85+ Investing Terms And Definitions For Experienced Investors

This is a glossary of investment terms for both beginners and seasoned investors.

It is the second part in a series of posts on investment terms and definitions. The first part focuses on the investing terms that beginners should know. See the link below:

65 Must Know Investment Terms And Definitions For Beginners

# – B

52-week high: the highest price at which a security has traded over the trailing 52 weeks.

52-week low: the lowest price at which a security has traded over the past 52 weeks. Like the 52-week high, it is a technical indicator

52-week range: shows the lowest and highest prices a stock has reached over the previous 52 weeks.

Accrued Interest: accumulated interest earned by an investor on a security, but yet to be received.

After-hours Trading: refers to trading done outside of the regular trading hours of a stock exchange. It is also known as extended-hours trading. It is used by investors, and often traders, to trade if some news break after the market close that affects their investment.

After-Tax Returns: the returns made on an investment after adjusting for taxes. In general, it will vary for different individuals depending on their tax bracket.

Annual High: the investment’s highest price during the current calendar year. In general, if the current price is much lower than the Annual high, it could be an indication of a problem specific to the investment or the general market.

Annual Low: the lowest price a security has reached during the current calendar year.

Annual Report: a summary of the financial position and performance of a company, or fund, over the past year. It is usually distributed to the shareholders and other stakeholders.

Annuity: a contract sold by insurance companies that makes a series of fixed or variable payments to a holder (annuitant) for a specified period or for life. In exchange, the annuitant makes a lump sum investment with the insurance company.

An example is RRIF in Canada.

Arbitrage: an investment strategy that takes advantage of temporary differences in asset prices across markets. With this strategy, a trader or investor buys an asset in one market and sells it in another market at a higher price.

Ask Price: the minimum price that sellers of a stock are willing to accept for one unit of that stock.

Assets: Any item or resource with an economic value; and can be reasonably expected to be exchanged for another item of value now or in the future. It includes cash, real estate, stocks, and other investments.

Balance Sheet: a financial statement that shows a company’s financial position as at a specific date. It shows the summary of the company’s assets, liabilities, and equities.

Basis point: one-hundredth of one percent. That is, it is 0.01% or (1/100 of 1%). For example, 200 basis point equals 2%.

Beta: measures how volatile a stock or investment is, relative to the market as a whole. A beta of 1 is neutral, below 1 is less volatile and above 1 is more volatile.

Bond Rating: a grade that indicates the riskiness and credit quality of a bond using a letter scale. They are used by investors assess the financial strength of a bond issuer, that is its ability to pay both principal and interest on time. The ratings are provided by Bond Rating agencies like Standard and Poor’s and Moody’s.

The lower the rating on the letter scale, the higher the risk of the bond. For example, bonds with AAA ratings have the highest quality while any one with a rating below BBB is junk (higher risk of default).

C – E

Call Option: a type of option contract that gives the holder the right, but not the obligation, to buy a security at a specified price (strike price) within a given period.

Canada Deposit Insurance Corporation (CDIC): the federal corporation that protects deposits by Canadians in member financial institutions. The protection covers funds in savings, chequing accounts and GICs up to $100,000 across different categories, but it does not extend to stocks and bonds

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Commodities: refers to investments that are tangible, and often used as raw material or input in producing other goods and services. They are usually traded using future contracts and are riskier than stocks. Crude oil, wheat and solid metals like gold are examples of commodities.

Compound Annual Growth Rate (CAGR): an investment’s annual growth rate over time, with the interest compounded. It is an annualized constant interest rate that would turn a starting investment amount to a future value, assuming the annual income is reinvested.

Coupon: refers to the periodic interest amount paid on a bond investment. It is calculated using the bond’s coupon rate multiplied by the face value

Coupon Rate: is the interest rate on a bond

Day Order: an order to buy or sell a security at a specific price by the end of the day. If the order is not filled by the end of the day’s trading session, the order will expire.

Delta: a measure of the change in the price of an option resulting from a change in the price of the underlying security.

Derivatives: are financial instruments that derive their value from the value of an underlying asset, group of assets or an index. Stock options, futures, forwards are all examples of derivatives.

Dividend Payout Ratio: represents the total amount of dividend paid to shareholders divided by the company’s net income. It is an indication of how much a company is paying out and retaining in the company. More importantly, it can be used to determine if the dividend is sustainable or not.

Dividend Reinvestment Plan (DRIP): an arrangement that allows investors to receive dividends in the form of additional shares instead of cash. They are either offered directly by the company or through the brokerage.

Dividend Yield: a ratio that shows how much a company is paying out as dividend compared to its stock price.

Dow Jones Industrial Average (DJIA): a common index that tracks the performance of the stock market using the prices of 30 actively traded US blue chip stocks, mostly industrial companies. It is a price-weighted index, with higher priced stocks having a higher weight than stocks with lower share price.

Earnings Per Share (EPS): calculated as the net income divided by the number of shares outstanding of a company. Effectively, it shows the company’s profit allocated to each share and its an indication of its profitability. EPS is used by analysts to compare the performance of 2 companies, usually within the same sector.

Exchange: a marketplace where buyers and sellers connect to trade different securities, such as stocks, bonds, options, futures. Commodities and so on. It is not necessary a physical location – most orders are now placed and filled electronically.

Ex-dividend date: the date a stock goes ex-dividend; that is, start trading without the upcoming dividend payment. If an investor buys a stock on or after the ex-dividend date, they won’t qualify to receive the dividend.

F – J

Fair market value (FMV): refers to the price of an asset in the marketplace; that is, what it is worth in the open market.

Fixed Income Securities: are securities that pay a fixed rate of interest on a periodic basis to its investors. Bonds and GICs are examples of fixed income securities.

Forward P.E.: a ratio of the current market price to the average EPS estimate for the next fiscal period. It indicates how cheap or expensive a stock is relative to the broad market, its industry peers, and its own historical EPS.

Front-end Load: are upfront commission or sales charge paid by investors to buy shares of a fund. They are deducted from the investor’s initial deposit, so the amount available to invest is lower.

Fund: a pool of money from a group of investors for the purpose of buying securities. An example is mutual funds.

Futures: are derivative financial contracts that gives an obligation to purchase or sell an asset at a predetermined future date and price. They are standardized contracts and trade on an exchange.

Growth Investment: is an investment strategy with a focus on growth stocks, that is companies with rapid growth in earnings or revenue.

Growth Stock: a stock in a company that is growing rapidly and expected to continue to grow in the future. They have an above-average growth rate in revenue and earnings compared to their industry or market.

Hedge Fund: are alternative investments that use pooled funds to invest using higher risk strategies like leverage, short selling, derivatives and so on. They are more aggressively managed than mutual funds. Because of the higher risk, only high-income investors or accredited investors are eligible to invest in them.

Hedging: a risk management strategy used to reduce the risk of losses in an investment by taking an offsetting position in a similar investment. For example, you can buy a put option to protect your stock position in a company.

High-yield Bond (or Junk bond): are bonds with a lower rating because of the higher risk of default by the issuer. To compensate for the higher risk, the bonds will trade at a higher rate than those of lower risk companies.

Income Statement: a financial statement that shows a company’s financial performance over a given period, like a quarter or year. It shows the revenue earned by the company and all its expenses for the period to arrive at the net earnings.

Initial Public Offering (IPO): the first time a company is selling (offering) its shares to the public. The shares of the company can then be traded on an exchange afterwards.

Interest: the money paid for borrowing or received for saving or investing. It may be fixed or variable and expressed as a percentage over a time period.

Investment-grade Bonds: are bonds with a lower risk of defaults and higher bond ratings. All things been equal, they’ll have a lower yield than junk bonds.

Junk Bonds: also referred to as high-yield bonds. They are bonds with a lower rating because of the higher risk of default by the issuer. To compensate for the higher risk, the bonds will trade at a higher rate than those of lower risk companies.

L – P

Large-Cap Stocks: are stocks in companies with market capitalization greater than $10 billion (may vary depending on the country). In general, they are safer and less volatile than small cap stocks because the companies are more established

Liquidity: refers to how easily a security can be traded in an open market. Highly liquid stocks will have smaller bid-ask-spread and can be sold quickly without materially impacting the market price of the stock.

Liquidity Risk: the risk that an investor will not find ready and willing parties to buy or sell an investment.

Load: the fees or commissions charged to investors when they buy or sell their investments in a mutual fund – front-end to buy and back-end to sell.

Long Position: the buying of a security, such as stocks, bonds and commodities, with the expectation that the price will go up in the future. That is, an increase in the price of the security will be beneficial to you.

Management Expense Ratio (MER): represents the ratio of a fund’s administrative and other operating expenses to its asset under management (AUM)

Margin Call: when a brokerage firm requires an investor to add cash to the margin account after a loss, in order to meet the minimum capital requirement for the trade. The brokerage firm may also decide to sell securities in the portfolio to cover the shortfall.

Market Capitalization: the market value of a company. It is calculated by multiplying the stock price by the number of outstanding shares.

Market Price: the current price of an asset on a stock exchange.

Money Market: the market for trading in short-term debts, usually government and corporate bonds with short maturities.

Mutual Fund: a fund that pools money from several investors and invests the fund in different asset types or stocks and is managed by professional money managers.

NASDAQ Composite: a stock market index that consists of over 3,000 stocks that are listed on the Nasdaq Exchange.

No-Load: are funds that do not charge a fee or commission for buying or selling its shares.

Number of Holdings: the total number of individual companies or securities in a portfolio.

Over The Counter (OTC): a decentralized market in which trades in stocks, commodities, currencies or other securities are transacted between dealers without the supervision of an exchange.

Overweighting: refers to the strategy of holding a higher or significant allocation to one stock or sector in a portfolio, with the expectation that it will outperform.

Preferred Share: a type of share that has a higher claim on the assets of a company than common shareholders. This means companies must pay dividends to preferred shareholders first.

Price-To-Earning Ratio (P/E): the ratio of a company’s current share price to its earnings per share. It is also called earnings multiple or price multiple. A higher ratio may indicate that a company is overvalued or that investors are willing to pay higher for it.

Prime Rate: the interest rate at which banks will lend to their most credit-worthy customers.

Prospectus: a formal document with detailed information about a security offering to the public. It is required for stocks, bonds, ETFs and many other security types.

Put Option: a type of option that givers the holder the right, but not the obligation, to sell a stock at a pre-determined price within a certain time frame.

R – Z

Recession: a period of significant decline in a country’s economic activity, usually determined by 2 consecutive quarters of GDP decline.

Registered Retirement Savings Plan (RRSP): a type of registered account that allows Canadians to save for retirement. It is a tax deferred plan, meaning taxes will eventually be paid when the funds are withdrawn, but hopefully when the individual is at a lower tax bracket at retirement. Contributions are calculated as a percentage of the previous year’s earned income, up to a maximum amount set annually.

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Risk: the possibility or chance of loss. When it comes to investing, it is the chance that you may lose some of the money you put into the investment. It has direct relationship with expected returns. That is, the higher the risk, the higher the returns an investor can expect.

S&P Toronto Stock Exchange Composite Index (S&P/TSX): the benchmark index of the Toronto Stock Exchange, representing approximately 95% of the Canadian equity market.

Securities: a tradable financial instrument of any kind, such as a stocks, bonds, commodities, option and so on

Share: A unit of ownership interest in an investment, such as a share of a stock or a mutual fund.

Small-cap stocks: are stocks in companies with small market capitalization. The range may vary across countries or exchanges. On TS&P/TSX SmallCap Index, it is $100 million to $1.5 billion.

Standard and Poor’s (S&P) 500: a stock market index that measures the performance of the largest 500 companies listed on stock exchanges in the United States.

Stock Split: a decision by a company’s board to increase its number of outstanding shares by split the existing shares in such a way that the total value of those shares remain the same. Stock splits will decrease the price of the new shares but may boost the liquidity.

Strike Price: the pre-determined price at which an option holder can exercise their right to buy or sell a stock.

Technical Analysis: an analysis to predict the future performance of a security using its past price movements and trading volume or activities.

Ticker symbol: a unique series of letters assigned to each company on a stock exchange and used to identify them. The symbol can be a letter (like V for Visa Inc) or more (AAPL for Apple).

Valuation: an estimate of the worth or value of a company.

Value Stock: a stock that trades at a lower price relative to its fundamentals, such as high dividend yield, low price-to-earning, sales and so on.

Volatility: the degree of variation or fluctuation in the value of an investment.

Watchlist: are a collection of securities you want to follow and track their performance.

Yield to Maturity: refers to the total return that will be received on an investment, usually bond, if the investor holds till maturity. It is expressed as an annual rate.

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Simon is a CPA by day and a Personal Finance Blogger by night. With over a decade experience in financial services, he's passionate about personal finance, investing and helping people take control of their financial life.

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