Trading & Investing Glossary
Plain-English definitions for 108+ financial terms. Search or browse by letter.
ADX
Average Directional Index — a momentum indicator that measures the strength of a trend on a scale of 0–100. It does not indicate direction, only how strong the current trend is. Readings above 25 generally signal a strong trend.
An ADX reading of 40 suggests a very strong trend, regardless of whether prices are rising or falling.
Alpha
A measure of an investment's excess return compared to a benchmark like the S&P 500. Positive alpha means the investment outperformed; negative alpha means it underperformed. A fund manager 'generating alpha' is beating the market on a risk-adjusted basis.
If the S&P 500 returns 10% and your portfolio returns 14%, your alpha is roughly +4%.
Ask Price
The lowest price a seller is willing to accept for a security. When you buy a stock, you pay the ask price. The difference between the ask and the bid is called the spread.
If Apple's bid is $180.00 and ask is $180.05, buying immediately costs you $180.05.
Asset Allocation
How you divide your investment portfolio across different asset classes — stocks, bonds, cash, real estate, commodities. The mix you choose depends on your time horizon, goals, and risk tolerance. Proper allocation is one of the biggest drivers of long-term returns.
A classic 60/40 portfolio holds 60% stocks and 40% bonds.
ATR
Average True Range — measures the average daily price range of a security over a set period (typically 14 days). Higher ATR means more volatility. Traders use ATR to size positions and set stop-loss distances.
If a stock has an ATR of $5, placing a stop-loss $15 away gives roughly 3× ATR of room.
Balance Sheet
A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time. The fundamental accounting equation: Assets = Liabilities + Equity. It tells you what a company owns, what it owes, and what belongs to shareholders.
A balance sheet showing $500M assets and $300M liabilities means shareholders' equity is $200M.
Bear Market
A sustained decline of 20% or more in a major market index from its recent high. Bear markets are characterized by widespread pessimism, falling prices, and reduced investor confidence. They can last months to years.
The 2022 bear market saw the S&P 500 fall about 25% from its January peak.
Beta
A measure of how much a stock moves relative to the overall market. A beta of 1 means the stock moves in line with the market. Beta > 1 means more volatile than the market; beta < 1 means less volatile.
A tech stock with beta of 1.5 tends to rise 15% when the market rises 10%, but also fall 15% when the market drops 10%.
Bid Price
The highest price a buyer is willing to pay for a security. When you sell a stock at market price, you receive the bid. The gap between bid and ask is called the spread.
If the bid on Tesla is $250.00, selling immediately gets you $250.00 per share.
Blue Chip
A large, well-established, financially sound company with a long history of reliable performance. Blue chips typically pay dividends, have strong balance sheets, and are considered lower-risk investments. The term comes from poker's highest-value chips.
Apple, Johnson & Johnson, and Coca-Cola are classic blue-chip stocks.
Bollinger Bands
A volatility indicator consisting of three lines: a middle moving average (usually 20-day SMA) and two outer bands set 2 standard deviations above and below. When price touches the upper band, it may be overbought; touching the lower band may signal oversold conditions.
A 'Bollinger squeeze' — bands narrowing — often precedes a sharp price move in either direction.
Book Value
A company's net asset value — total assets minus total liabilities. On a per-share basis, it represents what each share would theoretically be worth if the company were liquidated today. Value investors compare book value to market price using the P/B ratio.
If a company has $100M in assets, $60M in liabilities, and 10M shares, book value per share is $4.
Breakout
When a stock's price moves above a resistance level or below a support level with increased volume. A breakout signals that the balance of supply and demand has shifted. Traders look for high-volume breakouts as confirmation of the move.
A stock trading at $50 resistance for weeks then gaps to $55 on 3× average volume is a classic breakout.
Bull Market
A sustained period of rising prices in a market — typically defined as a gain of 20% or more from a recent low. Bull markets are driven by investor optimism, strong economic growth, and rising corporate earnings.
The bull market from 2009 to 2020 was one of the longest in history, driven by economic recovery and low interest rates.
Buy and Hold
An investing strategy where you purchase securities and hold them for years or decades regardless of short-term market fluctuations. The strategy relies on the long-term upward trend of markets and avoids the cost and complexity of frequent trading.
Call Option
A contract that gives the buyer the right (but not the obligation) to purchase 100 shares of a stock at a fixed price (strike price) before the expiration date. Call buyers profit when the stock price rises above the strike price.
Buying a $200 call on Apple gives you the right to buy AAPL at $200 even if it rises to $250.
Candlestick
A chart type that shows open, high, low, and close prices for a given period. The body represents the open-to-close range; wicks (shadows) show the full high-low range. Green/white bodies mean price closed higher; red/black bodies mean price closed lower.
A long green candlestick with no upper wick on high volume is called a 'marubozu' and signals strong buying pressure.
Capital Gains
The profit made from selling an asset for more than you paid for it. Short-term capital gains (held < 1 year) are taxed as ordinary income. Long-term capital gains (held > 1 year) qualify for lower tax rates in most countries.
Buying a stock at $100 and selling at $150 generates $50 of capital gains.
CCI
Commodity Channel Index — an oscillator that measures how far a price is from its average statistical mean. Readings above +100 suggest overbought conditions; below −100 suggest oversold. Originally designed for commodities but widely used on stocks.
A CCI reading of +150 on a stock often signals that a pullback may be imminent.
Compound Interest
Earning returns on both your original investment and the returns that have already accumulated. Often called the 'eighth wonder of the world,' compounding is the reason long-term investing is so powerful — small consistent gains snowball over decades.
$10,000 at 10% annual return for 30 years grows to ~$174,000 through compounding.
Contrarian Investing
A strategy that deliberately goes against prevailing market sentiment — buying when most investors are fearful and selling when most are euphoric. Contrarians believe that extreme consensus views often signal market tops or bottoms.
Buying bank stocks during the peak of the 2008 financial crisis (when everyone was selling) was a contrarian move that paid off enormously for those with patience.
Correction
A decline of 10–20% in a market or individual stock from its recent high. Corrections are normal, healthy parts of market cycles that bring overextended prices back to more sustainable levels. They don't necessarily signal the start of a bear market.
The S&P 500 experiences a correction (10%+ decline) roughly every 1–2 years on average.
Day Trading
Buying and selling financial instruments within the same trading day, ending the day with no open positions. Day traders aim to profit from intraday price movements. It requires significant skill, discipline, and capital — the majority of retail day traders lose money.
A day trader might buy 500 shares of a stock at 9:45am and sell them at 11:30am for a $300 profit.
DCF
Discounted Cash Flow — a valuation method that estimates the present value of a company's future cash flows, discounted back at a rate that reflects the risk involved. If the DCF value exceeds the current market price, the stock may be undervalued.
If a company will generate $10M in free cash flow per year for 10 years, a DCF model calculates what that stream is worth today.
Dead Cat Bounce
A temporary, short-lived recovery in price after a significant decline, followed by a continuation of the downtrend. The name refers to the idea that 'even a dead cat will bounce if it falls far enough.' It can trap buyers who mistake it for a real reversal.
A stock drops 40%, bounces 10% over a few days, then continues falling — that bounce was a dead cat bounce.
Debt-to-Equity Ratio
Total Debt divided by Total Shareholders' Equity. It measures how much a company is financing its operations with debt versus its own capital. A ratio above 2.0× is generally considered high leverage, though norms vary by industry.
A company with $200M in debt and $100M in equity has a D/E ratio of 2.0×.
Diversification
Spreading investments across multiple assets, sectors, and geographies to reduce the risk that any single investment causes major harm to the overall portfolio. Diversification doesn't eliminate risk but reduces exposure to company-specific or sector-specific events.
Holding stocks in 10 different industries means one sector crisis won't wipe out your portfolio.
Dividend
A portion of a company's profits distributed to shareholders, typically on a quarterly basis. Not all companies pay dividends — growth companies often reinvest profits instead. Dividend-paying stocks are popular with income investors seeking regular cash returns.
If you own 100 shares of a stock paying a $2 annual dividend, you receive $200 per year.
Dividend Investing
A strategy focused on investing in stocks that pay regular dividends to generate a passive income stream. Dividend investors typically favour established, profitable companies with a history of growing their dividends over time — often called 'dividend aristocrats.'
Dividend Yield
Annual dividend per share divided by the current share price, expressed as a percentage. It tells you how much income you earn relative to what you paid for the stock. High yields can be attractive but may also signal financial stress.
A stock at $100 paying $4 in annual dividends has a 4% dividend yield.
Dollar-Cost Averaging
Investing a fixed dollar amount at regular intervals (e.g. $500 every month) regardless of the current price. DCA removes the need to time the market — you automatically buy more shares when prices are low and fewer when prices are high, reducing the average cost per share over time.
Investing $200 every month in an S&P 500 ETF automatically buys more units when markets fall.
Drawdown
The peak-to-trough decline in the value of a portfolio or investment before it recovers to a new high. Maximum drawdown is the largest such decline over a given period. It's an important metric for understanding the pain of holding an investment through bad times.
If your portfolio peaks at $100,000 then falls to $70,000, you've had a 30% drawdown.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A proxy for operating cash flow that strips out financing decisions and accounting choices. Widely used to compare profitability across companies and industries. The EV/EBITDA ratio is a common valuation multiple.
Two companies in the same industry with revenue of $100M might have very different net incomes but similar EBITDA if their debt structures differ.
EPS
Earnings Per Share — a company's net profit divided by the number of outstanding shares. It's one of the most widely used indicators of company profitability and a key input to the P/E ratio. Higher EPS generally means a more profitable company.
If a company earns $100M and has 50M shares outstanding, EPS = $2.00.
ETF
Exchange-Traded Fund — a basket of securities (stocks, bonds, commodities) that trades on an exchange like a single stock. ETFs offer instant diversification, low costs, and intraday liquidity. Index ETFs simply track a benchmark like the S&P 500.
Buying SPY gives you exposure to all 500 S&P 500 companies in a single trade.
Ex-Dividend Date
The cutoff date to be eligible for an upcoming dividend payment. You must own the stock before the ex-dividend date to receive the next dividend. The stock price typically drops by roughly the dividend amount on the ex-dividend date.
If the ex-dividend date is July 15, you must buy the stock on or before July 14 to receive the dividend.
Fear & Greed Index
A composite sentiment indicator (popularised by CNN) that tracks 7 signals — market momentum, safe haven demand, junk bond demand, put/call ratio, and others — to measure whether investors are driven by fear or greed. Readings of 0 signal extreme fear; 100 signal extreme greed.
Contrarian investors often buy when the Fear & Greed Index shows extreme fear, as markets are frequently oversold at those points.
Fibonacci Retracement
Horizontal price levels based on Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) that traders use to identify potential support and resistance zones after a price move. The levels are derived from the Fibonacci sequence found in nature.
After a stock rallies from $100 to $200, traders watch the 61.8% retracement level at $138 as a potential support zone.
Free Cash Flow
Operating cash flow minus capital expenditures. The cash a company generates after spending to maintain or expand its asset base. Free cash flow is considered a more reliable indicator of financial health than net income because it's harder to manipulate.
A company with $50M in operating cash flow and $15M in CapEx has $35M in free cash flow.
Fundamental Analysis
A method of evaluating securities by examining a company's financial statements, management quality, competitive position, industry dynamics, and macroeconomic factors to estimate its intrinsic value. It answers the question 'what to buy' rather than 'when to buy.'
Warren Buffett uses fundamental analysis to find companies trading below their intrinsic value.
Futures
Contracts to buy or sell an asset at a predetermined price on a specific future date. Used by both hedgers (to lock in prices) and speculators (to profit from price changes). Futures trade on regulated exchanges and cover commodities, indices, currencies, and interest rates.
An oil producer may sell crude oil futures to lock in today's price for oil they'll deliver in 3 months.
Gap Up / Gap Down
A gap occurs when a stock's opening price is significantly higher (gap up) or lower (gap down) than the previous day's close, leaving an empty space on the chart. Gaps are often caused by earnings releases, major news, or after-hours events.
A company beats earnings expectations and opens 8% higher the next morning — that's a gap up.
Golden Cross
A bullish technical signal where a shorter-term moving average (typically the 50-day) crosses above a longer-term moving average (typically the 200-day). It suggests that near-term momentum has shifted upward and is often seen as a long-term buy signal.
When the S&P 500's 50-day MA crosses above its 200-day MA, it's called a golden cross and is widely covered in financial news.
Growth Investing
Investing in companies with above-average growth in revenue, earnings, or cash flow — even if they trade at premium valuations. Growth investors prioritise future potential over current cheapness. The strategy outperforms in bull markets but can underperform when interest rates rise.
Growth Stock
Shares in a company expected to grow revenues and earnings faster than the market average. Growth stocks typically reinvest all profits back into the business rather than paying dividends and often trade at high P/E ratios that reflect future expectations.
Early Amazon and Tesla were classic growth stocks — they didn't pay dividends but their revenues grew at 30–50% per year.
Hedge
An investment made to reduce the risk of adverse price movements in another asset. A hedge typically takes the opposite position to an existing holding. While it reduces potential losses, it also limits potential gains.
An investor holding 1,000 shares of a stock might buy put options as a hedge against a price decline.
High-Frequency Trading
Algorithmic trading executed at extremely high speeds — thousands of orders per second — using powerful computers to exploit tiny price differences or market inefficiencies. HFT firms provide liquidity but are controversial for their potential to cause flash crashes.
Hold
A long-term buy-and-hold investing strategy, or an analyst rating indicating that a stock should neither be bought nor sold at the current price. As a strategy, holding minimises transaction costs and taxes while capturing long-term compounding.
Income Statement
A financial statement (also called a Profit & Loss or P&L statement) that shows revenues, expenses, and profit over a period — usually quarterly or annually. It starts with revenue, subtracts costs, and ends with net income (the 'bottom line').
Amazon's annual income statement shows billions in revenue but historically thin net income margins due to heavy reinvestment.
Index Fund
A type of mutual fund or ETF designed to replicate the performance of a market index (e.g. S&P 500). Index funds are passively managed — they simply hold all stocks in the index — resulting in very low fees. Research consistently shows most actively managed funds underperform index funds over long periods.
A total market index fund owns a small piece of every publicly traded company in the country.
Index Investing
Passive investing strategy of buying all stocks in a market index via an index fund or ETF. It captures broad market returns at very low cost. Studies consistently show that most actively managed funds underperform comparable index funds over long periods after fees.
Inflation
The rate at which the general level of prices for goods and services rises over time, eroding purchasing power. Central banks target around 2% annual inflation. High inflation hurts bonds and cash savings but some stocks (particularly value stocks) can be a partial inflation hedge.
If inflation is 5% and your savings account earns 2%, your purchasing power is shrinking by ~3% per year.
Intrinsic Value
The 'true' or 'real' value of a company based on its fundamentals — expected future cash flows, assets, earnings potential, and competitive position — rather than its current market price. If intrinsic value exceeds market price, the stock may be undervalued.
If a DCF analysis suggests a company is worth $80 per share but it trades at $60, it may have a large margin of safety.
IPO
Initial Public Offering — the first time a private company sells shares to the general public on a stock exchange. IPOs allow companies to raise capital for growth. Individual investors can sometimes buy at the IPO price, but often only institutional investors get access.
When Airbnb went public in December 2020, its IPO price was $68 and it doubled on the first day of trading.
Keltner Channel
A volatility-based envelope indicator that plots bands above and below an exponential moving average. The bands are set using the ATR. When price moves outside the channel, it can signal a strong trend. Often used alongside Bollinger Bands to identify low-volatility squeezes.
Leverage
Using borrowed money to increase the potential return (and risk) of an investment. A 2× leveraged position means you control $2 of assets for every $1 of your own capital. Leverage amplifies both gains and losses — it's one of the main causes of catastrophic trading losses.
Using 10× leverage on a 10% loss wipes out your entire account.
Limit Order
An order to buy or sell a stock at a specified price or better. A buy limit order only executes at the limit price or lower; a sell limit order only executes at the limit price or higher. Limit orders give you price control but are not guaranteed to fill.
Placing a buy limit at $95 for a stock trading at $100 means you'll only buy if the price drops to $95.
Liquidity
How quickly and easily an asset can be converted to cash without significantly affecting its price. Highly liquid stocks (like Apple) have tight bid-ask spreads and enormous daily trading volumes. Illiquid stocks (like micro-caps) have wide spreads and low volumes.
Apple trades billions of dollars per day — you can sell almost any amount instantly without moving the price.
Long Position
Owning an asset with the expectation that its price will rise so you can sell it for a profit. 'Going long' is the most common form of investing — you buy first, then sell later. The maximum loss on a long position is the amount invested.
Buying 100 shares of Tesla expecting the price to go up is a long position.
MACD
Moving Average Convergence Divergence — an indicator that shows the relationship between two exponential moving averages (typically 12-day and 26-day). The MACD line crossing above the signal line is a bullish signal; crossing below is bearish. The histogram shows the gap between the two lines.
When the MACD line crosses above zero, it suggests the short-term trend is stronger than the long-term trend.
Margin
Borrowing money from your broker to buy more securities than you could with your own funds alone. Margin accounts allow leverage but also expose you to margin calls — demands to deposit more funds if your position declines. Interest is charged on borrowed amounts.
With $10,000 cash and 2× margin, you can buy $20,000 worth of stock — but a 50% drop wipes you out.
Margin of Safety
The difference between a stock's intrinsic value and its current market price. Buying with a large margin of safety — say, a stock worth $100 trading at $60 — creates a buffer against valuation errors and unexpected bad news. Central to Benjamin Graham's investment philosophy.
If you estimate a company's intrinsic value at $100 and buy at $65, your margin of safety is 35%.
Market Cap
Market Capitalisation — the total market value of a company's outstanding shares. Calculated as: share price × total shares outstanding. Large-cap companies (> $10B) are typically more stable; small-cap companies (< $2B) tend to be more volatile but may offer higher growth potential.
A company with 1 billion shares at $50 each has a market cap of $50 billion.
Market Order
An order to buy or sell immediately at the best available current price. Market orders guarantee execution but not the exact price. In volatile or illiquid stocks, the price you receive may differ significantly from what you expected — this is called slippage.
A market buy order on a $100 stock might fill at $100.03 during busy hours due to the spread.
Market Psychology
The collective emotional state and behavioural patterns of market participants that drive price movements beyond fundamentals. Key psychological cycles include euphoria, optimism, anxiety, fear, and capitulation. Understanding market psychology helps investors avoid common emotional mistakes.
Momentum Investing
A strategy that buys securities that have performed well recently and sells those that have performed poorly, based on the empirical observation that trends tend to persist. Momentum can be relative (vs. peers) or absolute (vs. historical average).
Moving Average
An indicator that smooths price data by calculating the average price over a set number of periods (e.g. 50-day, 200-day). Simple Moving Average (SMA) gives equal weight to all periods; Exponential Moving Average (EMA) weights recent prices more heavily. Used to identify trends and reversals.
When a stock's price crosses above its 200-day moving average, many traders see this as a bullish signal.
Mutual Fund
A pooled investment vehicle managed by professional fund managers who invest in a diversified portfolio of securities. Unlike ETFs, mutual funds trade once per day after market close. Actively managed mutual funds typically charge higher fees than passive index funds.
Net Income
A company's total earnings (profit) after all expenses, taxes, and interest have been deducted from revenue. Often called the 'bottom line.' Net income is what's available to pay dividends or reinvest in the business. It can be manipulated through accounting choices — which is why free cash flow is also important.
Revenue of $100M minus $70M in costs, $10M in taxes, and $5M in interest = $15M net income.
Options
Contracts that give the buyer the right (but not the obligation) to buy or sell an underlying asset at a set price (strike price) before an expiration date. Calls are bets on price rising; puts are bets on price falling. Options can be used for speculation, income, or hedging.
Buying a put option on your stock portfolio is like buying insurance — it pays out if stocks crash.
Order Book
A real-time list of all outstanding buy (bid) and sell (ask) orders for a security at various prices. The order book shows market depth — how many shares are available at each price level. Traders analyse the order book to gauge supply and demand dynamics.
OTC
Over-the-Counter — securities traded directly between parties without going through a centralised exchange. OTC stocks (often called pink sheets) are typically smaller companies that don't meet exchange listing requirements. They tend to have less liquidity and less regulatory oversight.
P/B Ratio
Price-to-Book Ratio — share price divided by book value per share. It compares market value to accounting value. A P/B below 1× means the market values the company at less than its assets, which could signal undervaluation or serious problems with the business.
A bank with assets of $10B trading at a $9B market cap has a P/B of roughly 0.9×.
P/E Ratio
Price-to-Earnings Ratio — the current share price divided by earnings per share. It tells you how much investors are willing to pay per $1 of earnings. A high P/E suggests high growth expectations or possible overvaluation; a low P/E may indicate undervaluation or low growth expectations. The S&P 500's historical average P/E is roughly 15–20×.
A stock at $100 with $5 in EPS has a P/E of 20×. Investors are paying $20 for every $1 of earnings.
Paper Trading
Simulated trading using virtual money based on real market data. Paper trading lets beginners practice strategies and build confidence without financial risk. It's an essential tool for testing new strategies before committing real capital.
Paper trading reveals if your 'winning' strategy actually profits over 100 trades before you risk real money.
Parabolic SAR
Stop and Reverse — an indicator that places dots above or below price to indicate trend direction. Dots below price suggest an uptrend; dots above suggest a downtrend. When price crosses through the dots, the indicator flips — signalling a potential trend reversal.
Position Size
The number of shares or amount of capital allocated to a single trade or investment. Proper position sizing is critical to risk management — many professional traders risk no more than 1–2% of their portfolio on any single trade. Too-large positions lead to emotional decision-making.
With a $10,000 portfolio and a 1% risk rule, you risk at most $100 per trade.
Price Target
An analyst's projection of where a stock's price will be in 12 months, based on fundamental and/or technical analysis. Price targets are estimates — not guarantees. They're often used by retail investors as rough reference points but should be treated with scepticism.
Put Option
A contract that gives the buyer the right to sell 100 shares at a fixed strike price before expiration. Put buyers profit when the stock price falls below the strike price. Puts are used for speculation on falling prices or as insurance (hedging) against a long position.
Buying a $50 put gives you the right to sell shares at $50 even if they fall to $30.
Quantitative Easing
A monetary policy tool where a central bank creates new money to purchase government bonds or other assets from banks, injecting liquidity into the financial system. QE lowers long-term interest rates and tends to boost asset prices including stocks. The Federal Reserve used QE extensively after the 2008 and 2020 crises.
The Fed's $4 trillion QE programme after 2008 is widely credited with inflating stock prices in the decade that followed.
Rally
A sustained increase in the price of a security, sector, or market index. Rallies can happen within both bull and bear markets — a 'bear market rally' is a temporary price recovery that ultimately fails. Strong rallies often follow periods of oversold conditions or positive catalysts.
Resistance
A price level where selling pressure tends to overcome buying pressure, causing the price to stall or reverse. Resistance levels are created by previous price highs where sellers who bought at those levels look to exit. Once broken, a resistance level often becomes a support level.
A stock that has hit $50 multiple times without breaking through has a resistance level at $50.
Return on Equity
ROE — Net Income divided by Shareholders' Equity. Measures how efficiently a company generates profit from shareholders' invested capital. An ROE above 15% is generally considered good; Warren Buffett looks for companies with consistently high ROE without excessive debt.
A company with $50M net income and $250M equity has an ROE of 20% — $0.20 earned for every $1 of shareholder equity.
Revenue
The total amount of money a company earns from its business activities before any costs are deducted. Often called the 'top line,' revenue is the starting point for calculating profitability. Revenue growth is a key metric for assessing a company's growth trajectory.
A company that sells 10 million products at $10 each has revenue of $100 million — before expenses.
Risk Management
The process of identifying, analysing, and controlling potential losses in an investment portfolio. Core techniques include diversification, position sizing, stop-loss orders, and not risking more than you can afford to lose. Professional traders often say risk management is more important than picking winners.
Never risking more than 1–2% of portfolio capital per trade is a fundamental risk management rule.
RSI
Relative Strength Index — a momentum oscillator that measures the speed and magnitude of recent price changes on a scale of 0–100. RSI above 70 traditionally signals overbought conditions; below 30 signals oversold. However, in strong trends, RSI can remain overbought/oversold for extended periods.
A stock's RSI hitting 80 after a big rally suggests it may be due for a pullback — but in a strong uptrend, it can stay elevated.
S&P 500
A stock market index tracking the 500 largest publicly traded US companies by market cap, weighted by market cap. It's the most widely followed benchmark for US stock performance and the basis for countless index funds. Long-term average annual return is roughly 10% before inflation.
When people say 'the market returned 12% this year,' they usually mean the S&P 500.
Short Selling
Borrowing shares from a broker and selling them immediately, with the intention to buy them back later at a lower price and return them. Short sellers profit from price declines. The maximum gain is 100% (if the stock goes to zero); the maximum loss is theoretically unlimited (prices can keep rising).
Shorting a stock at $100 and buying back at $60 generates $40 profit per share, minus borrowing costs.
Short Squeeze
A rapid price increase triggered when a heavily shorted stock starts rising, forcing short sellers to buy shares to cover their losses. This buying pressure further drives up the price in a feedback loop. The GameStop episode in January 2021 is the most famous recent example.
When GameStop's price spiked from $20 to $480 in early 2021, short sellers lost billions trying to cover their positions.
Spread
The difference between the bid price and the ask price for a security. It represents the transaction cost of an immediate trade. Highly liquid stocks have tight spreads (pennies); illiquid stocks can have spreads of several percent. The spread is effectively the broker's fee in market-making.
A bid of $99.95 and an ask of $100.05 means a $0.10 spread — you lose $0.10 the moment you buy.
Stop Loss
An order to automatically sell a security when its price falls to a specific level, limiting the loss on a position. Stop-losses are essential risk management tools that remove emotion from sell decisions. A trailing stop-loss moves up with the price, locking in profits as the stock rises.
Buying a stock at $100 and setting a stop-loss at $90 means your maximum loss is 10%.
Support Level
A price level where buying interest tends to overcome selling pressure, causing the price to bounce or hold. Support levels are identified from previous price lows. Once broken convincingly, a support level often becomes a new resistance level (role reversal).
A stock that consistently bounces at $45 has a support level there. If it breaks below $45 on volume, the next support is lower.
Swing Trading
A trading style that holds positions from a few days to a few weeks, aiming to capture short-to-medium-term price 'swings.' Swing traders use both technical and fundamental analysis. It requires less time than day trading but more attention than long-term investing.
A swing trader might buy a stock after it bounces off support and sell it when it reaches resistance a week later.
Technical Analysis
A method of evaluating securities by analysing statistical trends gathered from trading activity — primarily price and volume. Technical analysts use charts and indicators to identify patterns and predict future price movements. It answers 'when to buy' more than 'what to buy.'
A trader who only looks at charts and never reads earnings reports is using pure technical analysis.
Ticker Symbol
A unique abbreviation (usually 1–5 letters) used to identify a publicly traded company on a stock exchange. US stocks use symbols like AAPL for Apple, TSLA for Tesla, and AMZN for Amazon. Different exchanges may use different ticker formats.
When you search for 'AAPL' on any trading platform, you're using Apple's ticker symbol.
Time Value of Money
The concept that money available today is worth more than the same amount in the future, because today's money can be invested to earn returns. This principle is the foundation of DCF valuation — future cash flows must be 'discounted' back to their present value.
$100 today invested at 10% annually is worth $110 in one year — proving today's $100 is worth more than a $100 promise for next year.
Trailing Stop
A stop-loss order that moves in the direction of a profitable trade to lock in gains. Set as a percentage or dollar amount below the highest price reached, it activates only if the price reverses by that amount. If the stock keeps rising, the stop rises with it — but never moves down.
A 10% trailing stop on a stock that rises from $100 to $150 locks in a floor at $135.
Trend Lines
Straight lines drawn on a price chart connecting two or more price points to identify the direction of price movement. An uptrend line connects higher lows; a downtrend line connects lower highs. When price breaks through a trend line with volume, it may signal a trend reversal.
Uptrend
A series of higher highs and higher lows on a price chart, indicating sustained buying pressure. Technical analysts say 'the trend is your friend' — trading in the direction of the uptrend typically has a higher probability of success than betting against it.
A stock making new 52-week highs every month while pullbacks hold above the previous high is in a clear uptrend.
Value Investing
An investment strategy focused on buying stocks trading below their intrinsic value — undervalued by the market. Value investors look for companies with strong fundamentals (low P/E, low P/B, strong cash flow) trading at a discount due to temporary negative sentiment or neglect. Popularised by Benjamin Graham and Warren Buffett.
Buffett bought Coca-Cola in 1988 when the market undervalued it after a slow growth period — it became one of his greatest investments.
VIX
The CBOE Volatility Index — often called the 'Fear Index.' It measures the market's expectation of 30-day volatility implied by S&P 500 options prices. A VIX above 30 indicates high uncertainty; below 20 suggests relative calm. Spikes in VIX often coincide with market sell-offs.
During the COVID crash of March 2020, the VIX spiked above 80 — indicating extreme fear in the market.
Volatility
The degree of variation in a security's price over time. High volatility means prices swing wildly; low volatility means relatively stable prices. Volatility isn't inherently bad — it also creates buying opportunities. Measured statistically by standard deviation or practically by the VIX.
Bitcoin can move 10% in a single day — it's far more volatile than a blue-chip stock like Coca-Cola.
Volume
The total number of shares traded during a given period (minute, day, week). Volume confirms price moves — a breakout on high volume is more significant than one on low volume. Unusually high volume often signals informed trading or a major news catalyst.
A stock breaking a 6-month resistance level on 5× average volume is a far stronger signal than the same breakout on average volume.
Watchlist
A personalised list of securities an investor monitors for potential trading or investing opportunities. Watchlists help you track stocks you're interested in without necessarily owning them. Most brokers and trading platforms offer watchlist functionality.
Wedge Pattern
A chart pattern formed by two converging trend lines: a rising wedge (bearish — converging upward) and a falling wedge (bullish — converging downward). The pattern suggests that price is coiling and a significant breakout is approaching. The direction of the breakout usually surprises most traders.
A falling wedge after a downtrend often signals that selling pressure is exhausting — a bullish reversal may follow.
Yield
The income generated by an investment, expressed as a percentage of its cost or current market value. Bond yield is the annual coupon divided by the bond price. Dividend yield is the annual dividend divided by the share price. Higher yield often implies higher risk.
A $1,000 bond paying $50 per year has a 5% yield.
Yield Curve
A graph plotting bond yields of the same credit quality across different maturities (e.g. 2-year vs 10-year US Treasury yields). A normal (upward-sloping) curve means longer maturities yield more. An inverted yield curve (short yields higher than long yields) has historically preceded recessions.
The yield curve inverted in 2022 when the 2-year Treasury yielded more than the 10-year — a classic recession warning signal.