Introduction

The world of finance speaks its own language. Understanding this language is the first step to making more informed investment decisions and improving your financial literacy. This guide brings together the most common financial terms you will encounter, with simple explanations that anyone can understand.

Market Fundamentals

Bear Market

A period when markets are in a prolonged downtrend, characterized by falling prices and investor pessimism. It is generally defined by a decline of 20% or more from recent highs.

Bull Market

A period when markets are in a prolonged uptrend, characterized by rising prices and investor optimism.

Index

A metric that measures the performance of a specific group of stocks or assets. For example, the S&P 500 Index represents the performance of 500 of the largest companies in the U.S.

Liquidity

Refers to how quickly an asset can be converted into cash without causing a significant loss in its price. High liquidity means an asset can be easily bought and sold.

Volatility

A measure of the fluctuation or instability in an asset's price. High volatility means the price can change dramatically in a short period.

Asset Types

Stock / Share

A security that represents a piece of ownership (equity) in a company and entitles the owner to a claim on the company's assets and earnings.

Bond

A debt instrument issued by governments or corporations to raise capital. They promise to pay back the principal amount along with interest payments on a specified date (maturity).

ETF (Exchange-Traded Fund)

A type of investment fund that tracks an index, sector, commodity, or other basket of assets, and can be bought and sold on a stock exchange throughout the day like a regular stock.

Commodity

A basic good used in commerce that is interchangeable with other goods of the same type. Examples include gold, oil, and wheat.

Fundamental Analysis Terms

Fundamental Analysis

A method of valuation that uses financial statements, management, industry, and economic conditions to determine a company's "intrinsic value."

Balance Sheet

A financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time.

P/E Ratio (Price-to-Earnings Ratio)

The ratio of a company's stock price to its earnings per share. It is used to gauge whether a company's stock is overvalued or undervalued relative to its earnings.

EPS (Earnings Per Share)

A company's total profit divided by the number of its outstanding shares of stock. It is an indicator of a company's profitability.

Dividend

A distribution of a portion of a company's earnings, paid in cash to its shareholders.

Technical Analysis Terms

Technical Analysis

A method of analysis that uses past price movements and trading volume to forecast future price movements. It is concerned with "what" happened, not "why."

Support

A price level where a downtrend is expected to pause due to a concentration of demand, as buyers tend to start outnumbering sellers.

Resistance

A price level where an uptrend is expected to pause due to a concentration of supply, as sellers tend to start outnumbering buyers.

Moving Average (MA)

An indicator that shows the average price of an asset over a specific period (e.g., 50 days) and helps to determine the direction of the trend.

Volume

The total number of shares or contracts traded in a security or market during a given period. It is used to confirm the strength of price movements.

Trading and Order Types

Market Order

An order to buy or sell an asset immediately at the best available current price.

Limit Order

An order to buy or sell an asset at a specific price or better. Its execution is not guaranteed.

Stop-Loss Order

An order placed to sell a security when it reaches a certain price, designed to limit an investor's loss on a position.

This guide is for financial literacy purposes and does not constitute investment advice.