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Personal Finance Glossary
Here, you can find definitions for all key personal finance terms. Use the search function below to facilitate your search. If there is anything that is missing, or you feel needs further explanation, please feel free to email me at email@example.com and I will be happy to help.
401(k) Plan: The 401(k) Plan is a tax-efficient retirement plan in which the investment grows without being taxed until retirement. Employees can contribute to 401(k) plans and employers can match those contributions.
Accident and health insurance: This type of insurance will pay the beneficiary in case of accidents, accidental death and cover medical care expenses.
Accidental death benefit: This type of insurance pays the beneficiary in case of an accidental death of the insured person.
Accidental Death Insurance: This type of insurance covers death caused by accidental injuries but not illness. Should such a death occur, the beneficiary receives a payment. Usually, these types of insurances also cover grave injuries caused by accidents.
Accounts payable: All the debts currently owed by an individual or business for services, raw materials or inventory.
Accounts receivable: All money owed to a company or individual by its business partners. This lists all the claims a company or individual has towards others.
Accrued Interest: Interest earned but not yet paid between the last interest payment date and up to the current point in time.
American Depositary Receipt (ADR): The ADR is a stock certificate that trades on a U.S. stock exchange as a substitute for a foreign stock.
Amortization: Amortization is mechanism for writing-off the cost of an intangible asset over its period of use.
Annual Percentage Rate (APR): The APR shows you the actual yearly percentage of interest you are paying on a loan or credit card debt. This is the interest rate charged to the borrower for the outstanding debt. In many cases, lenders will show weekly or monthly interest rates. A monthly interest rate of 3% may not look like much, but if this is turned into an APR, it’s as high as 43%
Annualized: Annualizing means recalculating rates or figures into an annual rate.
Annuity: An annuity is an investment in which the investor pays a specified sum in exchange for a series of regular periodic, usually monthly payments in return. Immediate annuities begin at the start of the investment, other types of annuities may start years later. In the US, money invested in annuities is tax-deferred.
Appreciation: When the value of an asset increases.
Arbitrage: A financial transaction in which a risk-free profit is generated.
Ask or Offer: This is the minimum price at which a market participant is willing to sell a security. If the Lowest ask and the highest bid price meet, a stock price is generated.
Ask Price: This is the minimum price that is being asked when you buy a stock (also see ‘Bid Price’).
Ask Size: The total size of order book lots at the most recent ask price for a security.
Asset Allocation: Asset allocation refers to what you decide to put into your investment portfolio. In other words, what percentage of your portfolio is invested in specific assets such as stocks, bonds and real estate.
Asset Allocation Fund: A fund that invests its portfolio in a diverse selection of investments. This may include domestic and foreign equities, government and private sector bonds, real estate stocks or gold. Some asset allocation funds keep the ratios of the asset classes they invest in constant, while others adjust them as the economic conditions change.
Assets: Everything an individual or a company owns. This may include cash, securities, equipment or real estate. Assets also include anything owed to an individual or company. These are listed in a company’s income statement or an individual’s statement of net worth.
Audit: An audit is the process of checking and examining of a company’s or individuals accounts, tax returns, declarations and statements by an external party such as an auditor or tax accountant.
Auditor: An auditor is a person who conducts checks and examinations of a company’s financial statements, accounts or tax declarations.
Automatic Reinvestment: Some mutual funds offer the option to automatically reinvest dividends or capital gains that are paid out in cash by the fund into further units of the fund.
Back-end load: This is a sales charge that is paid when a mutual fund is sold. It can also be referred to as a deferred load.
Bad debt: This is a debt that is not likely to be repaid. These are usually treated as losses and written off against a reserve for this type of debt.
Balance: This is the financial result of all the complete transactions of a (trading account).
Balance sheet: The balance sheet is a part of a company’s financial statement, that lists the assets and liabilities of the company, i.e. what the company owns and what it owes to others. The balance sheet is usually made for the end of the fiscal quarter or year. The difference between the assets and liabilities is the net worth of the company, also referred to as the shareholders’ equity.
Balance Transfer: Moving unpaid credit card debt from one lender to another is called a balance transfer. Often, credit card companies offer favorable interest rates and payment facilities to attract customers from competitors.
Balance Transfer Fee: A fee that is charged to a customer that transfers and outstanding balance from one credit card issuer to another.
Balloon Payment: The final debt repayment, which is larger than the other sums paid previously.
Bank fixed deposits: These are also know as term deposits. They are deposits for a pre-defined time frame collected from investors. They are one of the main ways in which banks refinance themselves.
Base currency: In foreign exchange trading, currencies are always quoted in currency pairs, with the first currency in the pair being called the base currency. Other currencies are then quoted against the base currency. For example, in USD/JPY the US Dollar is the base currency; in EUR/USD, the Euro is the base currency.
Base interest rate (benchmark interest rate): This is the minimum interest rate given by commercial banks for interest accumulation on different types of credit.
Basic health insurance policy: This covers hospital stay, surgery and regular medical expenses.
Bear Market: A long period in which stock prices tend to fall. In general, bear markets last for shorter periods of time than bull markets, but tend to be more severe in terms of percentage price movements. Bear markets can offer profitable short-term gains, if an investor bets on the downside of the stock price movement.
Bearer securities: With bearer securities, the title and ownership of the security pass with delivery, without registering the change in ownership. Whoever holds the title, owns the security. Stocks, bonds and other types as securities can be bearer securities.
Beneficial Owner: An individual that receives the benefits of an asset even though the title to the asset is in someone else’s name. In some cases, tax benefits based on bilateral tax treaties may be denied if the beneficial owner of an asset is based in a third jurisdiction.
Bid and Ask: The maximum and minimum price at which investors will accept to trade securities.
Bid or Sell Price (funds): In case of shares of a fund, this represents the price at which the shares of the fund can be sold back to the fund (redeemed). This is usually the current net asset value per share minus fees or back-end loads.
Bid-Ask Spread: The difference between the Bid and Ask price at any given time.
Blue Chip Stocks: In general, those are very famous and popular stocks of well-know companies that offer safe and regular dividends and a solid investment opportunity.
Bollinger Bands: These bands are a technical indicator. They indicate trading bands above and below a simple moving average of the security price. The width of the bands is determined by the standard deviation of closing prices. This means that the bands will converge in quiet market periods and diverge in periods of rising volatility. Bollinger Bands can be used to spot overbought and oversold levels, anticipate reversals or price targets and determine stop loss levels.
Often, Bollinger Bands are used together with other indicators such as RSI, MACD, CCI and Rate of Change. If the Bollinger Bands move apart, this could be an indicator of a trend change. In general, buying points occur when the price hits the lower Bollinger Band and selling points when it hits the upper band.
Bond: A bond is a debt security with which an investor loans money to a company or government and receives regular interest payments at a pre-defined interest rate as well as a capital repayment at maturity.
Bond Fund: A bond fund is a mutual fund that is made up of corporate, municipal or government bonds. Such funds are generally geared towards income rather than growth.
Borrower: An individual or legal entity that borrows money from someone else. The borrower uses the cash he receives for the duration of the loan and returns the money to the lender on pre-defined terms. To compensate the lender for the risk, a pre-defined interest rate is paid.
Bottom Line: The after-tax earnings of a company are sometimes referred to as the bottom line. This comes from this figure often showing up at the very last (bottom) line of and income statement. This is also known as the net profit.
Broker: A brokerage is a licensed securities firm or a licensed individual that works for a securities firm. The broker buys and sells securities at the order of the client and charges a fee for these services.
Bull: A bull is an investor or market participant who believes that securities prices will rise and trades accordingly.
Bull Market: A market period in which stock prices rise.
Bullion: A physical block of gold or silver.
Buy and Hold: The purchase of a security as a long-term investment instead of a short-term one. The buyer speculates on the appreciation in value in the long run.
Capital Gain or Loss: Profits or losses arising from the sale of assets that are classified as capital according to the tax code. Stocks and other investments, for example property, are considered capital.
Capital Growth: An appreciation of the price of a mutual fund share in terms of its net asset value. This is the long-term objective of many mutual funds.
Card Holder Agreement: This is the agreement that the credit card holder has with the issuer of the card. It also contains the terms and conditions, which are also known as “the fine print”.
Cash Advance Fees: This is a fee that may be charged when cash is withdrawn from an ATM using a credit card. Such fees can be quite high, hence they should be checked beforehand.
Cash Dividend: A dividend or distribution from a security paid out in cash.
Cash Flow: The cash flow is part of a company’s financial statement and show how the cash has moved within a reporting period. Generally, the cash flow shows the after-tax income minus dividends and distributions, plus depreciation and amortization. Also see Operating Cash Flow and Free Cash Flow.
Central Bank: A national bank, usually administered by the state and viewed as a governmental institution, that decides on the monetary policy, sets the interest rates and regulates financial institutions. The role of the Central Bank varies from country to country.
Certificate of Deposit: Certificates of deposit (CDs) allow you to invest your money at a set interest rate for a pre-set period of time.
Checking Account: A bank account you use for daily transactions that pays no interest or very little interest on your deposit
Claim: A claim is made when a payment is due under an insurance policy. The insurer is notified by the beneficiary and a request for payment is sent. This may be reviewed by the insurer.
Claim Amount: The sum payable at the maturity of an insurance policy or when a claim has been made.
Closed-End Funds: A mutual fund that has a specific and fixed number of shares.
Co-operative banks: Banks that operate under the structure of a co-operative. A number of individuals join to form a co-operative and then run the bank as such.
Collateral: Collateral is a security for a loan. Very often, life insurance policies are used as collateral for loans to individuals. Other assets, such as property or security portfolios can also be used as collateral.
Commercial paper: A commercial paper is a short-term unsecured promissory note that is usually issued at a discount. Companies used them to secure their short-term cash flow. Commercial papers are usually given a rating by a rating agency, and then sold to investors.
Commodities: Commodities are physical products that are traded on separate commodity exchanges, such as the CBoT or CME. Example of commodities are agricultural commodities, such as coffee or sugar, or other natural resources, such as oil or metals. Commodities are mainly traded in the basis of futures contracts.
Common Stock: Securities, specifically shares in companies that give the shareholder the right to vote on company decisions. Common stock holders are also entitled to dividends, but their dividend is secondary to preference shareholders. In the event of liquidation, common shareholders are the last stakeholders to be served after creditors, debt holders and preference shareholders.
Compound interest: When interest is reinvested to generate further interest, this is referred to as compound interest. It is basically interest on interest.
Compounding: Compounding means that money is earned on the principal as well as previously collected interest.
Comprehensive Coverage: This is the part of a car insurance that covers incidents not involving collisions, such as theft, fire or earthquake damage.
Compulsory auto insurance: The minimum car insurance required by law.
Consumer Price Index (CPI): This is a US index that is calculated monthly. It represents the price of a basket of goods that are purchased by average consumers. It is one of the most important indicators that measure inflation.
Consumption tax: A tax that is levied on goods for the end consumer.
Convertible bond: A bond that can be converted into shares of a company under certain conditions.
Corporate income tax: The income tax that is paid by companies.
Coverage: An alternate term for insurance. This is also used to define the amount of the insurance purchased.
Credit: A credit is essentially the right to defer a payment, by obtaining goods or services now, and taking out a loan to pay for them in the future.
Credit Card: The credit card is essentially a card that allows the holder to use a revolving line of credit. The credit is usually extended for a short period of time. The cardholder can choose to repay the outstanding amount in full at the end of the billing period or in installments. Usually, credit card companies ask for a minimum monthly payment. The interest charged on credit card debt can be quite high. Credit cards often make their products attractive by offering additional benefits to credit card holders like bonus programs, discounts or insurances.
Credit enhancement: This is the process of lowering the interest rate on a bond by having it rated by an external agency or offering additional guarantees, for example letters of credit issued by banks.
Credit insurance: This is a type of insurance against losses that stem from creditors not paying their business debts. Manufacturers, wholesalers, importers or service providers often use this kind of insurance, in order to ensure that such losses do not threaten their business. This can also be referred to as bad debt insurance.
Credit limit: This is the maximum amount a credit card holder can spend on their credit card. This is determined by the cardholder’s income as well as the type of credit card they possess.
Credit Quality: This is the average of the credit ratings of bonds in a bond portfolio weighted by the amount of the bond held.
Credit Risk: The credit risk is the risk that a borrower cannot meet the obligation he has towards the lender. Credit risk is inherent in most financial transactions. Some countries use the BASEL rules (BASEL I-III) to measure credit risk and oblige banks to hold reverse capital accordingly.
There are various pillars in the BASEL framework:
Credit risk insurance: This insurance covers non-payment by an importer and is usually bought by exporters.
Cum Dividend: This literally means ‘with the dividend’. If a share is purchased cum dividend, the new owner is already entitled to the upcoming dividend, that has already been announced. The opposite is ex dividend.
Cum Rights: This literally means with rights. A new owner that purchases shares cum rights is already entitled to upcoming rights issues. The opposite of this would be ex rights.
Cum-Dividend/Distribution Date: This is the trading day before the dividend distribution date, also called the ex-date or ex-dividend-date. This is the last day a buyer can buy the security and be entitled to the upcoming dividend.
Currency pair: A conversion between two currencies, for example EUR/USD.
Currency risk: The risk of currency rates changing and causing a loss in a financial transaction, such as a decrease in value of foreign-currency investments.
Current Account: See checking account.
DB pension plan: A defined benefit pension plan is a pension plan where the amount you receive as your pension once you retire is set using a formula based on by how many years you’ve worked for your employer and the salary you’ve earned.
DC pension plan: A defined contribution pension plan is a pension scheme where you build up an amount of money that you can then use for retirement.
Death Benefit: The amount to be paid to the beneficiary(/ies) of a life insurance upon the death of the insured individual.
Death Distribution: The payment of the funds contained in an individual retirement account to the beneficiaries after the death of an IRA owner.
Debit Card: This type of card gives the used access to his deposits via ATMs. When payments are made with a debit card, the amount is taken directly from the account. As opposed to credit cards, the amount that can be spent on a debit card is limited by the account balance.
Debtor: An individual who owes a debt; also referred to as a borrower.
Default: An event of non-payment, non-timely payment, or a payment not made to the full amount due. In this case, the individual is known to be in default. Normally, lenders charge penalties and higher interest rates once a borrower is in default.
Defined Benefit Plan: An investment plan that pays an employee a defined benefit when he or she retires. The employer contributes towards this plan, with the contribution usually being based on the salary of the employee.
Defined Contribution Plan: A type of investment plan, in which the amount of the retirement benefits depends on the amount of the contributions made by the employee and employer. 401(k) plans are defined contribution plans.
Deflation: In times of deflation, prices fall. Deflation is usually measured as an annual rate. In the Western World, deflation hasn’t occurred very often in history. The danger of deflation is that it would lead to further deflation since people would stop spending and wait until prices decrease further.
Deposit insurance: This is the amount of cash that can be withdrawn from a bank deposit at any time, as per legal requirement. In most countries, deposit insurance covers demand deposits.
Depositor: A person or entity that deposits money in a bank. This makes the bank the borrower of that money. The cash has to be returned to the depositor at the end of the deposit period.
Deposits: An amount of money in a bank account put there to earn interest. Deposits are repayable according to the terms agreed on.
Depreciation: A decrease in the value of a currency or an asset due to market forces.
Derivatives: Options, futures and other financial instruments whose price depends on underlying securities, e.g. commodity futures, stock options, or interest rate swaps.
Disability income insurance: This is a type of health insurance that pays the beneficiary if he or she becomes disabled after an accident or illness.
Discount Broker: A broker that charges less commissions but also offers fewer services than a full service broker. Discount brokerages usually offer execution-only services and do not give advice.
Discretionary account: This is an investment account for which the owner gives an investment advisor the permission to act on his or her behalf to buy and sell securities. The investment advisor has to stick to agreed asset classes, time-frames and limitations.
Diversification: Diversification is the strategy of spreading investments across various asset classes and/or markets, thereby reducing the risk of the investment portfolio.
Dividend: The part of an issuer’s equity that is paid out to the shareholders. Normally, it is paid on common and preference shares, but the issuer is not obliged to pay a dividend. Dividends can be paid monthly, quarterly, semi-annually or annually. The issuer also announces the amount of the dividend as well as the payment date and sets the ex-dividend date.
Dividend Reinvestment Plan: A program in which a listed company uses dividends to buy more shares of the company.
Dividend Yield: The amount of dividends paid within the last 12 months divided by the share price. Sometimes a dividend forecast may be used, too.
DMA: The Day Moving Average, for example the 200 DMA.
Dollar Cost Averaging: A way of purchasing stock for a fixed amount of dollars over regular time intervals. The objective is to lower the average cost by share as opposed to buying all the shares at a single point in time. Investors buy more shares when the price is low and fewer shares when the price is high.
Down Payment: The amount of cash paid towards a part of the purchase price on top of the loan.
Due Diligence: A detailed and in-depth examination of a company and it’s business.
Earnings per Share (EPS): The after-tax earning of a company in a fiscal year divided by the number of outstanding shares.
Education IRA: An investment plan for college education with tax advantages.
Effective tax rate: This is the tax rate that would apply if a company or individual were charged a constant tax rate, instead of a progressive one. This is calculated by dividing the tax liability by the subject’s total taxable income.
Emerging Markets: Developing countries with high economic growth.
Equities: Equities are also known as stocks or shares are a financial security that gives you partial ownership of a publicly traded company.
Escrow account: An escrow account is an account that is held separately from a loan account and used to collect loan or mortgage repayments, insurance payments and in property taxes in some cases.
Estate tax: A tax that has to be paid on an inheritance.
Estate taxes: These are taxes on fixed assets, particularly property like buildings or land.
Exchange rate: The price at which one currency can be exchanged for another.
Exchange-Traded Fund: A security that tracks a basket of individual stocks or an index and is traded on an exchange. ETFs are technically mutual funds, but are traded like stocks and often have lower fees. Sometimes they are referred to as IPUs (index participation units).
Exit Load: The fee payable by an investor when he or she exits from a mutual fund. These are charged to discourage people from withdrawing their money.
Expense ratio: The percentage of an insurance premium that goes towards the overhead costs of the insurance company like marketing and commissions.
Exposure: The probability of a loss.
Fed: The Federal Reserve Board
Federal Deposit Insurance Corporation (FDIC): This is the regulatory agency that oversees deposit insurance in the United States.
Federal Funds Rate: The interest rate charged for the use of funds from the Federal Reserve.
Fiat money: Paper money that is created by central bank tenders. It is not backed my gold or silver.
Fill or Kill (FOK) Order: An order type that will either fully and immediately fulfill an order or cancel it if it cannot be fulfilled.
Fire insurance: Insurance that covers for fire damage. Normally, this is included in hoe insurance or commercial multi-peril insurance.
Fixed deposit: A deposit that pays a fixed interest rate for a specified period of time. At the end of the term, the deposit and interest are returned to the investor. Fixed deposits are also referred to as term deposits.
Fixed income: Fixed income securities are securities whose income does not change over time. Examples of fixed-income securities are bonds and debentures, or dividends from preference shares.
Fixed installment: Loan repayment installments that remain fixed over time.
Fixed Rate Mortgages: A fixed rate mortgage is a mortgage with a fixed interest rate throughout the period of the mortgage.
Flat rate: The percentage rate of the amount of interest in a year divided by the loan amount.
Flat tax: An income tax percentage that is applied to all levels of income. It is the opposite of a progressive tax.
Front-End Load: A fee charged when an investor invests in a mutual fund.
Front-Loaded: Fees charged at the start of an investment in a fund.
Front-Running: Trading a stock before a large order is executed in order to profit from the price movement this would create. It is illegal for brokers to do this.
Full Service Broker: A brokerage offering execution trading as well as investment advice.
General Insurance: This type insurance generally comes with credit cards. The coverage varies from bank to bank, and covers the event of an untimely death.
Global Card: A credit card that can be used overseas. Spending is done in the foreign currency and then settled in local currency. The credit limit is usually basted on a BTQ, a basic travel quota.
Gold Card: Gold, Silver, Executive, Classic or Platinum are names used for the credit cards by card issuers. These represent different levels of service. Normally, gold cards offer higher insurances as well as more bonuses and discounts. In general, the more prestigious a credit card is, the higher the fees.
Growth Stocks: Companies with continuous earnings and revenue growth above 15% per year are referred to as growth companies.
Hedge Fund: A fund that uses various techniques to gain returns. Hedge funds can short sell securities and invest in derivatives. Sometimes, hedge funds are also referred to as absolute return funds.
Hedging: The process of eliminating risk by entering into a position (normally using derivatives) in the opposite direction of the security position already in a portfolio. Hedgers often use the futures markets to protect themselves from adverse from price fluctuations. There are long hedges, in which securities are bought or short hedges, in which securities are sold.
High-Yield Bond: A bond that carries a higher credit risk and therefore pays a relatively high interest rate. They are usually issued by small and medium-sized companies.
Historic Volatility: The historic volatility measures how much the price fluctuated within a time period. This is usually measured in terms of the standard deviation of price changes over a period of time.
Holding Period: The period of time an individual owns a security.
Home Equity: The value of a home minus the outstanding balance of the loans on the house. Aside from the mortgage, other debt and liabilities such as a home equity loan or any other credit lines secured against the home. Home equity is an important asset.
Homeowners insurance policy: Normally homeowner’s insurance covers the house, other parts of the building such as garages as well as items inside the house such as furniture, appliances and material possessions against theft or accidents. The coverage depends on the type and extent of the policy. An all-risk policy offers the maximum coverage.
Household Income: If a couple or family jointly applies for a loan, the income of all working members of the household are taken into account.
Identity theft insurance: This type of insurance covers the damage and expenses in the case of an identity theft. This covers lawyer’s fees, other legal costs or losses incurred due to the need to take time off work to deal with the issue.
Index: An index is a selection of securities that are used to represent a certain market. For example the S&P500 index which represents the 500 largest stocks traded on the American Stock Exchange.
Inflation: An overall increase in the price of goods and services. This can be measured monthly, using the consumer price index for example.
Initial Public Offering (IPO): The first time a company issues stock to the general public.
Inside Information: Important information that is not available to the general public yet and is likely to impact the price of a company’s stock. It is illegal to trade based on inside information.
Insider Trading: Company officers and directors are considered to be insiders. They are obliged to disclose their traders in the shares of the company they are associated with or work for, before the trades are executed. Normally, this information is provided to the stock exchange or the regulatory authority. Whether insiders are buying or selling can be a useful indicator of where the stock price may go in the future.
Insolvency: The inability to settle debts when they are due.
Insurance: A contract that pays you a lump sum in case of a specific adverse event against which you insure yourself.
Insurance Policy: The contract between the insurance company and the insured person or entity that states the terms of the insurance.
Interest: Interest is what you receive on your money when you deposit it in your bank or when you lend money to someone via a loan or a bond.
Interest rate: The percentage of the amount of the loan that has to be paid in interest regularly. This represents the return the lender receives on his or her investment.
Interest Only Mortgages: An interest only mortgage is a mortgage where you only make interest repayment on the borrowed amount without actually paying down the borrowed amount.
IRA:Individual Retirement Account. This is a special, tax-deferred retirement plan that allows an employee and an employer to make contributions and invest them for the retirement of the employee.
IRA Rollover: An IRA rollover is the process of transferring assets from one qualified retirement plan to another, e.g. from a 401(k) to another type or IRA. Any rollover will need to be indicated in your tax return.
IRA Transfer: The IRA transfer is transferring your IRA investment from one provider to another without the owner receiving any funds from the IRA. This may also be called as a Trustee to Trustee transfer.
ISIN: International Securities Identification Number. This is a number that uniquely identifies a security.
Junk Bond: A bond that carries a rating lower than BB on Standard and Poor’s rating scale or a Ba on Moody’s rating scale. Such bonds are considered to be speculative and are issued by corporations that do not have solid financial strength or are quite young and hence cannot show a long-term track record. Their prices tend to fluctuate more, as they carry more risk. Normally their interest rate is significantly higher than government bonds or bonds of highly-rated issuers.
Landlord: The owner of land and property who leases or rents it out to someone else in exchange for rent and thereby grants the tenant the use of the property.
Large Cap Equities: Shares in large multinational companies. Large cap equities are also referred to as blue chip stocks and are those that make up the Dow Jones Industrial 30 Index.
Lease agreement: A contract between the landlord and tenant that contains the term of the lease, the rent as well as other terms and conditions tied to the lease of the property.
Leasehold: A right of use of a property for a period of time by the tenant based on an agreement with the landlord of the property.
Lender: The person who lends money to the borrower.
Liability insurance: An insurance that covers costs of bodily harm or property damage the insured does to another individual or entity.
LIBOR (London Interbank Offered Rate): This is a benchmark interest rate set daily by a panel of banks. It is based on the interest rate of interbank loans and consists of the weighted average interest rates quoted by the banks. This rate is provided for various terms and currencies and has been recorded by the British Banking Association since 1985.
Life Annuity: A type of annuity that is paid until the death of the recipient. Once the recipient dies, the annuity ceases. Such annuities are usually paid out monthly or annually as a form of retirement.
Life insurance: A type of insurance that pays the beneficiary a specified sum upon the death of the insured. Certain types of life insurance also make payments to the beneficiary after a certain period of time.
Liquidity: The liquidity measures how much stock is traded in terms of the value or number of shares traded in a day. Institutional investors such as mutual funds prefer liquid equities since high liquidity makes it easier to buy or sell large positions.
Loan: A loan is money borrowed for a specific time at a specific interest rate.
LTV: Loan to value ratio. A loan to value ratio of 90% refers to you paying 10% of the needed capital in cash and borrowing 90% of the needed capital.
Margin Account: A margin account allows an investor to purchase securities and only put down a small percentage of the trading volume and borrow the rest of the cash needed to purchase the securities. Trading on credit is subject to the terms the brokerage offers and interest is charged for the period of the outstanding loan. In case the margin has been used up due to losses, the account has to be topped up or the trade will automatically be closed by the brokerage.
Margin Call: If a client trades on margin with a brokerage and the margin has been used up by losses, the brokerage will notify the client and ask them to top up the account with cash. This is referred to as a margin call.
Marginal rate of tax: This can also be referred to the marginal tax rate. It is the tax rate applicable to the highest tax rate bracket of income tax in the case of a progressive income tax scale.
Market Capitalization: The current stock price multiplied by the number of outstanding shares of a company.
Market Sentiment: This can also be referred to as the crowd psychology. There are different ways of measuring whether investors are feeling optimistic (bullish) or pessimistic (bearish).
Market Timing: This is the process of using analysis to find the optimal entry and exit points in the market.
Market Value: This is the value of a company and is defined as the number of outstanding shares multiplied by the current stock price. This is also referred to as market capitalization.
Maturity: The date on which a payment for a financial obligation is due.
Maturity Date: The date on which a financial obligation, bond or insurance policy ends. Insurance policies also usually mature when the insured dies.
Medical payments: In terms of insurances, these are the costs for medical treatment needed after injury or an accident. Insurance policies usually cover medical expenses up to three years after the injury occurs.
Medical payments insurance: An insurance policy that covers medical expenses up to a defined limit or funeral expenses in case of the death of the insured. These payments are due regardless of fault.
Money: Our contemporary means of exchange.
Money Market Account: Money market accounts are similar to savings accounts, but they require you to maintain a higher balance to avoid a monthly fee.
Mortgage: A mortgage is a loan that is secured by real estate. In the event of a default, the lender has the right to seize the property.
Mortgage clause: A clause in a loan contract that gives the lender the right to seize a property in case of a default on the loan.
Mortgage insurance: A type of insurance policy that covers the life of an individual taking out a mortgage. The death benefits of this type of policy cover the outstanding loan amount. Since the loan amount of a mortgage usually decreases, the insurance sum also decreases over time. Some types of mortgage insurance also cover mortgage payments in case the borrower becomes unemployed.
Mortgage-backed securities: These are bonds that are secured by an investment-grade portfolio of mortgages. The mortgage payments are used by the issuer to pay interest on the bonds.
Municipal Bonds: These are bonds (debt securities) issued by local governments, districts or counties.
Mutual Fund: A mutual fund is a large portfolio that invests the cash of a large number of investors. Mutual funds have rather strict rules of how they can invest to insure the risk the investors take is limited.
Net Worth: The total assets of a company or individual minus the total liabilities. In case of companies, this is also referred to as shareholders’ equity.
New Issue: A new public offering of a security.
No Load Fund: A mutual fund that doesn’t charge any fees or commissions for buying and selling part in the fund.
Nostro Account: A bank account held by one bank at another bank. These are generally used for the settlement of interbank transactions.
Offer price: The minimum price at which traders are willing to sell a security.
Open End Mutual Fund: A mutual fund in which investors can buy and sell shares at any time. The Net Asset Value (NAV) is the share price.
Open End Investment Fund: An investment fund in which investors can buy and sell shares at any time. The Net Asset Value (NAV) is the share price. Many mutual funds are open end, as well as most ETFs.
Ordinary Life Insurance: An insurance in which premiums are paid throughout the life of the ensured and a payment is made to the beneficiary(ies) after the death of the insured.
Ordinary Life Policy: An insurance in which premiums are paid throughout the life of the ensured and a payment is made to the beneficiary(ies) after the death of the insured.
Outstanding Debt: The amount of debt that the borrower (still) needs to pay the lender or creditor.
Overdraft: The amount of money overdrawn on your bank account.
Over-the-Counter Market: The market for securities that are not traded on a securities exchange, but directly between the parties. The OTC market is usually organized via interbank trading systems or by phone.
P/E: This stands for price-to-earnings ratio. The P/E is calculated by dividing the earnings per share of a company (usually of the last four quarters) by the stock price. In some cases, estimated earnings per share are used.
Par Value: The nominal or face value of a security.
Pensions: A program that provides employees with retirement benefits once they reach minimum requirements in terms of age and service for the company. Some of these funds are held by life insurers.
Personal Accident Insurance: A type of life insurance that covers various types of accidents. The amount of such an insurance policy and the terms vary according to the insurance provider.
Platinum Card: A marketing and product term for a certain type of card issued by a credit card provider. Platinum is considered more precious than gold, hence platinum cards offer more benefits to cardholders than gold cards.
Policy: The contract that defines the terms and conditions of an insurance. It is made between the insurance company and the insured person or entity.
Policy Holder: The individual or entity that owns an insurance policy. The policy holder and beneficiary of the insurance may or may not be the same person or entity.
Policy Term: The time period for the coverage an insurance policy provides coverage.
Portfolio: The securities held by a person or entity. Usually portfolios contain various types of securities in order to diversify and reduce risk.
Portfolio Manager: A financial professional or a team of financial professionals that decide on how to invest the cash of a portfolio and conduct trades accordingly. Usually, they are bound to the objectives and rules of the fund.
Preferred Shares: Preferred Shares are a special type of stock in a company that gives shareholders a fixed dividend. Normally, preference shares do not carry voting rights. Preference shares’ dividends are paid before the dividends on ordinary shares.
Premium: This refers to an additional amount above the nominal or net asset value of a security that an investor is willing to pay to own that asset.
In the bond markets, the premium is the amount above the par value of the bond.
An insurance payment can also be referred as a(n) (insurance) premium.
Prepayment: Payment of a debt before the time it’s due.
Price-Earnings Ratio: The P/E is calculated by dividing the earnings per share of a company (usually of the last four quarters) by the stock price. In some cases, estimated earnings per share are used.
Price/Book Ratio: The Price-to-Book ratio is the price of a stock divided by the book value of the total assets of a company minus the total liabilities of a company on a per-share basis. A fund’s P/B value is the weighted average of all the P/B’s of the securities held by the fund.
Primary Market: The market in which firms sell their securities, normally with the help of an investment bank.
Prime Rate: This is the interest rate that banks charge the borrowers with the best credit rating.
Prime Rate Fund: Investment funds that invest in corporate debt with high ratings in order to model the prime rate.
Private Insurance: Insurance provided by private insurance firms as opposed to insurance provided by the government.
Profit: The profit is the earnings of a company after all expenses have been deducted from the company’s revenue. Profit can be represented in various ways. Gross profit is the profit before income taxes are paid. This can also be referred to pre-tax profit. Net profit is the profit that is left after taxes.
Profit Margin: The after tax earnings of a company divided by the revenue.
Profit Taking: When traders or investors sell their shares in order to lock-in profits that have arisen fro security price changes.
Program Trading: This is trading based on signals provided by computer programs. The program creates trading signals and issues the buy or sell orders directly into a trading system. Program trading can also be referred to as algorithmic trading and is taking a larger and larger share in overall trading.
Property coverage: An insurance policy that covers various types damage to a property.
Property Tax: This is a tax based on the value of a property and it has to be paid by the property owner.
Property/casualty insurance: This is a type of insurance that covers damage to the property of the insured as well as damaged cause to others’ property by the insured. Property/casualty insurance is a big part of the insurance business aside from life insurance. Property/casualty insurance is sometimes also referred to as non-life insurance.
Prospectus: If a security is offered to the general public, a prospectus must be made. This is a legal document that describes the security in detail. Rules and regulations apply to how a prospectus is structured and what it needs to include. The prospectus contains information about the company and its business, the risk associated with the company’s stock, details about the management and the reason for the issue.
Qualified Retirement Plan: A type of retirement plan that meet the legal standard for preferential tax treatment. This can be a defined contribution or a defined benefit plan.
Rally: A significant rise in stock market prices or the price of a single stock.
Receivables: The sums owed to a business for the good or services it has provided to others.
Refinance: Borrow an additional amount to replace an existing mortgage or loan. Often, individuals choose to refinance when mortgages become cheaper due to lower interest rates.
Refund (of tax): A refund of money paid as tax.
Reinsurance: Insurance companied often pass on the risk to other insurance companies that specialize in the business of insurance risk. They are referred to as reinsurers.
Reinvestment Risk: The risk of losing profits that have already been made due to investing them again.
Rental Income: Income collected by renting out a property to someone else.
Return: This is the statement of income of a tax payer. Tax authorities usually provide forms that need to be filled out to make such statements.
Return on Assets: A financial ratio. It is calculated by dividing the net earnings of a company by its assets.
Return on Capital: The return on capital is calculated by dividing a company’s after tax income (of the past four quarters) by the shareholders equity plus long term debt as well as other long-term liabilities.
Return on Equity: This ratio is calculated by dividing the earnings of a company by its equity.
Rights Issue: In some cases of capital increases, the company issues right to existing shareholders so their voting and ownership rights do not get diluted. These are issued in proportion to their current holding and can be used, or sold to others by the existing investors.
Rollover IRA: An individual retirement account that receives benefits from another qualified retirement plan to hold them in the future.
Rollover Option: Some funds offer their investors the option to reinvest earnings from the fund.
Rollover Relief: This is a tax advantage which allows an investor to defer capital gains tax when an investment is rolled-over, i.e. the money is reinvested. The tax can then be deferred until the asset is finally sold.
Roth IRA: This is a type of IRA in which contributions are not tax-deductible, but earnings from the IRA are tax free if certain criteria are met. This IRA was established under the Taxpayer Relief Act of 1997.
Roth IRA Conversion: The transfer of assets in a Traditional IRA to a Roth IRA.
Savings Bank Account: A type of bank account that bears higher interest than a current account and is used for saving money.
Securities: These are certificates of ownership of bonds, stocks, derivatives and other financial assets. They are transferable.
Shareholder: An individual or entity that owns shares of a company.
Shares outstanding: The total number of shares of a company that have been issued and not retired.
Sharpe Ratio: The Sharpe Ratio is a way to measure the risk-adjusted return of a stock or fund. It was created by William Sharpe. It is calculated by taking the return of the security and deducting the risk-free interest rate and then dividing the amount (excess return) by the standard deviation of the security’s returns (a measure of risk).
The rate for a 90-day treasury bill is often used as the risk-free interest rate. In general the Sharpe ration is used to evaluate the amount of return for the amount of risk taken.
Short Selling: Securities are sold short when a trader sells a security that he or she does not own. This can be done as an uncovered (or naked) short, in which the trader does not have the securities at hand at all and needs to repurchase them before the settlement date or a covered short, in which the trader has borrowed the securities from someone else and sold them.
This is a strategy to bet on falling prices and obtain a profit after buying the securities back at a lower price.
Simple Interest: Simple interest ignores the effect of reinvestment of interest that has already been received and would normally be compounded. It is calculated by multiplying the interest rate by the number of investment periods and is used for short-term deposits.
Sinking Fund: A bond or debt security of which a certain amount is repaid on a regular basis (usually annually).
Small Cap: A listed corporation that has a market capitalization below USD 1 billion.
Solvency: A financial institution’s capacity and ability to pay the claims of its creditors and policyholders (in the case of insurance companies). Regulatory requirements and surveillance in the form of capital requirements, rules and regular reviews and stress tests ensure the solvency of banks and insurance companies.
Spread: The spread is the difference between the bid and ask price for a security. Various option trading strategies also use the term spread in their name, such as the Bull or Bear Spread or the Calendar Spread.
Standard Deviation: The standard deviation is a statistical measure that is used in finance in order to gauge risk. The standard deviation of period returns is used as a risk measure. If the standard deviation is high, this indicates that there has been a lot of variation, or volatility, of the returns. This means that the security or asset has exhibited a high risk of fluctuation in the period that was measured.
Stocks: See equities.
Stock Dividend: A dividend that is paid to shareholders in the form of extra securities instead of cash. The issuer provides the terms and time frame of the issue. This is a way of increasing the amount of shares in circulation.
Stock Fund: An investment fund that predominantly invests in stock.
Stock Index: A stock index measures the total price of a basket of securities. A group of securities are tracked in order to represent how the overall market development. These are various types of indices, such as found lead indices like the Dow Jones Industrial Average or the S&P 500 Index, or sector indices that track stocks in a specific industry. How an index is calculated depends on the publisher of the index or the stock exchange.
Stop-Limit Order: An order type in which an order must be executed at the limit price or a more favorable price. If it can’t be executed immediately, it remains in the trading system until the limit price (or better is reached).
Stop-Loss: An order type that automatically closes a trade when a pre-set unfavorable price level is reached. This is used to automatically minimize potential losses.
SWIFT Payment: SWIFT stands for the Society for Worldwide Inter-bank Financial Telecommunications and is an institution that provides a financial funds transfer protocol. Most major banks use settlement via SWIFT.
Tax declarations: See ‘Return’.
Tax Deducted at Source: This is a method of tax collection in which the tax is collected directly from a payment before it even reaches the person entitled to it. The government assigns this collected payment via a person’s tax number. In some countries, taxes on bank interest are collected at source.
Tax planning: The process of minimizing an individual’s or entity’s tax liability.
Tax shelter: This can either refer to making use of a legal tax exemption, or it can be used to describe schemes that are designed to avoid a tax liability.
Tax-free zone: A country or an area in which duties or specific taxes are not levied.
Tax-saving fixed deposits: A special type of deposit, which comes with a tax-break. In many cases, the tax-break can only be applied up to a certain amount.
Taxable Period: The period in time over which taxes are calculated and levied.
Technical Analysis: This is a type of investment analysis that focuses on analyzing security data graphs (such as price or volume) with the help of indicators. The technical analyst derives market sentiment and trading or investment opportunities from security graphs. Examples of technical indicators are Bollinger Bands or moving averages.
Tenancy: The right to use a property in exchange for rent.
Tenure: The time period that starts when a loan is paid out and ends when the loan has fully been reimbursed.
Term Life Insurance: A type of life insurance that provides life insurance coverage for a period of time, but does not build capital to be paid out at the end of the insurance period.
Theft Insurance: An insurance policy that covers loss due to the theft of belongings.
Ticker: A stock ticker is an abbreviation of the stock’s name to identify it in financial trading and information systems.
Time Value: The time value is a component of the value of a financial option. It decreases over time. Aside from the time value, the option price is dependent on the intrinsic value of the option.
Top-Line: Another term for a company’s revenue or sales.
Trader: A trader is a market participant who trades in securities with the objective of making a profit.
Traditional IRA: Traditional IRAs were the original structure created to allow people to save for their retirement with tax benefits. Tax can be deferred on interest or earnings and potentially on contributions to ensure financial stability during retirement.
Trend-Following: Trend-following is the strategy of investing along with the current market movement.
Trending Market: A market phase in which the price continuously moves in one direction and often closes at new daily extremes.
Turnover: The overall volume of transactions over a specified time period.
Two-way price: A quote for a currency pair that includes a bid and ask quote.
U.S. Treasury: The governmental institution in the United States that issues all government bonds, notes and bills. Its full name is the United States Department of Treasury.
U.S. Treasury Bill: This is a short-term debt instrument issued by the U.S. government. It has a maturity of one year or less. These bills are issued at a discount and repaid at par at maturity. This implies the interest rate.
U.S. Treasury Bond: These are U.S. government debt securities with a maturity of more than 10 years. They feature a coupon and interest is paid semi-annually.
U.S. Treasury Note: These are U.S. government debt securities with a maturity between one to ten years. Interest is paid via a coupon.
Uncorrelated Exposure: This is the specific exposure to a type of risk that is not correlated with the other types of risk already taken.
Underlying Security: The security that a derivative is based on. This is the security that will need to be delivered at the maturity of the derivative contract.
Undervalued: A stock or security is considered to be undervalued is it trades below its par or book value.
Value Stocks: These stocks are solid companies that have low price-to earnings ratios. They are deemed undervalued. This can happen if companies are not considered trendy or have had negative news flow recently.
Variable Rate Mortgages: A variable interest rate mortgage is a mortgage with an interest rate that varies according to rate hikes or rate cuts by the central bank.
VAT: Value added tax.
Venture Capital: This is an important source of funding for start-ups. Venture Capital firms of VC Funds raise money from investors to then invest it in early-stage companies and take a significant share or ownership in them.
Venture Capital Fund: A fund, usually in the form of a limited company, that invests in early-stage firms and startups.
VISA: A credit card issuer that distributes credit cards internationally.
Volatility: The volatility measures how much a security price fluctuates over a certain period of time. It is measured using the standard deviation of security returns. In general, the volatility is represented by the annualized standard deviation of daily security returns.
Volume: The Volume is the number of shares, lots or units traded in a day in a specific security. The Volume is a very important indicator as it can tell an investor a lot about a stock price movement, for instance, increasing volume and increasing prices indicate that investors are accumulating this stock.
Wage Tax: This is a tax that is levied on income earned in the form of wages. In many countries, this tax is levied at the source (withheld).
Warranty: This is a specific clause in an insurance contract that states that certain conditions, circumstances or facts need to apply before or after the contract’s validity.
Withholding Tax: This is a type of tax that is levied at the source. Third parties, usually banks or employers are responsible for deducting the tax from payments to the taxable subject. Withholding taxes are sometimes applied to interest payments, dividends, cross-border payments or salaries. In the case of cross-border payments, withholding tax liabilities can be reduced with tax treaties.
Yield: This measures the return of a bond. It is usually quoted as a percentage.
Yield to Maturity: This is the return (often stated in percent) that in investor will earn if the bond is held until its maturity.