Lessons · Education for beginners
Finance glossary
Plain-English meanings, everyday analogies, and links to lessons and live examples on StockWatch. No finance degree required.
50 terms
Valuation
10 terms · beginner-friendly
- Dividend yieldDividend yield tells you how much cash income a stock pays each year, as a percent of its price. A very high yield can be a warning that the price fell for a bad reason.
- EBITDAEBITDA is a rough operating-profit number that ignores interest, taxes, and non-cash depreciation. Useful for comparisons - incomplete as a cash story.
- Enterprise valueEnterprise value is a fuller price tag for the whole company: equity value plus net debt. It helps compare firms that borrow differently.
- EPSEPS means “earnings per share” - roughly how much profit belongs to each share you own. When EPS rises, the company is making more money per share (or has fewer shares).
- Free cash flowFree cash flow is the cash a business has left after paying to run and maintain itself. It’s a reality check on whether reported profits feel “real.”
- P/E ratioP/E is a simple price tag for a stock: how many dollars you pay for each dollar the company earned. A higher number often means people expect bigger growth - or that the stock is expensive.
- PEG ratioPEG compares a stock’s P/E to its expected growth. It asks: “Am I paying a high price tag because growth might justify it?”
- Price-to-bookPrice-to-book compares the stock’s price to the company’s accounting book value. It’s more useful for banks than for software firms full of intangible assets.
- Total returnTotal return is the full result: price change plus any dividends or interest. Looking only at the price chart can miss the income piece.
- Value investingValue investing means looking for investments that seem cheaper than they’re worth - with a plan for why the gap might close.
Stocks
7 terms · beginner-friendly
- Blue chipA blue chip is a big, well-known company that usually trades easily and draws lots of attention. Famous does not mean risk-free.
- DividendsA dividend is cash (sometimes stock) a company shares with owners. Not every company pays one - many prefer to reinvest or buy back shares instead.
- ETFAn ETF is a ready-made basket of investments that trades like a single stock. One click can buy a whole market or sector instead of picking many companies yourself.
- Ex-dividend dateThe ex-dividend date is the cutoff: buy on or after that day and you usually miss the upcoming dividend payment.
- FloatFloat is how many shares are actually available to trade. A small float can make prices jump more easily when excitement hits.
- Growth stockA growth stock is priced for rising profits or sales. When growth expectations slip, the price can fall hard even if the company is still doing okay.
- Market capitalizationMarket cap is the market’s guess of what the whole company is worth: share price × number of shares. Big companies usually trade more smoothly; small ones can jump around more.
Markets
8 terms · beginner-friendly
- Bear marketA bear market is a long stretch when prices fall a lot and fear rises. These periods are painful, but they are a normal part of market history.
- Bull marketA bull market is a long stretch when prices generally rise and people feel optimistic. It doesn’t mean every day is green - just that the bigger trend is up.
- IndexAn index is a scoreboard for a market or group of stocks (like the S&P 500). You don’t buy the index itself - you usually buy a fund that follows it.
- LiquidityLiquidity means “how easy is it to buy or sell without moving the price a lot?” Popular big stocks are usually liquid; tiny obscure ones often are not.
- Market correctionA market correction is a sizable drop from recent highs - often around 10%. Unpleasant, but common in long uptrends.
- Short squeezeA short squeeze is when rising prices force short sellers to buy back quickly, which can push the price even higher for a while.
- Support and resistanceSupport is a price area where buyers often show up; resistance is where sellers often appear. Think of them as neighborhoods on a chart - useful hints, not magic walls.
- VolumeVolume is how many shares changed hands. A big price move on heavy volume usually means more people agree; the same move on tiny volume is easier to fade.
Macro
9 terms · beginner-friendly
- BondsA bond is a loan you make to a government or company. They pay you interest; you are a lender, not an owner like with stocks.
- Central bankA central bank (like the Federal Reserve) helps steer a country’s money conditions - especially interest rates. Markets hang on their every announcement.
- DurationDuration measures how sensitive a bond’s price is to interest-rate changes. Higher duration means bigger swings when rates move.
- FX (foreign exchange)FX (foreign exchange) is the market for currencies. If you own investments abroad, currency moves can change your result even when the foreign stock price is flat.
- GDPGDP measures how much an economy produces. Rising GDP usually means growth; falling GDP can signal trouble - but stock markets often move before the official numbers.
- InflationInflation means everyday prices rising, so each dollar buys a little less. Markets watch it because it affects interest rates and which stocks lead.
- Interest ratesInterest rates are the price of borrowing money. When rates rise, loans cost more - and stock prices can shift as investors rethink what investments are worth.
- RecessionA recession is a broad slowdown in the economy - jobs, spending, and business activity weaken for a while. Markets often fall early and recover before the news feels good again.
- Yield curveThe yield curve shows interest rates for short-term vs long-term bonds. When short rates rise above long rates (“inversion”), people often worry about recession - timing is messy.
Risk
11 terms · beginner-friendly
- Asset allocationAsset allocation is how you split money between stocks, bonds, cash, and other assets. That mix usually matters more than picking one “perfect” stock.
- BetaBeta estimates how jumpy a stock is compared with the overall market. Higher beta usually means bigger swings when the market moves.
- CompoundingCompounding is growth on top of earlier growth - your returns start earning their own returns when you leave money invested.
- CorrelationCorrelation asks: do two investments usually move together? If they always rise and fall as a pair, they don’t protect each other much.
- DiversificationDiversification means not putting everything in one story. If one investment has a bad year, others may hold you up.
- Dollar-cost averagingDollar-cost averaging means investing a fixed amount on a schedule (like every paycheck), no matter what the price did that week. It reduces the stress of “perfect timing.”
- DrawdownA drawdown is how far your investment fell from its recent high before it recovered (if it does). It measures the depth of the hole.
- FOMOFOMO is the fear of missing out - the urge to buy because everyone else seems to be winning. It often leads to chasing after the easy move is gone.
- Margin tradingMargin means borrowing money from a broker to buy more. Gains and losses get bigger - and you can be forced to sell if the account falls too far.
- Risk toleranceRisk tolerance is how much ups and downs you can handle without panic-selling. The “best” portfolio is one you can stick with.
- VolatilityVolatility is how much prices bounce around. High volatility feels like a bumpy road - not always a permanent crash, but it can shake you into bad decisions.
Orders & trading
5 terms · beginner-friendly
- Bid-ask spreadThe bid is what buyers offer; the ask is what sellers want. The gap between them is a real cost of trading - wider gaps cost more.
- Limit orderA limit order says “only buy/sell at this price or better.” You control the price, but you might not get a fill.
- Market orderA market order says “buy or sell right now at the best available price.” You get speed, but you don’t control the exact price.
- Short sellingShort selling is a bet that a price will fall: you borrow shares, sell them, and hope to buy them back cheaper later. Losses can grow if the price rises instead.
- Stop-loss orderA stop-loss is an order that tries to sell for you after price hits a danger level. It can limit damage, but in a sudden gap you may still get a worse price than the stop.