its holder the right, but not the obligation, to buy or sell an asset at a set price until (or on) a set date.
- Option PremiumThe option premium is the option's market price: what the buyer pays and the seller receives.
- Put OptionA put option gives its holder the right to sell a stock at the strike price until expiration.
- StraddleA straddle is buying a call and a put on the same stock with the same strike and the same expiration.
- Strike PriceThe strike price is the fixed price at which the option holder can buy (with a call) or sell (with a put) the stock.
- ThetaTheta shows how much an option's premium erodes from the passage of one day, with everything else held constant.
- VIXFear IndexThe VIX is an index calculated by Cboe from S&P 500 option prices that shows the volatility the market expects over the next 30 days, as an annualized percentage.
Tax & Turkey
8 Terms- Capital Gain (Değer Artış Kazancı)The Turkish tax term for gains from disposing of assets such as securities.
- Currency EffectThe change in the lira value of a foreign-currency asset caused only by a move in the exchange rate.
- Double Taxation TreatyAn agreement between two countries to prevent the same income from being fully taxed twice; it sets which country may tax which income and at what rate.
- Form 1042-SAn annual statement a broker or other payer sends to foreign persons who received US-source income.
- Form W-8BENAn IRS form that individuals who are not US tax residents fill in and give to their broker.
- Turkish Income Tax ReturnThe annual return in which income earned in Turkey's tax year, the calendar year, is reported to the tax authority in March of the following year.
- Withholding TaxTax taken out by the payer at the moment income is paid and passed on to the tax authority, so the investor receives the net amount.
- Yİ-ÜFE IndexationRaising the purchase cost for inflation when a Turkish capital gain is calculated.
Filings & Insiders
7 Terms- Form 13FA quarterly report filed with the SEC by institutional investment managers holding $100 million or more in 13(f) securities, mainly stocks traded on US exchanges.
- Form 4The form officers, directors and owners of more than 10% of a company's shares use to report changes in their holdings to the SEC.
- Insider TradingBuying and selling of a company's shares by its officers, directors or shareholders who own more than 10% of the stock.
- Lock-Up PeriodThe period after an IPO during which executives, employees and pre-IPO investors cannot sell their shares.
- Schedule 13DThe filing an investor makes with the SEC after acquiring more than 5% of a company's voting shares.
- Securities and Exchange CommissionSECThe federal agency that regulates and oversees US securities markets, created by the Securities Exchange Act of 1934.
- Stock-Based CompensationSBCPaying employees partly in restricted stock units (RSUs) or stock options.
To Understand This