Investor's Dictionary

Key Investment Terms & Definitions: Lexicon of Finance Jargon

Updated: 19.12.22

Bear market, stock volatility, DeFi, blue chips, ETFs diversification of assets... An average investor's lexicon contains an abundance of specific terms that would make a beginner want to abandon the world of investments altogether! Luckily, Fintech Compass is here to help. With the recent boom of online investment platforms and multiply-your-wealth apps, there is a surge in demand for education on these topics. Below you will find very simple and down-to-Earth explanations for the most common terms you are bound to run into when talking with fellow investment enthusiasts. Can not find what you are looking for? We are always open to suggestions - do not hesitate to reach out and let us know and we will make sure to add the missing explanations to this very page.

Knowledge is essential to financial health

The glossary below includes terms related to stock trading and other asset types, frequently used definitions any investor should have in their lexicon and concise explanations of a handful of cryptocurrency-related words. The terms are presented in alphabetical order for your convenience.

⚠️ Warning! Investment is never without risk. You may lose your investment due to market risks involved.  ⚠️

The Investment Lexicon

Asset Any item that could have value in an exchange. Examples include: the funds in your bank account, a home, cryptocurrency wallet or shares of stock.

Bear Market A situation in which the market experiences extended periods of decreasing prices. Frequently accompanied by general pessimism among investors and negative forecasts.

Bonds Bonds are what is called a debt security, something similar to an IOU. Borrowers (for example, governments) issue bonds to raise money from investors willing to lend them money for a certain amount of time. Investors get an interest rate on their funds at the end of the term.

Bull Market An opposite of a bear market, the market is characterized as "bullish" whenever securities are on the rise, investor sentiment is positive and the forecasts are favorable, attracting more funds across the board.

Commodity A tangible, physical asset frequently used as a component of the production process. Examples could include oil, gas, beef or grains. Most commodities are traded in spot markets or on organized exchanges, sold as futures contracts.

Dividend Dividends represent a portion of a company's profit for the period that is paid to shareholders based on the amount of stock they own. Public companies frequently pay out dividends on a fixed schedule, however, these can be issued at any time.

Futures A documented legally-binding agreement between two parties to buy or sell a certain amount of an underlying asset (for example, gold or oil) at a defined future price at a specific date and time. This tool is used when an investor is confident that the asset price would change in the future.

IPO An initial public offering (IPO) is a process of issuing stocks of a private company with a goal of offering shares of the business to the public through a stock exchange.

Laissez-Faire French for "leaving someone alone", Laissez-Faire is an economic theory originating in the 18th century that was critical of any intervention in business affairs on behalf of the government.

Margin Trading Margin Trading allows you to make spot purchases and sales using funds that may exceed the balance of your account. For instance, 5x margin means that trading €100 actually entails trading €500, meaning, a 5% increase in asset value would actually net you €500 * 5% = €25, making your return 25%.

Market Index A collection of securities with the average values reflecting an overall asset performance of a particular market for financial assets. An example of these is the S&P500 Index that tracks the average performance of securities of the market's 500 most common stocks.

Option Contracts between a pair of parties that grant holders an option to buy (or sell) an underlying asset at a certain predefined price within a set time frame.

Rollover Fee A recurring fee charged by brokers in order to keep your margin trading position open. Essentially, it can be treated as a form of interest for borrowing funds from the exchange.

S&P 500 Also known as Standard & Poor's Index. It is a composite measurement of changes in stock market prices based on the averaged out performance of 500 most common stocks on the market. Frequently used to assess the market's overall trends.

Share Represents a unit of ownership in an investment, such as a share of a stock or a mutual fund. Sometimes used interchangeably with "stock" in conversations.

Staking Staking is a process that allows users to earn rewards for holding cryptocurrencies. The reason you are getting a return is because coins you stake are hard at work, facilitating verification of transactions happening on the blockchain.

Stockholder Denotes an owner of common or preferred stock of a company. Alternative term that is frequently used is 'shareholder.'

Volatility Stock's volatility represents an amount and frequency with which an asset fluctuates in price. Higher volatility assets usually bear more risk, but can be quite profitable if the timing is right for the investor.

Yield-to-maturity A value that represents the rate of return an investor will receive if a long-term, interest-bearing asset, such as a bond, is held to its maturity date.

Believing in the business you intend to invest in is essential

Obviously, this list is just the first step to getting more knowledge and your learning does not stop here. Make sure to check out our Articles section filled with useful information to learn more about digital banking, fintechs in Europe, the world of crypto and investment know-how.

Are you ready to apply your knowledge in practice? Head straight to our selection of top investment platforms and savings apps and our annual "Best Platform for Investing" and find out the perfect platform to begin your investment journey with!

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