TopOne Logic Academy

Investing glossary

The words you meet when you start investing, defined in plain language, each with an example.

Anchoring: Overreliance on an initial reference point.
APR (Annual Percentage Rate): The yearly cost of credit expressed as a rate, including certain fees as well as interest.
APY (Annual Percentage Yield): A deposit's yearly return as a rate, including the effect of compounding.
Arithmetic Average (of Returns): The sum of a set of returns divided by how many there are; it describes a typical single period, not what happened to the money over all of them.
Asset: An economic resource expected to provide future benefit.
Asset Allocation: Distribution of capital across asset classes or strategies.
Average daily balance: The balance at the end of each day of a billing cycle, added up and divided by the number of days in the cycle.
Balance Sheet: Snapshot of assets, liabilities and equity at a point in time.
Bear Market: A sustained decline in market prices and risk appetite.
Beta: Sensitivity of an asset's returns to a benchmark.
Bid-Ask Spread: Difference between best displayed ask and bid.
Bitcoin: Decentralized digital asset and network secured by distributed consensus.
Blockchain: Distributed ledger where transactions are organized under a consensus mechanism.
Breakout: Move through a defined support or resistance area.
Budget: A plan for expected income and spending over a period, made before the money is spent.
Bull Market: A sustained period of rising asset prices and generally positive sentiment.
Call Option: Option giving the holder the right to buy at the strike.
Candlestick: A chart bar showing one period's open, high, low and close: a body from open to close and thin wicks out to the high and low.
Capitulation: A burst of heavy selling late in a decline, when many holders give up and sell at almost any price.
Cash conversion cycle: An estimate of the days between paying suppliers and collecting cash from customers: receivables days plus inventory days minus payables days.
Cash flow from financing activities: The part of the cash flow statement showing cash raised from or returned to lenders and shareholders, such as borrowing, repayments and dividends.
Cash flow from investing activities: The part of the cash flow statement showing cash spent on or received from long-term assets and investments, such as equipment.
Cash Flow Statement: Statement showing cash from operating, investing and financing activities.
Cash-Flow Timing: When money arrives and leaves within a period, not just how much.
Circulating Supply: An estimate of how many units of a crypto asset are available to the market now, leaving out units that are locked or reserved.
Commission: A fee a broker charges for carrying out a trade, either a flat amount per order or an amount that depends on the order's size or value.
Compound Interest: Interest earned on both principal and previously accumulated interest.
Concentration Risk: The risk of having a large share of your money in one investment, company, sector or narrowly focused fund.
Confirmation Bias: Seeking or overweighting evidence that supports existing beliefs.
Correlation: Linear relationship between two return series.
Covariance: A measure of how two return series move together: positive when they tend to be above their averages at the same time, negative when they tend to move opposite.
CPI: Index measuring changes in prices paid by consumers.
Custody (Crypto): Who holds and controls the keys that authorize moving a crypto asset: you (self-custody) or a third party such as an exchange or custodian.
Daily periodic rate: The interest rate a card issuer applies to each day's balance; many issuers charge card interest this way rather than once a month.
DCF: Intrinsic valuation based on discounted future cash flows.
Debt avalanche: A debt-repayment order: pay every minimum, then send any extra money to the debt with the highest interest rate first.
Debt snowball: A debt-repayment order: pay every minimum, then send any extra money to the smallest balance first, whatever its interest rate.
Decision Quality: How good a decision was, judged on what was known or knowable, the options considered, the reasoning and the plan at the time, not on how it turned out.
Discount Rate (present value): The rate used to turn money expected in the future into its value today; with a positive rate, a higher rate or a longer wait means a lower present value.
Disposition Effect: Selling winners too early while holding losers too long.
Divergence: When price and an indicator built from it, or an index and its breadth, point different ways, such as a new price high with a lower indicator high.
Diversification: Spreading exposure across assets or independent risk sources.
Drawdown: How far a value sits below the highest value it has reached so far, stated as a percentage of that peak.
EBITDA: Operating earnings before interest, taxes, depreciation and amortization.
Efficient Frontier: Portfolios offering the highest expected return for each risk level.
Emergency Fund: Cash set aside for unplanned expenses or a loss of income.
Enterprise Value: Value of the operating business attributable to all capital providers.
Equity: The residual interest in assets after deducting liabilities.
Equity value: The part of a business's value that belongs to its shareholders, after the claims of lenders and other prior claimants.
ETF (Exchange-Traded Fund): A registered fund whose shares trade on exchanges throughout the day at market prices.
Ethereum: Programmable blockchain supporting smart contracts and decentralized applications.
EV/EBITDA: Enterprise value divided by EBITDA.
Expected Return: The return an investor expects over a holding period, weighing the possible outcomes — an average, not a promise, and not necessarily the most likely result.
Expected Value: The probability-weighted average of all possible outcomes: multiply each outcome by its probability and add the results.
Expense Ratio: The percentage of a fund's average net assets used each year to pay its operating expenses.
Factor exposure: How much a holding or portfolio tends to move with a shared driver of returns, such as the market, interest rates, size, value or momentum.
Free cash flow to the firm (FCFF): The cash a business's operations produce after tax and after paying for equipment and working capital, before anything is paid to lenders or shareholders.
Gap risk: The risk that a price jumps past a level, often between sessions, so a stop or exit fills far worse than planned.
GDP: Market value of final goods and services produced within an economy.
Geometric Average (CAGR): The single yearly rate that, compounded over the same years, turns the starting value into the ending value.
Gross margin: Gross profit as a share of revenue: the part of each sales dollar left after the direct cost of the goods or services sold.
Gross Profit: Revenue minus the direct cost of goods or services sold.
Halving (Bitcoin): A cut by half, built into Bitcoin's protocol, in the new bitcoin created with each block; it happens every 210,000 blocks.
High-Interest Debt: Debt whose interest rate is high enough that paying it off beats most other uses of the money.
Hindsight Bias: The feeling, once an outcome is known, that you "knew it all along": the event seems more predictable than it was.
Implied Volatility: Volatility implied by an option's market price under a pricing model.
Income Statement: Financial statement showing revenue, expenses and profit over a period.
Index Fund: A mutual fund or ETF that seeks to track the returns of a market index.
Inflation: Sustained increase in the general price level.
Initial margin: The share of a margin purchase you must pay with your own money when you buy; in the US, Regulation T sets it at 50% for exchange-listed stocks.
Interest Rate: Cost of borrowing or return for lending capital.
Intrinsic value: An estimate of what an asset is worth from the cash it is expected to produce, rather than from what the market pays for it today.
Invalidation: The observation, written down before a trade, that would show its thesis is wrong; the stop belongs at that level.
Inventory: Goods a company holds to sell, plus the materials and work in progress for making them, recorded as an asset until sold.
Investment Fraud Red Flags: Warning signs in an offer or a seller that call for checking before you invest.
Law of Large Numbers: As independent trials increase, their average tends to move closer to the expected value, and an event's frequency closer to its probability.
Leverage: Using borrowed money or fixed obligations to hold more of an asset than your own money pays for, which magnifies both gains and losses.
Liability: A present obligation expected to require an economic sacrifice in the future.
Limit Order: Order executing only at a specified price or better.
Liquidation (forced): The forced sale or closing of a leveraged position by a broker, exchange or lending protocol when its collateral no longer covers the required margin.
Liquidity: Ability to trade quickly with limited price impact.
Loss Aversion: Tendency to experience losses more strongly than equivalent gains.
MACD: Momentum indicator based on two exponential moving averages.
Maintenance margin: The minimum equity you must keep in a margin account after buying, as a share of the holdings' market value; in the US, FINRA sets a 25% floor.
Margin account: A brokerage account that lets you borrow from the broker to buy securities, or to sell short, with the account's holdings as collateral.
Margin call: A broker's demand for more cash or securities when the equity in a margin account falls below the required level.
Market breadth: A measure of how many securities in a group take part in a market move, rather than how far an index moved.
Market Capitalization: Market value of a company's outstanding equity.
Market cycle: The recurring pattern in which a market moves from a quiet bottom through a rise and a top to a decline, and then starts again.
Market depth: How much buying and selling interest is waiting at and near the current price, and so how large an order the market can absorb without moving much.
Market Impact: Price movement caused by a trader's own order flow.
Market Order: Order designed to execute immediately at available prices.
Market regime: The way a market has been behaving for a stretch of time — for example trending, ranging or turbulent — which decides which rules of thumb currently work.
Maximum Drawdown: Largest peak-to-trough decline in portfolio value.
Minimum payment: The smallest amount a credit card statement asks you to pay by the due date so the payment is not late.
Moat (economic moat): A structural advantage that stops well-funded competitors from copying a business's high returns on capital for many years.
Momentum: The pace of a price move, or the tendency of recent relative winners and losers to keep performing that way for a while.
Moving Average: Rolling price average used to smooth fluctuations.
Net Asset Value (NAV): A fund's total assets minus its total liabilities; per share, that amount divided by shares outstanding.
Net change in cash: The total of a period's operating, investing and financing cash flows: how much the cash balance rose or fell over the period.
Net income: A company's profit for a period after every expense, including interest and income tax, has been subtracted from revenue.
Net working capital: A company's current assets minus its current liabilities: a broad measure of short-term resources left after short-term obligations.
Operating cash flow: The cash a company's main business brought in or used over a period, shown in the operating section of the cash flow statement.
Operating margin: Operating profit as a share of revenue: the part of each sales dollar left after running the whole business, before interest and tax.
Operating profit: Profit from a company's main business: revenue minus cost of sales and operating expenses, before interest and income tax.
Operating working capital: In Academy's lessons, trade receivables plus inventory minus trade payables: the cash tied up in running day-to-day operations.
Opportunity Cost: The value of the next-best alternative you give up when you make a choice.
Option: Derivative giving the holder a right but not an obligation to transact at a strike.
Option Premium: Price paid by an option buyer to the seller.
Order book: The live list of resting buy orders (bids) and sell orders (asks) for an asset, arranged by price, with the quantity waiting at each level.
Outcome Bias: Judging how good a decision was by how it turned out, when the decision maker could not have known the outcome.
Overconfidence: Overestimating one's knowledge, skill or forecast accuracy.
P/B Ratio: Market value of equity relative to book value of equity.
P/E Ratio: Share price relative to earnings per share.
Payables: Money a company owes its suppliers for goods or services it has already received but not yet paid for.
Portfolio Drift: The movement of a portfolio's weights away from their targets because its holdings earn different returns, even when nobody trades.
Portfolio Weight: Proportion of portfolio value allocated to an asset.
Position Sizing: Determining how much capital or risk to allocate to a position.
Price discovery: The process by which buyers' and sellers' orders, and the information behind them, settle on a market price that keeps changing.
Pricing power: A business's ability to raise its prices, or pass higher costs on to customers, without losing so many of them that its profits fall.
Private Key: A secret number that authorizes transactions from a crypto account; whoever holds it can usually act as the account's owner.
Profit before tax: A company's profit after all expenses, including interest, but before income tax is deducted.
Profit Margin: Profit expressed as a percentage of revenue.
Proof of Stake: Consensus mechanism using staked assets and validator rules.
Proof of Work: Consensus mechanism using computational work to secure a network.
Purchasing Power: How much a sum of money can buy. Inflation lowers it even when the balance stays the same.
Put Option: Option giving the holder the right to sell at the strike.
Real return: A return measured in buying power: what an investment gained after allowing for inflation over the same period.
Rebalancing: Adjusting holdings toward target portfolio weights.
Rebalancing Band: A range around a target weight: under a band rule, the portfolio is traded back to target only when a weight moves outside that range.
Receivables: Money customers owe a company for goods or services already delivered and counted as revenue but not yet paid for.
Recency Bias: Overweighting recent events when forming expectations.
Recession: Broad decline in economic activity across an economy.
Reserve floor: In Academy's lessons, the cash-reserve level a monthly plan refills first, before any extra money goes to debt or goals.
Resistance: Price area where selling pressure has historically slowed advances.
Return: The gain or loss on an investment over a stated period, usually shown as a percentage of the amount put in.
Revenue: Income generated from ordinary business activities before expenses.
Risk: How widely an investment's outcomes can vary around what you expect, including, but not only, the chance of losing money.
Risk budget: A limit, set in advance, on how much risk or loss a portfolio or a single trade may take, and on where that risk may come from.
Risk Premium: The extra return investors seek, above a risk-free rate, for taking on risk — a hoped-for reward, not a promise.
Risk Tolerance: How much loss an investor can bear (ability) and is prepared to bear (willingness) in pursuit of possibly higher returns.
Risk-Free Rate: Reference return from an instrument with negligible default risk.
ROIC: Return generated on capital invested in the operating business.
RSI: Momentum oscillator comparing recent average gains and losses.
Runway: How many months your savings would cover the costs you count as essential.
Sample Size: The number of observations, n, behind an estimate such as an average, a win rate or a claim rate.
Sequence Risk: The risk that the order in which returns arrive, not just their average, changes the outcome once money is being withdrawn.
Sharpe Ratio: Excess return per unit of total volatility.
Short sale: Selling borrowed shares in the hope of buying them back later for less; the gain is capped, but the loss has no fixed ceiling.
Sinking Fund: Money set aside a little each month for a known large cost that comes once or twice a year.
Slippage: Difference between expected and actual execution price.
Smart Contract: On-chain program executing predefined rules.
Sortino Ratio: Excess return per unit of downside deviation.
Standard Deviation: Statistical measure of return dispersion.
Standard Error: The standard deviation of an average: how much the average of n outcomes would vary from sample to sample.
Statement balance: The amount a credit card account owes at the close of a billing cycle, as shown on that cycle's statement.
Stop Loss: Rule or order intended to limit losses when price moves against a position.
Stress test: Estimating what a portfolio or plan would lose under a severe but plausible scenario, with every holding hit by the same shock at once.
Strike Price: Price at which an option can be exercised.
Support: Price area where buying interest has historically slowed declines.
Surplus (monthly): What is left from a month's take-home income after essential spending: the money a plan can direct to savings, debt or goals.
Terminal value: A single number in a DCF that stands for the value of all cash flows after the last year that is forecast in detail.
Time horizon: How long a pool of money can stay invested before it is needed for its goal.
Timeframe: The period each bar or candle on a chart covers, such as one minute, one hour, one day or one week.
Token Unlock: The scheduled release of previously locked tokens, such as team or investor allocations, so that their holders can transfer or sell them.
Total assets: The sum of everything a company owns or controls that has value, as shown on its balance sheet at one date.
Total liabilities: The sum of everything a company owes to others at the balance-sheet date, from supplier bills to bank loans.
Tracking Error: The gap between an index fund's performance and the index it tracks.
Trade-off: Getting more of one thing means accepting less of another, because resources are limited.
Trend: A sequence of price swings in one direction on a stated timeframe, such as higher highs and higher lows in an uptrend.
Unit economics: Whether one more unit of a business, such as a customer, product, order or store, brings in more than it costs to win and serve.
Valuation multiple: A ratio of a price or value to something the business earns, sells or owns, such as earnings, EBITDA, revenue or book value.
Value per share: An estimated equity value divided by the number of shares outstanding, so the estimate can be set beside the share price.
Variance: A measure of spread: the average of the squared distances of values from their mean.
Volatility: Variability of asset returns over time.
Volume: The number of shares, coins or contracts that changed hands in a period.
WACC: Blended required return of debt and equity capital providers.
Yield Curve: Yields across different maturities of similar debt instruments.