Stock market terminology includes common investing terms related to stocks, trading, finance, market performance, and more. This investing glossary provides more than 200 terms and definitions.

1099-DIV

The 1099-DIV form that reports dividends or distributions you've earned on stocks or mutual funds.

1099-B

The 1099-B is a tax form that reports your gains and losses from selling stocks or other investments in your brokerage account.

401(k) plan

A 401(k) is a defined contribution plan in which an employer takes money directly from an employee's salary and places it into a tax-deferred retirement account, which means that the employee doesn't pay taxes on this money until they withdraw it. There are limits on when money can be withdrawn, and there are penalties for early withdrawals. The choice about how and where the money is invested is usually the employee's decision. Employers often match a percentage of employee contributions, up to a specified limit.

529 plan

A 529 plan is a U.S. state-sponsored, tax-advantaged way to invest assets toward the cost of education. Withdrawals from a 529 account can be used to pay for qualified educational expenses at any eligible U.S. college, university, trade school, or apprenticeship program. Withdrawals can also be used for K-12 tuition expenses.

After-tax (dollars/contributions)

Money that has already been taxed.

Alternative minimum tax

The alternative minimum tax (AMT) applies to U.S. taxpayers who have certain types of income (such as the spread reported from an exercise and hold of incentive stock options) that receive favorable tax treatment. The AMT sets a limit (i.e., a floor) on the amount these benefits can be used to reduce total tax.

Annual contribution limits

IRS rules that determine how much you can contribute to certain tax-advantaged accounts each year.

Annualized return

A measure of how much value an investment has gained or lost on average each year, over a specific number of years or other time period. It takes compound growth (compounding) into account. Also called annual return.

Annuity

An annuity is a contract between an investor and insurance company designed to provide a steady income stream to an investor, usually after retirement. Annuity investors pay regular premiums to the insurer, then, once the contract is annuitized, the investor receives regular payments for a set period of time. Annuities can grow tax-deferred, meaning investors pay no taxes on the earnings until they receive payments or make withdrawals.

Asset allocation

An investment strategy that involves dividing asset classes (like stocks, bonds, and cash) in your portfolio, based on your goals, risk tolerance, timeline, and other factors. Also referred to as an asset mix.

Asset class

One of the three major types of investments: stocks, bonds, and cash equivalents.

Assignment

Assignment happens when an option buyer exercises their option and the option seller (writer) is required to fulfill the contract. For every option trade, there is a buyer and a seller; in other words, for anyone short an option, there is someone out there on the long side who could exercise.

Award agreement

A document issued by a company that details the number of shares, award price, vesting schedule, and any other terms and conditions related to a stock grant. Also referred to as a grant agreement.

Award price

The price you pay per share when you exercise your options. The award price is set by your company. Also referred to as an exercise price, grant price, option price, or strike price.

Basis points

Basis points (BPS) are units that equal 1/100th of 1% and are commonly used to calculate changes in interest rates. For example, a change from 3.50% to 3.75% is an increase of 25 BPS.

Bear market

A market in which share prices have declined at least 20% from a recent high.

Beneficiary

A beneficiary is a person or entity (like a charity) who is designated to receive or inherit benefits or other assets.

Blue-chip stock

Widely held large market capitalization companies that are considered financially sound and are leaders in their respective industry or local stock market.

Bond

A bond represents a loan you make to a government, municipality, or corporation (issuer). In return, the bond issuer promises the original loan amount (principal or face value) will be repaid on a specific maturity date (generally annually, semiannually, or quarterly).

Bond premium

When a bond is traded (or issued) at a price above its par (or face) value.

Bond ladder

A bond ladder is a portfolio of individual bonds that mature on different dates. This strategy is designed to provide current income while minimizing exposure to interest rate fluctuations.

Broker

A person who acts as an intermediary between a buyer and seller of securities, sometimes charging a commission.

Brokerage account

A taxable account that you open with a brokerage firm. The account allows you to invest in stocks, bonds, cash, ETFs, mutual funds, and other investments.

Broker-dealer

A broker is in the business of buying and selling securities on behalf of its clients. A dealer buys and sells securities for its own account. A broker-dealer does both. U.S regulators such as the Securities and Exchange Commission (SEC) typically refer to stock brokerage firms as broker-dealers because a majority of them may serve both functions.

Bull market

A market in which share prices have risen 20% or more from recent lows.

Buying power

The amount of money available in a margin account to buy stocks or options. Buying power is determined by the sum of the cash held in the brokerage account and the loan value of any marginable securities in the account without depositing additional equity.

Capital gain

A capital gain occurs when you sell a stock at a higher price than when you purchased it. For example, if you purchased a stock for $10 (and sold it after the value increased to $15), you could be taxed on the $5 capital gain.

Capital gains tax

Tax on gains (profits) you make from the sale of capital assets, like stocks and other investments. Under U.S. tax laws, if you hold an investment for more than a year before you sell it for a gain, you may qualify for a long-term capital gains tax rate. Gains from investments held for less than a year are usually considered short-term capital gains and are taxed as ordinary income (which is usually a higher tax rate than long-term capital gains).

Capital loss

Capital loss occurs when you sell a stock at a lower price than when you purchased it.

Cboe^® Volatility Index (VIX)

An index that measures the implied volatility of the S&P 500^® index options. Otherwise referred to as the "fear" index, it's most often used to gauge the level of fear or complacency in a market over a specified period of time. Typically, as the VIX rises, options buying activity increases, and options premiums on the S&P 500 index increase as well. As the VIX declines, options buying activity decreases. The assumption is that greater options activity means the market is buying up hedges in anticipation of a correction. However, the market can move higher or lower, despite a rising VIX.

Certificate of deposit (CD)

CDs are bank deposits that pay a stated amount of interest for a specified period of time and promise to return your money on a specific date. They are federally insured and issued by banks and savings-and-loans institutions.

CERTIFIED FINANCIAL PLANNER™ (CFP®)

A professional planner who has met the Certified Financial Planner Board of Standards' requirements in education, experience, and ethical conduct; passed a 10-hour comprehensive examination in investment, tax, estate, retirement, and insurance planning; and agreed to follow a code of ethics.

Cliff

The date when the restrictions end on the vesting of restricted stock or options. This can also be referred to as a lapse.

Common stock

Common stock is partial ownership of a company. An owner of a company's common stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, common stockholders can collect dividends if the company distributes some of its earnings to stockholders. Common stock can also be referred to as an equity security, a share, or simply a stock.

Compound growth

An investment concept that involves reinvesting earnings from your original investment to increase your total investment and help your money grow faster over time. Also called compounding.

Consumer Price Index

The Consumer Price Index (CPI), which is tracked by the U.S. Labor Department, reflects average price changes over time for a basket of goods and services, including food, gasoline, rent, apparel, and medical care.

Correlation

Used to measure how closely two assets move relative to one another. A correlation of +1 means both assets tend to move perfectly in tandem, while -1 means both assets move perfectly opposite of each other.

Cost basis

What was initially paid for an investment, as opposed to its current fair market value.

Cryptocurrency

Cryptocurrency is a virtual currency secured through one-way cryptography. It appears on a distributed ledger called a blockchain that's transparent and shared among all users in a permanent and verifiable way that's nearly impossible to fake or hack into. It is not reliant on any central authority, such as government or bank, to uphold or maintain it. Cryptocurrency's value stems from a combination of scarcity and the perception that it is a store of value, an anonymous means of payment, or a hedge against inflation.

Direct transfers

While a rollover typically refers to migration from two types of plans (from the entity to the person), a direct transfer describes moving funds from custodian to custodian (e.g. IRA-to-IRA migration).

Diversification

An investment strategy that involves building a portfolio from a mix of asset classes (like stocks, bonds, and cash) that tend to behave differently. A diversified portfolio also includes a broad range of investments within each asset class. For example, with stocks you might want a mix of international and domestic stocks; stocks from various industries; and stocks from small, midsize, and large companies.

Dividends

Portions of a company's earnings that can be distributed to shareholders, usually in cash. Some companies pay stock dividends (additional shares) instead of cash. Not all companies pay dividends, and the dividend amount can change.

Dividend yield

Dividend yield is a financial ratio that helps investors understand how much return they are going to get on their investment. You can calculate dividend yield by dividing the expected income (the dividend) by what you invest (the price per share).

Dollar-cost averaging

Dollar-cost averaging is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price.

Dow Jones Industrial Average^® (DJIA or "the Dow")

The Dow Jones Industrial Average, Dow Jones^®, or simply the Dow, is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA^® is one of the oldest and most commonly followed equity indexes.

Earned income

Taxable pay from employment or self-employment, including wages, salaries, tips, union strike benefits, and certain disability payments. Does not include investment, retirement, Social Security, alimony, or child support income.

Earnings season

Refers to the period at the beginning of each quarter when corporations report their earnings from the previous quarter.

Earnings per share

Earnings per share, or "EPS", is one of the most widely used ways to gauge company profitability. To calculate, divide the company's profits by the number of outstanding shares.

EBITDA

An acronym for earnings before interest, taxes, depreciation, and amortization. EBITDA is used to analyze earnings from core business operations without the effects of financing, taxes, and capitalization.

Employment Cost Index

Released quarterly by the U.S. Labor Department, the index measures changes in the hourly labor cost to employers over time (e.g., wages, bonuses, and other compensation costs). 

Employee stock option exercise and equity award agreement

The document that gives your brokerage firm the authority to act as your broker as part of an equity award transaction.

Employee stock purchase plan (ESPP)

An ESPP allows you to buy shares of your employer's stock at a discounted price, typically through after-tax payroll deductions. 

Employer-sponsored retirement account

A retirement plan provided by your employer, such as a 401(k), 403(b), 457(b), or Thrift Savings Plan (TSP). Many employers will also match a portion of the money you contribute to your account.

Environmental, Social, and Governance

Environmental, social, and governance (ESG) are three factors used to measure the impact of a company's business practices regarding sustainability. Some mutual funds and ETFs offer what's known as ESG funds, which are structured to target companies with socially responsible practices.

Equity compensation

A form of compensation based on the value of your company stock given to you by your employer. Equity compensation can include employee stock purchase plans (ESPPs), stock options, restricted stock awards (RSAs), restricted stock units (RSUs), performance stock awards (PSAs), and performance stock units (PSUs). These can also be referred to as equity awards. 

Equity security

An equity security is partial ownership of a company. An owner of a company's common stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, common stockholders can collect dividends if the company distributes some of its earnings to stockholders. An equity security can also be referred to as a stock, common stock, or share.

Exchange-traded fund (ETF)

An ETF is an investment fund or portfolio of securities that holds assets like stocks, bonds, or commodities. Like stocks, ETFs trade on an exchange and experience price fluctuations throughout the day.

Ex-dividend

Describes a stock whose buyer does not receive the most recently declared dividend. Dividends are payable only to shareholders recorded on the books of the company as of a specific date of record (the "record date"). If you buy the stock any time after the record date for a particular dividend, you won't receive that dividend.

Ex-dividend date

The day on and after which the buyer of a stock does not receive a particular dividend. This date is sometimes referred to simply as the ex-date and can apply to other situations beyond cash dividends, such as stock splits and stock dividends. On the ex-dividend date, the opening price for the stock will have been reduced by the amount of the dividend but may open at any price due to market forces.

Exercise

To act on the right to purchase company stock at the grant price set by the option grant.

Exercise and hold

The transaction in which you purchase your company's stock at the grant price and keep the shares in your brokerage account for sale at a future date. Also referred to as "cash purchase and hold the shares."

Exercise and sell

The transaction in which you buy and then immediately sell shares.

Exercise date

The date on which investors exercise their options.

Exercise price

The price you pay per share when you exercise your options. Also referred to as an award price, grant price, option price, or strike price.

Expected P/E

The expected P/E, or forward P/E, is a valuation metric that uses analyst estimates or company projections to anticipate future earnings expectations. The formula for expected P/E is the current share price divided by the projected earnings per share.

Fair market value (FMV)

The amount that a willing buyer would pay a willing seller for a share of company stock. The fair market value on the day stock options are granted typically determines the award price.

Federal funds rate

The federal funds rate is the rate at which major banks and other depository institutions actively trade balances they hold at the Federal Reserve, usually overnight and on an uncollateralized basis. One of the central bank's primary policy tools, the rate is linked to borrowing costs across the financial system, making it among the most influential and widely followed interest rates in the world. The Fed adjusts the rate to stimulate or rein in the economy (and prevent excess inflation).

Federal Open Market Committee

The Federal Open Market Committee (FOMC) is the branch of the U.S. Federal Reserve that determines the direction of monetary policy, primarily through adjustments to benchmark short-term interest rates. It's composed of a seven-member board of governors and five reserve bank presidents, and it meets eight times a year.

Financial advisor

Financial advisor is a broad term for a professional such as a Certified Financial Planner (CFP) or Registered Investment Advisor (RIA) who provides advice or guidance in exchange for compensation. Different certifications come with different levels of disclosures to the client.

Fixed income

A fixed income security is an investment in which an issuer (or borrower) is expected to make periodic payments of a specific amount, or specific rate, at regular intervals. Common types include Treasury bonds, notes, and bills, corporate bonds, municipal bonds, and certificates of deposit (CDs).

Fractional share

Fractional shares allow you to invest in stocks based on a dollar amount, so you may end up with a fraction of a share, a whole share, or more than one share. Fractional shares pay dividends proportionate to the percentage of the share you own.

Fundamental analysis

Fundamental analysis attempts to derive the value of a stock or other security by analyzing a company's financial statements, management, competitive environment, overall economic conditions, and other factors. Some popular fundamental indicators include the price-to-earnings (P/E) ratio, earnings per share, and price/earnings-to-growth ratio.

Futures

Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price.

Grant

An award of stock options, restricted stock units (RSUs), or performance stock units (PSUs).

Grant agreement

A document issued by a company that details the number of shares, award price, vesting schedule, and any other terms and conditions related to a stock grant. Also referred to as an award agreement.

Grant date

The date your stock options, restricted stock units (RSUs), or performance stock unit (PSU)s were granted to you.

Grant ID

The unique identifier for each equity award.

Grant price

The price of the award at the time of the grant. In the case of stock options, this is the price you pay per share when you exercise your options. Also referred to as an award price, strike price, option price, or exercise price.

Greeks

Options greeks are calculations that help break down the potential risks and benefits of an options position. They include delta, gamma, theta, vega, and rho.

Health savings account (HSA)

A health savings account (HSA) is a savings account that offers tax advantages for people enrolled in an approved high-deductible health plan. Funds in an HSA may be used for qualified medical expenses without incurring federal tax liability.

Hedge

Taking a position in stock or options in order to offset the risk of another position in stock options.

Holding period

For tax purposes, this refers to the period of time you hold incentive stock options (ISO) shares or qualified ESPPs in order to receive favorable U.S. tax treatment when the shares are ultimately sold. If you fail to meet the holding period, a "disqualifying disposition" occurs, changing the tax consequences. More generally, the holding period is the period of time a company requires that granted and/or exercised shares be held before they are sold.

Incentive stock options (ISOs)

Also called "qualified" or "statutory" stock options, ISOs are considered tax-advantaged stock options based on U.S. tax law. With ISOs, the spread (the difference between the award price and the fair market value) will count as income for the alternative minimum tax (AMT) in the year you exercise your options. If you exercise and hold the shares for more than one year past the exercise date and more than two years past the original grant date, the sale of the stock becomes a qualifying disposition, and any realized profit is typically taxed at the long-term capital gains rate. If you sell earlier, the spread will be taxed at your ordinary income tax rate.

Income statement

An income statement measures a company's financial performance over a specific accounting period, providing a summary of how the business incurs revenues and expenses through both operation and non-operation activities. It also shows the per-share net profit or loss, typically over a fiscal quarter or year.

Index

A group of securities designed to represent a particular market, sector, or commodity. Well-known market indexes include the S&P 500^® index, the Dow Jones Industrial Average^®, the Nasdaq^® Composite Index, and the Wilshire 5000 Index.

Individual retirement account (IRA)

An IRA is an account for people with earned income that allows them to save for retirement by providing various tax advantages.

Inflation

Inflation refers to a general increase in prices and a decrease in the purchasing value of money. Inflation is commonly measured in two ways. Core inflation represents long-term price trends by excluding certain volatile items such as food and energy. Headline inflation represents the total inflation within the economy.

Initial public offering (IPO)

An IPO refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.

Internal Revenue Service (IRS)

The Internal Revenue Service (IRS) is a federal agency for the collection and enforcement of taxes. The IRS was established in 1862 by President Lincoln and operates under the authority of the U.S. Treasury Department. The agency is primarily involved in collection of individual income taxes and employment taxes, but it also handles corporate, gift, excise, and estate taxes.

In-the-money stock options

Stock options that have a market price higher than the grant price. If you have in-the-money (ITM) stock options, they're already profitable. For example, if you have stock options with a grant price of $10 per share and the market value is $12 per share, you're "in the money" by $2 per share.

Intrinsic value

The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business. This includes both tangible and intangible factors and may not be the same as the current market value. Value investors use analytical techniques to estimate the intrinsic value, hoping to find investments where the true value exceeds current market value.

Invest

Putting your money into an asset (like stocks, bonds, or a mutual fund) with the goal of financial gain. All investments carry a risk of loss.

Junk bonds

High-yield bonds have a lower credit rating than investment-grade corporate debt, Treasuries, and municipal bonds. Because of the greater risk of default, so-called junk bonds generally pay a higher yield than investment-grade counterparts.

Large-cap stocks

Large-capitalization (large-cap) stocks are typically companies with market values (share price multiplied by number of shares outstanding) greater than $10 billion.

Lapse

The date when the restrictions end upon the vesting of restricted stock or options.

Leveraged ETF

A leveraged ETF uses financial derivatives and debt in an attempt to amplify the returns of an underlying index, such as the S&P 500^®. For example, a leveraged ETF with a 2:1 ratio matches each dollar of investor capital with an additional dollar of debt. If the underlying index returns 1% in one day, the ETF in theory returns 2%; however, they can experience greater losses than expected.

Limit order

A limit order indicates the highest price you're willing to pay for a security, or the lowest price you're willing to accept to sell a security. Your order will be executed at your designated price or better. This helps protect your order from sudden volatility, but it also means you'll only buy or sell the security if it reaches the price you're seeking.

Liquidity

In trading, this is the ability to quickly open or close a position without affecting its market price. In a liquid market, it is easier to execute a trade quickly and at a desirable price because there are numerous buyers and sellers. 

Lookback

A designated purchase period in certain tax-qualified employee stock purchase plans (ESPPs) where stock can be purchased at the lower of two prices: either as of the initial date of the offering period or the final date of the period, whichever is lower.

Margin

Margin is borrowed money that's used to buy stocks or other securities. In margin trading, a brokerage firm lends an account owner a portion of the purchase price (typically 30% to 50% of the total price). The loan in the margin account is collateralized by the stock, and if the value of the stock drops below a certain level, the owner will be required to deposit marginable securities and/or cash into the account or to sell/close out security positions in the account.

Margin call

A margin call is issued when your account value drops below the maintenance requirements on a security or securities due to a drop in the market value of a security or when you exceed your buying power. Margin calls may be met by depositing funds, selling stock, or depositing securities.

Market capitalization

The total value, in dollars, of a company's outstanding shares calculated by the number of shares by the current share price. For example, if a stock is trading at $100 per share and there are 50 million shares outstanding, its market cap would be $5 billion.

Market maker

A firm that stands ready to buy and sell a particular security on a regular and continuous basis at publicity quoted prices.

Market order

A trading order placed with a broker to immediately buy or sell a stock option at the best available price.

Market price

The current price a stock is trading at in the stock market.

Mark-to-market

Mark-to-market, or fair value accounting, refers to accounting for the "fair value" of an asset or liability based on the current market price, or for similar assets and liabilities based on another objectively assessed "fair" value.

Modified adjusted gross income (MAGI)

Your MAGI is your adjusted gross income (AGI) with certain tax deductions and income added back in.

Momentum

Momentum refers to several technical indicators that incorporate trading volume and other factors to measure how quickly a price is moving up or down, and the likelihood it may continue going in that direction. In markets that are in the process of changing direction, momentum readings can often "diverge," flatten out, or turn the opposite way.

Money supply

Broadly refers to the total amount of currency and other liquid instruments in a country's economy at a particular time; this can include cash, checking, and savings account balances.

Mortgage funds

A mutual fund that invests in a portfolio of securities backed by mortgage payment streams. These may include residential or commercial properties, or both. Some are issued by government-backed institutions, such as Ginnie Mae, Fannie Mae, and Freddie Mac, while others are considered "non-agency" and are not backed by the government.

Municipal bonds

Municipal bonds are issued by state or local governments to raise money to pay for special projects, such as building schools, highways, and sewers. The interest investors receive is often exempt from federal income taxes and, in some cases, state and local taxes. Interest may be subject to the alternative minimum tax (AMT).

Mutual funds

Mutual funds pool money from many investors to purchase a broad range of investments like stocks, bonds, cash, or other types of securities. When you purchase a mutual fund, you get exposure to all the investments included in that fund. Mutual funds charge fees to manage your investment that can vary by fund and share class. Mutual funds are purchased or sold once a day at market close.

Net asset value

Net asset value (NAV) is the value per share of a mutual fund or ETF. NAV is calculated by taking the market value of the fund's assets less the fund's liabilities and dividing by the total number of outstanding shares.

Net income

Net income is calculated by taking revenue and subtracting the costs of doing business, as well as depreciation, interest, taxes, and other expenses. Used to determine earnings per share, net income is a key long-term performance measure and is often referred to as the "bottom line," because it is listed at the bottom of the income statement.

Neutral

A position which has no directional bias. Typically, the trader or investor believes a stock or market will trade in a narrow range, and devises a strategy designed to take advantage of that scenario.

Non-fungible tokens (NFTs)

NFTs are an emerging asset class. Like cryptocurrencies, NFTs are stored on a blockchain. Each NFT is unique and cannot be duplicated (i.e., non-fungible). In that sense, NFTs are more like the Hope Diamond or Picasso's Guernica—a one-of-a-kind work for which there is no substitute. An NFT's perceived scarcity, whether because it's a unique piece of art or a limited-issue collectible, makes it potentially lucrative—but also substantially less liquid than, say, your average stock or bond. As a result, you may need to drop the price or hold on to your NFT if the demand isn't there when you want or need to sell it.

Non-qualified stock options (NQSOs)

Stock options that don't meet the requirements of a qualified (or statutory) stock option under the Internal Revenue Code. Upon exercise of a non-qualified stock option, you realize compensation equal to the spread between the fair market value of the stock on the exercise date and the price paid to purchase the shares. Compensation is taxable income, for which the company is obligated to withhold taxes. Ordinary income and tax withholding will be reported through payroll. When shares acquired through the exercise of a non-qualified stock option are subsequently sold, any gain is subject to capital gains tax. If the price of the stock goes down after exercise, you would be eligible to take a capital loss (as you would with any other security you may own).

Operating income

Operating income is profit realized after taking out operating (or recurring) expenses, such as the cost of goods sold, rent, and wages. Sometimes referred to as earnings before interest and taxes (EBIT), operating income is used to calculate operating margin, a closely followed metric of how efficiently a company turns sales into profits.

Option price

The price you pay per share when you exercise your options. Also referred to as an award price, strike price, exercise price, or grant price.

Out-of-the-money stock options

Describes an option with no intrinsic value. A call option is out of the money (OTM) if its strike price is above the price of the underlying stock. A put option is OTM if its strike price is below the price of the underlying stock.

P&L

Profit and loss of the aggregate total of all gains and losses over a specific period of time (e.g., day, month, year).

Pairs trading

Buying one asset and selling another in the hopes that either the long asset outperforms the short asset or vice versa. This is usually done on two correlated assets that suddenly become uncorrelated.

Par value

The amount a bond issuer agrees to pay the borrower at maturity (aka face value, principal, or maturity value).

Pattern day trader

If you make four or more day trades (for the same security) within a five business day period, and those trades account for more than 6% of your account activity over that time period, your margin account will be flagged as a pattern day trader account.

PCE deflator

Similar to the CPI, the Personal Consumption Expenditures Price Index tracks price changes for several common goods and services; the PCE is included in quarterly Gross Domestic Product reports released by the U.S. Commerce Department.

Penny stock

A stock that trades for less than $5 per share and is not traded on a U.S. stock exchange is commonly referred to as a penny stock.

Performance stock units (PSUs) and performance stock awards (PSAs)

A form of equity compensation that is awarded to employees based on the company's performance over a given period and meeting a service (time) requirement. 

Portfolio

The combined holding of stocks, bonds, cash, and other investments held by an individual investor, mutual fund, exchange-traded fund (ETF), or financial institution.

Preferred stock

Preferred stock refers to a class of stock that has a priority claim on the company's earnings before payment is made on the common stock if the company declares a dividend.

Premium

Premium is the price of an options contract. It's paid to the seller of the option. The option premium is primarily affected by the difference between the stock price and the strike price, the time remaining for the option to be exercised, and the volatility of the underlying stock, along with other factors.

Pre-tax (dollars/contributions)

Money that has not yet been taxed.

Price-to-book (P/B) ratio

The price-to-book ratio, or P/B ratio, compares a company's stock price to the value of its assets on the balance sheet. A lower P/B ratio can sometimes indicate that the stock is at a reasonable valuation.

Price-to-earnings (P/E) ratio

The price-to-earnings (P/E) ratio is the market value per share divided by earnings per share (EPS). For example, a stock trading at $43 with earnings over the last 12 months of $1.95 per share would have a P/E ratio of 22.05 ($43/$1.95). EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected, or forward, P/E).

Profit and loss analysis

A graphical presentation of the profit and loss possibilities of an investment strategy at one point in time (usually option expiration), at various stock prices.

Qualified retirement plan

A plan that meets requirements of the Internal Revenue Code and so is eligible to receive certain tax benefits.

Qualified stock options

See incentive stock options (ISOs).

Quantitative easing

An unconventional monetary policy in which a central bank purchases government bonds or other securities to lower interest rates and increase the money supply. 

Real Estate Investment Trusts

A Real Estate Investment Trust (REIT) is a type of company, or more accurately, a trust, which invests in a portfolio of real estate like apartment buildings, shopping centers, hospitals, and hotels. Investors can participate in the gains and losses of the portfolio by buying shares of a REIT.

Rebalancing

Adjusting your portfolio periodically to keep it in line with your chosen asset allocation and risk level. In other words, maintaining the relative percentages of stocks, bonds, cash, and other investments you originally selected.

Reg T

Formally known as Regulation T, it's the initial margin requirement set by the Federal Reserve Board. According to Reg T requirements, you may borrow up to 50% of marginable securities that can be purchased (such as most listed stocks).

Required minimum distributions (RMDs)

RMDs are IRS-mandated withdrawals from your tax-deferred retirement accounts (like a 401(k) or traditional IRA) that you must take each year, starting at a certain age to avoid a tax penalty.

Reserve currency

A reserve currency, such as the U.S. dollar, is held in large quantities by central banks and financial institutions, such as the International Monetary Fund, as an acceptable means of international payment.

Resistance

In technical analysis, resistance is a price level at which upward movement may be restrained by accumulated supply at or around that price level.

Restricted stock awards (RSAs) and restricted stock units (RSUs)

A form of equity compensation in which the company typically awards stock at a future date when the service (time) requirement is met. When these conditions are met, vesting occurs and shares are usually delivered. The shares then become the employee's assets.

Risk premium

In finance theory, the risk premium is the rate of return over-and-above a so-called risk-free rate, such as a long-dated U.S. Treasury security. For example, if a security's theoretical return is 6%, and the risk-free rate is 2%, the risk premium would be 4%. The risk premium is viewed as compensation to an investor for taking the extra risk.

Risk tolerance

How an investor feels about risk, the level of risk an investor is willing to take. Your risk tolerance helps you decide whether to invest more conservatively or more aggressively.

Robo-advisor

Robo-advisors are online services that provide automated portfolios based on your preferences (goals, time horizon, risk tolerance, etc.). The robo-advisor automatically builds a diversified portfolio of funds based on your preferences, and the portfolio is automatically rebalanced by an algorithm.

Rollover IRA

A Rollover IRA is an account that allows you to move funds from your prior employer-sponsored retirement plan (like a 401(k) plan) into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early withdrawal penalties at the time of transfer.

Roth IRA

A Roth individual retirement account (IRA) is a retirement account to which you contribute after-tax dollars. While there are no current-year tax benefits, your contributions and potential earnings can grow tax-free, and you can withdraw them federally tax- and penalty-free after age 59½ and once the account has been open for five years.

Sale price

The specific market price at which a security is sold.

Schedule D

A tax form that reports gains and losses from selling capital assets like stocks, bonds, and real estate.

Security

A financial security is defined broadly to include an array of tradable investments like stocks, bonds, exchange-traded funds (ETFs), and mutual funds. Securities are financial assets that have value and can be bought, sold, or traded in a financial market.

Securities and Exchange Commission (SEC)

A U.S. government oversight agency responsible for regulating the securities markets and protecting investors.

Settled cash

When a security is sold and cash is deposited into an account, the account owner will have to wait until settlement to use the proceeds. Until then, those proceeds are considered unsettled cash. Settlement cycles can vary depending on the product.

Share

A share represents partial ownership of a company. An owner of a share is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, shareholders can collect dividends if the company distributes some of its earnings to shareholders. Shares can also be referred to as common stock, stock, or equity securities.

Short selling

Short selling involves borrowing a security and selling it on the open market. You then purchase it later at a lower price, pocketing the difference after repaying the initial loan. For example, let's say a stock is trading at $50 a share. You borrow 100 shares and sell them for $5,000. If the price suddenly declines to $25 a share, at which point you purchase 100 shares to replace those you borrowed, you net $2,500.

Short squeeze

A short squeeze happens when a stock price advances so fast that short sellers are forced to cover their positions (buy the stock back), which drives the price even higher.

Simple moving average

A simple moving average (SMA) is a technical indicator that's calculated by adding the closing price of a stock or other security over a specific period of time and dividing the total by the appropriate number of trading days. For example, a 20-day SMA is the average closing price over the previous 20 days.

Slippage

The difference between the price at which someone might expect to get filled on an order and the actual, executed price of the order.

Small-cap stocks

Small-capitalization (small-cap) stocks are typically companies with market values (share price multiplied by number of shares outstanding) under $2 billion.

Spot price

The price where a security, commodity, or currency can be purchased or sold for immediate delivery.

Spread

The difference between an equity award price and the fair market price of stock on a specific date.

Standard and Poor's S&P 500^® index

This is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indexes.

Stock appreciation rights (SARs)

Stock appreciation rights (SARs) are a form of equity compensation tied to your company's stock performance over a specific period. If the stock's value climbs during that preset time, you have the right to receive a portion of the increase in either cash or stocks. 

Stock

Stock is partial ownership of a company. An owner of a company's stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, stockholders can collect dividends if the company distributes some of its earnings to stockholders. Stock can also be referred to as equity securities, common stock, or shares.

Stock option

A stock option gives you the right but not the obligation to buy stock at a specific price in the future for a set period of time. 

Stock slices

Stock slices are fractional shares. Fractional shares allow you to invest in stocks based on a dollar amount, so you may end up with a fraction of a share, a whole share, or more than one share. Fractional shares pay dividends proportionate to the percentage of the share you own.

Stock symbol

See ticker symbol.

Stock ticker

The continuously updated price of a security during the trading session.

Stop market order

A type of order that turns into a market order to buy or sell a security once a specified "stop" price is reached. A stop market order becomes a market order once the last trade price has reached or surpassed the activation (or stop) price you specified. Buy-stop market orders require you to enter an activation price above the current ask price. The activation price for a sell-stop order must be placed below the current bid price.

Stop order

Typically triggers the sale of a security once a specified "stop" price is reached. Buy-stop market orders require you to enter an activation price above the current ask price. Sellers must enter the activation price below the current bid price. A stop order does not guarantee an execution at or near the activation price. Once activated, they compete with other incoming market orders.

Strike price

The price you pay per share when you exercise your options. Also referred to as an option price, exercise price, or grant price.

Support

In technical analysis, support is a price level where downward movement may be restrained by accumulated demand at or around that price level.

Tariff

A tariff is a tax on imports. It's typically charged as a percentage of the price a buyer pays a foreign seller for an imported product, and it's paid by the importer—usually a domestic company—to the customs authority.

Tax-deferred

Tax-deferred contributions and earnings are not usually subject to federal, state, or local taxes until you withdraw them from your retirement account.

Tax-loss harvesting

Tax-loss harvesting is the process of selling a security at a loss with the goal of offering current or future capital gains realized from selling securities at a profit. This allows investors to generate tax deductions for federal income tax purposes that can be used to offset recognized capital gains and up to $3,000 of ordinary income a year. Additional captured losses can be carried forward into future years if not used in the year in which they occurred.

Technical analysis

Examines historical trading data such as price and volume data to identify previous chart patterns with the hope of anticipating stock price movements. Some technical analysis tools include moving averages, oscillators, and trendlines.

Thematic investing

Thematic investing is an investment approach that uses research to identify trends, opportunities, and relevant companies and groups them into overarching themes to invest in.

Ticker symbol

An arrangement of letters or characters that represent securities (stocks, mutual funds, etc.) that are publicly traded. For example: AMZN for Amazon, AAPL for Apple, and IBM for International Business Machines Corporation (IBM). A ticker symbol is also referred to as a stock symbol.

Time horizon

The time when you plan to withdraw the money you've invested. Goals like saving for college or retirement tend to have longer time horizons than saving for a vacation or a down payment on a house. In general, the longer your time horizon, the more risk you can assume because you have more time to potentially recover from a loss.

Traditional IRA

A traditional individual retirement account (IRA) is a type of IRA in which you can make pre-tax contributions that can grow tax-deferred. With a traditional IRA, you'll pay ordinary income tax on your withdrawals, and you must start taking distributions once you reach your RMD age.

Treasury Inflation-Protected Securities (TIPS)

Treasury Inflation-Protected Securities (TIPS) are backed by the U.S. government and carry a par value that rises with inflation, as measured by the CPI. TIPS pay interest twice a year, at a fixed rate.

Trust

A trust is a fiduciary arrangement that specifies how your assets are to be distributed, usually without the involvement of a probate court. They can be structured to take effect before death, after death, or in case of incapacitation.

Underwater

The award price of a stock option is greater than the current market price of the underlying stock.

Unvested grant

The portion of a grant that has not yet met the vesting criteria as set forth in the grant agreement.

U.S. Dollar Index

This index is a measure of the value of the dollar relative to the majority of its most significant trading partners. The index is calculated by factoring in the exchange rates of six major world currencies: the euro, Japanese yen, Canadian dollar, British pound, Swedish krona, and Swiss franc.

Underwriter

Is a bank or other financial institution that manages the pricing, sale, and distribution of the shares in an initial public offering (IPO). The underwriter works closely with the issuing company over a period of several months to determine the IPO price, date, and other factors. Underwriters receive fees from the company holding the IPO, along with a portion of the shares.

Vest/vesting

When an equity award is generally no longer subject to forfeiture and the employee acquires either the stock or the right to exercise a stock option.

Vested grant

A grant that has met the vesting criteria as set forth in the grant agreement. When an RSU vests, in most countries it's a taxable event and tax withholding is due. The most common method of funding this tax liability is to sell a portion of the now-vested shares.

Vesting period

The length of time or waiting period before an award vests.

Vesting schedule

A schedule that establishes the number of stock awards that vest each year over a specific period of time.

Volatility

Volatility refers to the fluctuation of a company's stock price, or to fluctuation of stock prices throughout the market.

W-8BEN

The W-8BEN is an IRS form used by non-U.S. citizens to certify their foreign status. Non-U.S. citizens are typically taxed less than U.S. citizens. Having a valid W-8BEN on file helps ensure non-U.S. citizens will be taxed at the correct rate.

W-9

The form used by U.S. persons, including resident aliens, to certify their Taxpayer Identification Number or Social Security number. A W-9 also certifies that the person is not subject to backup withholding (unless you are a U.S. exempt payee).

Wash sale

Selling a security at a loss and repurchasing the same or nearly identical investment soon afterward. By rule, if you hold a position in a stock or option, for instance, then sell it for a loss but buy the same stock or an option on the same underlying stock within a 61-day window (30 days before or after the closing transaction), you can't use the loss on your original sale.

Will

A will is a legal document that contains a list of instructions for the disposing of your assets after death. A will is enforced through probate court, where the court will determine the validity of the will, pay any debts of the estate, and distribute the remaining assets to named beneficiaries.

Yield curve

The yield curve reflects market expectations for interest rates, sometimes tipping the Federal Reserve's hand and sometimes lagging the Fed's monetary policy action. The curve's shape is often tracked by stock, bond, and currency investors alike to measure the perception of rising or falling interest rates. Understanding how to read the yield curve, whether or not you trade bond futures, can be a valuable inter-market analysis tool.

Yield-to-maturity

The total anticipated return of a bond if it's held until maturity, when the principal is returned to the investor. The yield-to-maturity formula considers all coupon payments, as well as the current discount from (or premium to) the bond's par value.