Stock Market Dictionary
Stock and investing words, explained in simple English with real companies as examples.
Stock basicsHow companies make moneyFinancial statementsValuationThe stock marketTrading and ordersThe economyInvesting
Stock basics
StockA small piece of a company you can own.
TickerThe short code for a stock, like AAPL.
Stock exchangeThe market where shares are bought and sold.
IPOWhen a company sells shares to the public for the first time.
DividendCash a company pays its owners.
ETFOne fund that holds many stocks at once.
Index fundA fund that copies a market index.
Mutual fundA pool of money that a manager invests for many people.
BondA loan you give to a company or government.
Common stockThe normal kind of share most people own.
Preferred stockShares that get paid dividends first.
ShareholderAnyone who owns at least one share.
Blue chip stocksShares of big, steady, well-known companies.
Penny stocksVery cheap, very risky shares of tiny companies.
Fractional sharesOwning part of one share.
Stock buybackWhen a company buys its own shares.
ADRA way to buy foreign companies on a US exchange.
REITA company that owns property and pays out most of its income.
Money market fundA very safe fund for parking cash.
Brokerage accountThe account you use to buy stocks.
PortfolioEverything you have invested, together.
How companies make money
RevenueAll the money a company takes in from sales.
ProfitWhat is left after all costs.
Revenue vs profitMoney coming in versus money left over.
Profit marginHow many cents of profit from each dollar of sales.
Free cash flowReal cash left after running and growing the business.
EBITDAProfit before some costs, often used to compare companies.
DebtMoney a company has borrowed and must pay back.
Business modelHow a company makes money, in one sentence.
Economies of scaleGetting cheaper per unit as you get bigger.
Economic moatWhat protects a company from competitors.
Total addressable marketHow big the market could ever get.
Mergers and acquisitionsWhen companies combine or buy each other.
Private equityFirms that buy whole companies to improve and sell them.
Venture capitalMoney invested in young, fast-growing startups.
Hedge fundA private fund for rich investors that can bet in many ways.
Financial statements
Earnings reportA company's report card, every three months.
Income statementShows revenue, costs and profit.
Balance sheetShows what a company owns and owes.
Cash flow statementShows where the cash came from and went.
Assets and liabilitiesWhat a company owns versus what it owes.
Gross profitSales minus the direct cost of the product.
Gross marginGross profit as a percent of sales.
Cost of goods soldThe direct cost of making what you sell.
Operating incomeProfit from the core business.
Net incomeThe final profit after every cost.
Operating cash flowCash brought in by everyday business.
Capital expenditureMoney spent on long-lasting things like factories.
DepreciationSpreading the cost of equipment over its life.
Working capitalShort-term money a company has to run day to day.
Book valueWhat the company is worth on paper.
GoodwillThe extra paid when buying a company above its book value.
Valuation
P/E ratioHow many years of profit you pay for in a share.
EPSThe profit one share earned.
Forward P/EP/E using next year's expected profit.
PEG ratioP/E adjusted for growth.
Market capWhat the whole company is worth on the market.
Price-to-salesPrice compared with revenue, not profit.
Enterprise valueCompany value including its debt and cash.
EV/EBITDAA popular way to compare company values.
Price-to-bookPrice compared with what the company is worth on paper.
Intrinsic valueWhat a business is really worth.
Discounted cash flowValuing a company from its future cash.
Margin of safetyBuying well below what you think it is worth.
Undervalued vs overvaluedWhen the price is below or above the real value.
Growth vs value stocksFast growers versus cheap, steady companies.
Return on equityProfit made with the owners' money.
Return on assetsProfit made with everything the company owns.
ROICHow well a company turns invested money into profit.
Debt-to-equityHow much debt compared with owners' money.
Current ratioCan the company pay its bills this year?
Payout ratioHow much of its profit a company pays as dividends.
CAGRThe average yearly growth rate over many years.
The stock market
S&P 500500 large US companies in one index.
Dow JonesAn index of 30 big US companies.
Nasdaq CompositeAn index of almost every stock on the Nasdaq.
Nasdaq-100The 100 biggest non-financial Nasdaq companies.
Russell 2000An index of 2,000 small US companies.
SectorsThe 11 big groups the market is split into.
Bull marketA long period of rising prices.
Bear marketA drop of 20% or more from the top.
Market correctionA drop of 10% to 20%.
Stock market crashA sudden, very large fall in prices.
VolatilityHow much and how fast a price moves.
VIXThe stock market's fear gauge.
BetaHow much a stock moves compared with the market.
LiquidityHow easily you can buy or sell without moving the price.
Stock splitMore shares at a lower price, same total value.
Short sellingBetting that a price will fall.
Short squeezeWhen short sellers rush to buy and push a price up.
Meme stocksStocks pushed up by online crowds.
Insider tradingTrading by people inside the company.
Trading and orders
Market vs limit orderBuy now at any price, or only at your price.
Stop-loss orderAn order that sells if the price falls too far.
Bid-ask spreadThe gap between buying and selling prices.
After-hours tradingTrading before or after normal market hours.
Day tradingBuying and selling within the same day.
Margin tradingBuying stocks with borrowed money.
Call optionThe right to buy a stock at a set price.
Put optionThe right to sell a stock at a set price.
FuturesA deal to buy or sell something later at today's price.
The economy
InflationWhen prices rise and money buys less.
Interest ratesThe price of borrowing money.
Federal ReserveThe US central bank.
RecessionWhen the economy shrinks for a while.
GDPThe total value of everything a country produces.
CPIThe main measure of US inflation.
Quantitative easingWhen a central bank buys bonds to push rates down.
Bond yieldThe return you get from a bond.
Yield curveInterest rates for short and long loans, side by side.
Treasury billsShort-term loans to the US government.
CommoditiesRaw materials like oil, gold and wheat.
Investing
DiversificationNot putting all your money in one place.
Compound interestGrowth that earns more growth.
Dollar-cost averagingInvesting the same amount on a regular schedule.
Dividend yieldYearly dividend as a percent of the share price.
Asset allocationHow you split money between stocks, bonds and cash.
RebalancingResetting your mix back to plan.
Passive vs active investingCopying the market versus trying to beat it.
Value investingBuying good companies for less than they are worth.
Growth investingBuying companies that grow fast.
Dividend investingBuilding income from dividend stocks.
Buy and holdBuying good investments and keeping them for years.
DRIPUsing dividends to buy more shares automatically.
Expense ratioThe yearly fee a fund charges.
Risk toleranceHow much ups and downs you can handle.
Opportunity costWhat you give up by choosing something else.
Capital gains taxTax on the profit when you sell.
401(k)A US retirement account through your job.
Roth IRAA US retirement account with tax-free growth.
Robo-advisorAn app that invests for you automatically.