Fundamentals and Macroeconomics

• Market CapitalisationBeginner5 min read

  Market capitalisation is the total market value of a company's shares: the share price multiplied by the number of shares outstanding.

• EarningsBeginner4 min read

  Earnings are a company's profit for a period; listed companies publish them in regular earnings reports that can move the share price sharply.

• Fundamental AnalysisBeginner4 min read

  Fundamental analysis estimates what an asset is worth from underlying data — company results, the economy, interest rates — rather than from price charts alone.

• InflationBeginner4 min read

  Inflation is the general rise in prices over time, which reduces what money can buy; it shapes interest rates and moves almost every market.

• Interest RateBeginner4 min read

  An interest rate is the price of borrowing money; central banks set short-term policy rates, which ripple through bonds, currencies and stocks.

• Dividend YieldBeginner4 min read

  Dividend yield is the annual dividend per share divided by the share price. A stock paying $2 a year and trading at $50 yields 4%. A very high yield can be a warning that the market expects the dividend to be cut.

• Initial Public OfferingBeginner4 min read

  An initial public offering is when a company first sells shares to the public and lists on a stock exchange. Underwriting banks help set the price, which is why first-day trading can open far above or below the offer price.

• Stock Split and Reverse SplitBeginner4 min read

  A stock split increases the number of shares and lowers the price per share in the same proportion: after a 2-for-1 split, 100 shares at $80 become 200 shares at $40. A reverse split does the opposite. Neither changes the total value of your holding by itself.

• Short InterestIntermediate4 min read

  Short interest is the number of a company’s shares that have been sold short and not yet bought back. It is often shown as a percentage of the float. Days to cover divides short interest by average daily volume to estimate how long short sellers would need to close.

• Central BankBeginner4 min read

  A central bank manages a country's or region's money supply and sets its key interest rate, mainly to keep inflation under control and support the economy.

• Federal ReserveBeginner4 min read

  The Federal Reserve (the Fed) is the central bank of the United States; its interest-rate decisions affect markets around the world.

• Consumer Price IndexBeginner3 min read

  The Consumer Price Index (CPI) tracks the price of a typical basket of consumer goods and services; its change over time is the most-watched measure of inflation.

• Gross Domestic ProductBeginner3 min read

  Gross domestic product (GDP) is the total value of goods and services an economy produces in a period; its growth rate is the broadest measure of economic health.

• Federal Open Market CommitteeIntermediate4 min read

  The Federal Open Market Committee (FOMC) is the Federal Reserve body that votes on US interest rates at scheduled meetings throughout the year.

• Nonfarm PayrollsIntermediate4 min read

  Nonfarm payrolls (NFP) is the monthly US figure for jobs added or lost outside farming, published in the employment report and often a major market mover.

• RecessionBeginner4 min read

  A recession is a significant, widespread decline in economic activity lasting more than a few months; two quarters of falling GDP is a common rule of thumb, not an official definition everywhere.

• Economic IndicatorBeginner3 min read

  An economic indicator is a regularly published statistic, such as inflation, employment or GDP, that shows how an economy is performing and can move markets on release.

• Earnings per ShareIntermediate4 min read

  Earnings per share is a company's profit available to ordinary shareholders divided by its number of shares outstanding.

• Price-to-Earnings RatioIntermediate4 min read

  The price-to-earnings ratio divides a share's price by its earnings per share, showing how much investors pay for each unit of profit.

• DividendBeginner4 min read

  A dividend is a payment a company makes to its shareholders, usually in cash, out of its profits or reserves.

• Ex-Dividend, Record and Payment DatesIntermediate4 min read

  To receive a dividend you must own the shares before the ex-dividend date; buying on or after it means the seller gets the payment. The record date is when the company checks its list of shareholders, and the payment date is when the cash arrives.

• Payout RatioIntermediate4 min read

  The payout ratio is the share of a company’s earnings paid out as dividends. Paying $1.50 a share from earnings of $3.00 is a 50% payout ratio. Ratios close to or above 100% are hard to sustain.

• US Dollar IndexIntermediate4 min read

  The US Dollar Index measures the dollar against a basket of six major currencies — the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc — with the euro carrying by far the largest weight. A rising index means a stronger dollar.

• EBITDAIntermediate4 min read

  EBITDA is earnings before interest, taxes, depreciation and amortisation — a rough measure of operating profit before financing and accounting charges. Dividing enterprise value by EBITDA gives the EV/EBITDA multiple. It ignores capital spending, so it can flatter capital-heavy businesses.

• Enterprise ValueIntermediate4 min read

  Enterprise value is a company’s market capitalisation plus its debt minus its cash. It estimates what it would cost to buy the whole business, and allows comparisons between companies with different amounts of debt.

• Free Cash FlowIntermediate4 min read

  Free cash flow is the cash a company generates from operations after paying for capital expenditure. It is the money available for dividends, buybacks, debt repayment or acquisitions. Definitions vary slightly between analysts.

• Purchasing Managers’ IndexIntermediate4 min read

  A purchasing managers’ index is a monthly survey of companies about orders, output, employment and prices. Readings above 50 indicate expansion compared with the previous month, below 50 contraction. Well-known versions include the ISM Manufacturing and Services PMIs in the US and S&P Global’s PMIs.

• Quantitative Easing and TighteningIntermediate4 min read

  Quantitative easing (QE) is a central bank buying large amounts of bonds to push down longer-term interest rates and ease financial conditions. Quantitative tightening (QT) is the reverse: shrinking those holdings, usually by not reinvesting maturing bonds.

• Rate Hike and Rate CutBeginner4 min read

  A rate hike is a central bank raising its key interest rate, usually to fight inflation; a rate cut lowers it, usually to support a slowing economy.

• Return on Equity and Return on AssetsIntermediate4 min read

  Return on equity (ROE) is net income divided by shareholders’ equity; return on assets (ROA) is net income divided by total assets. ROE can be pushed up by borrowing, so it is best read alongside debt levels.

• Activist InvestorIntermediate4 min read

  An activist investor buys a significant stake in a company to push for changes — in strategy, management, capital returns or the board — that it believes will raise the share price.

• Analyst RatingIntermediate4 min read

  An analyst rating is a research analyst's recommendation on a security, such as buy, hold or sell, often with a price target.

• Average Hourly EarningsIntermediate3 min read

  Average hourly earnings measure the average wage per hour for a group of workers. In the US the figure is released with the monthly jobs report and is watched as a sign of wage-driven inflation.

• Bank MetricsAdvanced3 min read

  Net interest margin (NIM) is a bank’s interest income minus interest expense, relative to its earning assets. CET1 is the ratio of a bank’s highest-quality capital to its risk-weighted assets. The liquidity coverage ratio (LCR) checks that a bank holds enough liquid assets for 30 days of stressed outflows; the net stable funding ratio (NSFR) checks its funding over one year.

• Bank of England and Bank of JapanBeginner3 min read

  The Bank of England (BoE) sets interest rates for the UK through its Monetary Policy Committee; the Bank of Japan (BoJ) sets policy for Japan. Their decisions move the pound and the yen in the same way that the Federal Reserve’s decisions move the dollar.

• Book ValueIntermediate3 min read

  Book value is a company’s total assets minus its total liabilities, as shown in its accounts. Dividing the share price by book value per share gives the price-to-book ratio.

• BookbuildingAdvanced3 min read

  Bookbuilding is how underwriters collect orders from investors at different prices before an offering, then use that demand to set the final price and decide who gets shares.

• Business MetricsIntermediate3 min read

  Common metrics for growth companies: total addressable market (TAM) is the revenue available if a product won its whole market; customer acquisition cost (CAC) is the cost of winning one customer; monthly and annual recurring revenue (MRR, ARR) measure subscription revenue; gross merchandise value (GMV) is the value of goods sold through a marketplace.

• Capacity UtilisationAdvanced4 min read

  Capacity utilisation is the share of an economy’s or industry’s productive capacity that is in use. High readings suggest little spare capacity, which can add to inflationary pressure.

• Capex and OpexIntermediate4 min read

  Capital expenditure (capex) is spending on long-lasting assets such as equipment and buildings, recorded as an asset and depreciated over time. Operating expenditure (opex) is day-to-day running costs such as wages and rent, deducted in full when incurred.

• Capital FlightIntermediate4 min read

  Capital flight is a rapid, large movement of money out of a country or market, usually because investors fear losses from a crisis, devaluation or political events. It tends to weaken the currency and push up local interest rates.

• Consumer ConfidenceBeginner3 min read

  Consumer confidence surveys ask households how they feel about the economy, their finances and their spending plans. Examples are the Conference Board index and the University of Michigan sentiment survey in the US.

• Currency Appreciation and DepreciationBeginner3 min read

  A currency appreciates when it buys more of another currency than before, and depreciates when it buys less. If EUR/USD rises from 1.08 to 1.10, the euro has appreciated against the dollar and the dollar has depreciated against the euro.

• Current AccountIntermediate4 min read

  The current account records a country’s trade in goods and services plus income and transfers with the rest of the world. A persistent deficit must be financed by capital inflows, which can leave the currency vulnerable if those inflows stop.

• Debt-to-Equity RatioIntermediate3 min read

  The debt-to-equity ratio compares a company’s debt with its shareholders’ equity. A ratio of 1.5 means $1.50 of debt for every $1 of equity. What counts as high depends heavily on the industry.

• Diluted EPSIntermediate3 min read

  Diluted earnings per share divides profit by the number of shares there would be if options, warrants and convertible securities were turned into shares. It is lower than or equal to basic EPS.

• Direct ListingIntermediate4 min read

  In a direct listing, a company’s existing shares start trading on an exchange without a traditional underwritten offering. The opening price is set by the exchange’s opening auction rather than by banks.

• Dual-Class SharesIntermediate4 min read

  A dual-class structure has two or more share classes with different voting rights, often letting founders keep control with a minority of the economic ownership.

• Durable Goods OrdersIntermediate3 min read

  Durable goods orders measure new orders for products meant to last three years or more, such as machinery, vehicles and aircraft. The figure is volatile, so analysts often watch the version excluding transportation.

• Economic CalendarBeginner3 min read

  An economic calendar lists the dates and times of upcoming data releases and central-bank decisions, so traders know when volatility may spike.

• European Central BankBeginner3 min read

  The European Central Bank (ECB) sets monetary policy for the countries that use the euro.

• Fed Dot PlotIntermediate3 min read

  The dot plot is a chart in the Federal Reserve’s quarterly Summary of Economic Projections showing where each FOMC participant expects the policy rate to be at the end of coming years. It shows officials’ views, not a commitment.

• Housing StartsBeginner4 min read

  Housing starts count new residential construction projects begun in a month. Because housing is sensitive to interest rates, the figure is an early sign of how monetary policy is affecting the economy.

• Jobless ClaimsBeginner3 min read

  Jobless claims count people filing for unemployment benefits. In the US, initial claims are published weekly, which makes them one of the most timely signs of whether the labour market is weakening.

• Leveraged and Management BuyoutsAdvanced4 min read

  A leveraged buyout is the purchase of a company funded largely with borrowed money, with the company’s own cash flows used to repay the debt. In a management buyout, the company’s existing managers are among the buyers.

• Working Capital, Current and Quick RatiosIntermediate3 min read

  Working capital is current assets minus current liabilities. The current ratio divides the two; the quick ratio leaves out inventory, which can be hard to sell fast. Both measure whether a company can pay its bills over the next year.

• Net IncomeBeginner3 min read

  Net income is what remains of revenue after all expenses, interest and taxes — the company's profit, or “bottom line”.

• Operating Cash FlowIntermediate3 min read

  Operating cash flow is the cash generated by a company’s core business in a period, shown in the cash flow statement. When it is persistently below reported profit, analysts look closely at the quality of those earnings.

• Output GapAdvanced3 min read

  The output gap is the difference between what an economy actually produces and an estimate of what it could produce at full, sustainable capacity. A positive gap points to inflation pressure; a negative one to slack. It cannot be measured directly, so estimates differ.

• Insider and Institutional OwnershipIntermediate4 min read

  Insider ownership is the share of a company held by its executives and directors; institutional ownership is the share held by funds, pension plans and other institutions. In the US, large holders and insiders must report positions and trades in public filings.

• PEG RatioIntermediate3 min read

  The PEG ratio is the P/E ratio divided by the expected annual earnings growth rate in percent. A P/E of 30 with 20% expected growth gives a PEG of 1.5. It depends heavily on the growth estimate.

• Producer Price IndexIntermediate3 min read

  The Producer Price Index (PPI) measures changes in the prices producers receive for their output, and is sometimes an early signal of consumer inflation.

• Price-to-Book RatioIntermediate4 min read

  The price-to-book ratio is the share price divided by book value per share. It is most useful for asset-heavy businesses such as banks; for companies whose value lies in brands or software it says little.

• Price-to-Sales RatioIntermediate3 min read

  The price-to-sales ratio is a company’s market capitalisation divided by its annual revenue. It is used for companies without profits, but ignores costs, so two companies with the same ratio can have very different margins.

• General Partners, Limited Partners and MOICAdvanced4 min read

  In a private fund, the general partner (GP) manages the money and makes decisions, while limited partners (LPs) supply most of the capital with liability limited to what they invest. Multiple on invested capital (MOIC) is total value returned divided by money invested: $25 million back on $10 million is 2.5×.

• Purchasing Power ParityAdvanced4 min read

  Purchasing power parity is the idea that exchange rates should, over the long run, move towards the rate that makes the same basket of goods cost the same in both countries. Currencies can stay far from PPP for years, so it is a valuation guide, not a timing tool.

• Real Effective Exchange RateAdvanced3 min read

  The real effective exchange rate is a currency’s average value against its trading partners, weighted by trade and adjusted for differences in inflation. It shows whether a country’s goods are becoming more or less competitive abroad.

• Real Estate MetricsAdvanced4 min read

  Net operating income (NOI) is a property’s rental income minus operating costs, before financing. Funds from operations (FFO) adds depreciation back to a REIT’s net income and removes gains on property sales; adjusted FFO (AFFO) also deducts recurring capital spending. The debt service coverage ratio (DSCR) is NOI divided by loan payments.

• REITIntermediate3 min read

  A REIT is a company that owns or finances income-producing property and trades like a stock. US REITs must distribute at least 90% of their taxable income to shareholders, so they are often held for income. They are usually valued with funds from operations (FFO) rather than earnings.

• RevenueBeginner3 min read

  Revenue is the total income a company earns from selling goods or services before any costs are deducted — the “top line”.

• Rights IssueIntermediate3 min read

  A rights issue lets existing shareholders buy new shares, usually at a discount, in proportion to what they already own. Taking up the rights avoids dilution; shareholders who do not can often sell the rights instead.

• Risk-On and Risk-OffIntermediate3 min read

  Risk-on describes periods when investors favour riskier assets such as stocks and crypto; risk-off describes moves toward safer assets such as government bonds.

• CatalystIntermediate3 min read

  A catalyst is an event or piece of news — such as earnings, a data release or a regulatory decision — that can trigger a large price move.

• Earnings SeasonBeginner3 min read

  Earnings season is the few weeks after each quarter ends when most listed companies publish their results.

• Earnings SurpriseIntermediate3 min read

  An earnings surprise is the difference between a company’s reported earnings and the analysts’ consensus estimate. Share prices often react more to the surprise, and to updated guidance, than to the earnings themselves.

• Forward and Trailing P/EIntermediate3 min read

  Trailing P/E divides the share price by earnings over the past twelve months; forward P/E uses analysts’ estimates for the next twelve months. Forward P/E depends on forecasts that may prove wrong.

• Greenshoe OptionAdvanced3 min read

  A greenshoe, or over-allotment option, lets the underwriters of an offering sell up to 15% more shares than planned. It helps them support the price in the first weeks of trading.

• GuidanceIntermediate3 min read

  Guidance is a company's own forecast of future results, such as expected revenue; changes to guidance often move the stock more than past results.

• Return on Invested CapitalAdvanced4 min read

  Return on invested capital measures after-tax operating profit relative to the capital invested in the business by both shareholders and lenders. A company whose ROIC is above its cost of capital is creating value.

• Share DilutionIntermediate3 min read

  Dilution is the fall in existing shareholders’ percentage ownership when a company issues new shares — for capital raising, employee stock awards or conversions. Unless the new money creates enough value, earnings per share fall too.

• Soft and Hard LandingBeginner3 min read

  A soft landing is when a central bank slows the economy enough to bring inflation down without causing a recession. A hard landing is when the slowdown turns into a sharp downturn or recession.

• SPACIntermediate3 min read

  A special purpose acquisition company is a listed shell company that raises money to buy a private business, usually within a deadline of around two years. Completing that merger — the “de-SPAC” — takes the private business public.

• Special Purpose VehicleAdvanced3 min read

  A special purpose vehicle is a separate legal entity created for one narrow purpose, such as holding assets for a securitisation or a single investment, so that its risks are kept apart from the parent company.

• Spin-OffIntermediate3 min read

  A spin-off is when a company separates one of its businesses into a new, independently listed company and gives its shares to existing shareholders.

• StagflationBeginner3 min read

  Stagflation is weak or falling economic growth combined with high inflation and often rising unemployment. It is hard for central banks, because fighting inflation with higher rates also weakens growth.

• Sudden StopAdvanced3 min read

  A sudden stop is an abrupt halt in foreign capital flowing into an economy. Countries that depend on those inflows to fund a current-account deficit may be forced into a sharp adjustment, often with a falling currency and a recession.

• Takeover PremiumIntermediate3 min read

  A takeover premium is how much more an acquirer offers than the target’s market price before the deal. Offering $65 for a stock trading at $50 is a 30% premium.

• Tender OfferIntermediate3 min read

  A tender offer is a public offer to buy shares directly from shareholders at a stated price, usually above the market price, for a limited time. It can come from an acquirer or from the company buying back its own stock.

• Terms of TradeAdvanced3 min read

  Terms of trade compare a country’s export prices with its import prices. When export prices rise faster — for example, oil prices for an oil exporter — the terms of trade improve, which often supports the currency.

• Trade BalanceBeginner3 min read

  The trade balance is the value of a country’s exports minus its imports over a period. Exporting more than it imports is a trade surplus; the opposite is a trade deficit.

• Weighted Average Cost of CapitalAdvanced3 min read

  The weighted average cost of capital is the average return a company must pay its lenders and shareholders, weighted by how much of each it uses. It is the usual discount rate in a discounted cash flow valuation.

• Yield Curve ControlAdvanced3 min read

  Yield curve control is a policy in which a central bank targets the yield on bonds of a chosen maturity and buys or sells as much as needed to hold it there. The Bank of Japan used it from 2016 to 2024.

• Discounted Cash FlowAdvanced5 min read

  Discounted cash flow values a company or project as the sum of its expected future cash flows, each discounted back to today at a rate that reflects risk. The result depends heavily on the growth and discount-rate assumptions, so small changes move it a lot.

Each term is defined in one sentence. Terms marked “Article in preparation” will get a full step-by-step article.

• Abnormal Return

  AdvancedGlossary

  An abnormal return is the part of a stock's move that the market's or its peers' move does not explain — for example a 6% jump on earnings day when the index rose 1%. Researchers add these up around events to measure how news moved prices.

• Accounts Receivable and Payable

  IntermediateGlossary

  Accounts receivable is money customers owe a company for goods already delivered; accounts payable is what the company owes its suppliers. Receivables growing much faster than sales can mean customers are slow to pay or that sales are being pulled forward.

• Altman Z-Score

  AdvancedGlossary

  The Altman Z-score, developed by Edward Altman in 1968, combines five balance-sheet and income ratios into one number that estimates a company's risk of bankruptcy. For the original manufacturing model, below about 1.8 signals distress and above about 3 looks safe.

• Asset Turnover

  IntermediateGlossary

  Asset turnover divides a company's revenue by its total assets, showing how many dollars of sales each dollar of assets produces. Retailers often score above 2, while utilities and heavy industry sit well below 1, so compare within an industry.

• At-the-Market OfferingATM offering

  AdvancedGlossary

  In an at-the-market offering, a company sells new shares gradually into the open market at current prices through a broker, instead of in one large deal. It raises cash flexibly but dilutes existing shareholders.

• Bankruptcy

  BeginnerArticle in preparation

  Bankruptcy is the legal process for a company that cannot pay its debts. In the US, Chapter 11 lets it reorganise while operating and Chapter 7 liquidates it. Shareholders are paid last and usually lose most or all of their investment.

  Rules differ between countries; this is general information, not tax or legal advice.

• Beige Book

  IntermediateGlossary

  The Beige Book is the Federal Reserve's summary of economic conditions in its 12 districts, based on reports from businesses and contacts. It is published eight times a year, about two weeks before each FOMC meeting.

• Bellwether Stock

  BeginnerGlossary

  A bellwether is a company whose results are seen as a signal for its whole industry or the economy — for instance a major chipmaker for tech demand or a big logistics firm for trade. Its earnings often move peers' shares too.

• Burn Rate

  IntermediateGlossary

  Burn rate is how fast a loss-making company spends its cash, usually per month. Divide cash on hand by the burn rate to get the runway — the months left before it must raise money, which often means diluting shareholders.

• Business Cycle

  BeginnerArticle in preparation

  The business cycle is the economy's repeating swing through expansion, peak, contraction and recovery. Different assets and sectors tend to lead in different phases, which is why traders watch indicators that hint at where the cycle stands.

• Capital Asset Pricing ModelCAPM

  AdvancedArticle in preparation

  The capital asset pricing model says an asset's expected return equals the risk-free rate plus its beta times the market's extra return over that rate. It is a simple, widely taught way to estimate the cost of equity, though real returns often stray from it.

• Capital Structure

  IntermediateArticle in preparation

  Capital structure is how a company funds itself — the mix of debt and equity, and the order in which each gets paid. More debt can lift returns to shareholders but raises the risk of distress when profits fall.

• Commodity Currencies

  IntermediateGlossary

  Commodity currencies belong to countries whose exports lean heavily on raw materials, so they tend to move with those prices: the Australian dollar with iron ore, the Canadian dollar and Norwegian krone with oil, the New Zealand dollar with dairy.

• Cost-Push and Demand-Pull Inflation

  IntermediateGlossary

  Demand-pull inflation happens when spending outruns what the economy can produce; cost-push inflation when rising costs such as energy or wages force prices up. Central banks respond more readily to the first, since higher rates cool demand but cannot add supply.

• Credit Crunch

  IntermediateGlossary

  A credit crunch is a sudden drop in the availability of loans, as banks tighten lending standards or lose the capacity to lend. Businesses and households struggle to borrow even at higher rates, which can tip an economy into recession, as in 2008.

• Currency Intervention and Pegs

  AdvancedGlossary

  Currency intervention is a central bank buying or selling its own currency to move or steady the exchange rate. A peg goes further and fixes the rate to another currency — the Hong Kong dollar, for example, is held between 7.75 and 7.85 per US dollar.

• Cyclical and Defensive Stocks

  BeginnerArticle in preparation

  Cyclical stocks — carmakers, airlines, builders, luxury goods — rise and fall with the economy. Defensive stocks — utilities, food, healthcare — sell things people buy anyway, so they hold up better in downturns but usually lag in booms.

• Death Spiral Convertible

  AdvancedGlossary

  A death spiral convertible is financing that converts into shares at a discount to the market price at conversion time. The lower the stock falls, the more shares the holder receives and sells, pushing the price lower still — a classic warning sign in small caps.

• Debt Ceiling

  IntermediateGlossary

  The US debt ceiling is a legal cap, set by Congress, on how much the federal government may borrow. Stand-offs over raising it periodically raise fears of a missed payment — in 2011 one led S&P to cut the US credit rating — and can unsettle short-term Treasury bills.

  Rules differ between countries; this is general information, not tax or legal advice.

• Depression

  BeginnerGlossary

  A depression is an unusually deep and long economic downturn, far worse than a normal recession. In the Great Depression of the 1930s, US output fell by roughly a quarter and unemployment passed 20%.

• Devaluation and Revaluation

  IntermediateGlossary

  Devaluation is a government or central bank deliberately lowering the official value of a pegged currency; revaluation is raising it. Unlike market-driven depreciation, it happens by decision, often overnight, and can jolt prices and capital flows.

• Discount Window

  AdvancedGlossary

  The discount window is the Federal Reserve's lending facility for banks that need short-term cash, at a rate set a little above the fed funds target. Heavy use signals stress in the banking system, as in March 2023.

• Dividend Aristocrats

  BeginnerGlossary

  Dividend aristocrats are S&P 500 companies that have raised their dividend every year for at least 25 consecutive years. A long record of increases suggests stable cash flow, but it is no guarantee the next increase will come.

• Dividend Discount ModelDDM

  AdvancedGlossary

  The dividend discount model values a share as the present value of all its future dividends. Its simplest form, the Gordon growth model, is next year's dividend divided by (required return − dividend growth rate); it only suits steady dividend payers.

• Due Diligence

  BeginnerArticle in preparation

  Due diligence is the homework done before committing money: checking a company's or project's finances, management, risks, legal position and claims. For individual traders it means verifying the broker, the asset and the story before buying.

• Earnings Yield

  IntermediateGlossary

  Earnings yield is earnings per share divided by the share price — the P/E ratio turned upside down. A P/E of 20 is a 5% earnings yield, which investors compare with bond yields to judge whether stocks look cheap or expensive.

• Economic Moat

  IntermediateArticle in preparation

  An economic moat is a lasting competitive advantage that protects a company's profits from rivals — for example a strong brand, network effects, high switching costs or a cost advantage. Warren Buffett made the term popular.

• EDGAR

  IntermediateGlossary

  EDGAR is the SEC's free online database of company filings, including annual and quarterly reports, insider-trading reports and fund holdings. It is the primary source for US company disclosures.

• Efficient Market HypothesisEMH

  IntermediateArticle in preparation

  The efficient market hypothesis, associated with Eugene Fama, says prices already reflect available information, so it is hard to beat the market consistently. Its weak, semi-strong and strong forms differ in which information counts.

• Equity Risk PremiumERP

  IntermediateArticle in preparation

  The equity risk premium is the extra return investors expect from stocks over a risk-free asset such as government bills, as payment for bearing stock-market risk. A thin premium suggests stocks are expensive relative to bonds.

• Fiscal Policy

  BeginnerArticle in preparation

  Fiscal policy is the government's use of spending and taxes to steer the economy, alongside the central bank's monetary policy. Stimulus — tax cuts or extra spending — supports growth but can lift inflation and bond yields; austerity does the reverse.

• Floating Exchange Rate

  BeginnerGlossary

  A floating exchange rate is set by supply and demand in the currency market rather than fixed by the government. Most major currencies float, though central banks sometimes intervene.

• Follow-On Offering

  IntermediateGlossary

  A follow-on offering is a sale of shares by a company that is already listed. If the company issues new shares, existing holders are diluted; if insiders or early investors sell their own shares, there is no dilution but a lot of stock comes to market.

• Free Float

  IntermediateGlossary

  Free float is the part of a company's shares available for public trading, leaving out stakes held by insiders, governments or strategic owners. Most index providers weight companies by free float, and a small float can make a stock very volatile.

• G7 and G20

  BeginnerGlossary

  The G7 brings together the leaders and finance ministers of the US, Japan, Germany, the UK, France, Italy and Canada; the G20 adds major emerging economies such as China, India and Brazil, plus the EU and African Union. Their statements can move currencies when they hint at coordinated action.

• Gold Standard

  IntermediateGlossary

  Under a gold standard, a currency can be exchanged for a fixed amount of gold, which limits how much money can be created. The US ended the last link between the dollar and gold in 1971; today's currencies are fiat money.

• Goldilocks Economy

  BeginnerGlossary

  A Goldilocks economy is “not too hot, not too cold”: growth strong enough to support jobs and profits, but not so strong that inflation forces the central bank to raise rates. It is usually a friendly backdrop for stocks.

• Growth vs Value Stocks

  BeginnerArticle in preparation

  Growth stocks belong to companies expected to grow sales and profits faster than average, so they often trade at high valuations. Value stocks trade cheaply relative to earnings or assets. The two styles tend to take turns leading the market.

• Hawkish and Dovish

  BeginnerArticle in preparation

  A hawkish central banker leans towards higher interest rates to fight inflation; a dovish one leans towards lower rates to support growth. Markets react to the tone of statements as much as to decisions, and a hawkish surprise usually lifts the currency.

• Hot Money

  IntermediateGlossary

  Hot money is capital that moves quickly between countries or markets chasing the best short-term returns, such as higher interest rates. It can pump up a currency or market fast and leave just as fast, as in many emerging-market crises.

• House Price Indexes

  IntermediateGlossary

  House price indexes track home values over time; the S&P CoreLogic Case-Shiller indexes, for example, compare repeat sales of the same homes. Falling house prices hit consumer wealth and bank balance sheets, so traders watch them as an economic signal.

• Hyperinflation

  IntermediateGlossary

  Hyperinflation is price growth so extreme — often defined as more than 50% a month — that money rapidly becomes worthless, as in Germany in 1923 or Zimbabwe in 2008. It usually follows governments printing money to cover deficits.

• Industrial ProductionIP

  IntermediateGlossary

  Industrial production measures the monthly output of factories, mines and utilities; in the US the Federal Reserve publishes it together with capacity utilisation. It is a timely gauge of the manufacturing side of the economy.

• Interest Coverage Ratio

  IntermediateGlossary

  The interest coverage ratio divides operating profit (EBIT) by interest expense. A ratio of 5 means profits cover interest five times; below about 1.5 the company has little room if earnings slip or rates rise.

• JOLTS

  IntermediateGlossary

  JOLTS — the Job Openings and Labor Turnover Survey from the US Bureau of Labor Statistics — reports job openings, hires, quits and layoffs each month. A high quits rate signals workers confident about finding new jobs.

• Leading Economic Index

  IntermediateGlossary

  The Conference Board's Leading Economic Index combines ten forward-looking measures — such as jobless claims, new orders, building permits and the yield curve — into one number meant to signal turns in the US business cycle months ahead.

• Liquidity Trap

  AdvancedGlossary

  A liquidity trap is when interest rates are near zero and cutting them further no longer encourages people and firms to borrow and spend, because they prefer to hold cash. Japan in the 1990s is the classic example; it is why central banks turned to QE.

• Macroeconomics

  BeginnerArticle in preparation

  Macroeconomics studies the economy as a whole — growth, inflation, unemployment, interest rates and trade — rather than single companies. Macro traders bet on how these forces move currencies, bonds, stocks and commodities.

• Margin of Safety

  IntermediateArticle in preparation

  Margin of safety means buying an asset well below your estimate of its intrinsic value, so the investment can still work if your estimate is too optimistic. The idea comes from Benjamin Graham, the father of value investing.

• Mergers and AcquisitionsM&A

  BeginnerArticle in preparation

  Mergers and acquisitions are deals in which companies combine or one buys another. The target's shares usually jump towards the offer price, while the buyer's shares often fall if investors think it is overpaying.

• Misery Index

  BeginnerGlossary

  The misery index adds the unemployment rate to the inflation rate to give a rough gauge of economic hardship for ordinary people. It peaked in the US around 1980, when both were high at once.

• Money SupplyM2

  IntermediateArticle in preparation

  Money supply is the total amount of money in an economy. M1 counts cash and checking deposits; M2 adds savings deposits, small time deposits and retail money-market funds. Fast growth can foreshadow inflation, though the link is loose.

• Moral Hazard

  IntermediateGlossary

  Moral hazard arises when someone protected from the consequences of risk takes more of it — for example banks expecting a government rescue, or traders betting with other people's money. It is the main argument against bailouts.

• Open Market OperationsOMO

  IntermediateGlossary

  Open market operations are a central bank's purchases and sales of government securities, or repo deals, to add or drain bank reserves and keep short-term rates near its target. Large-scale versions of the same tool are called QE and QT.

• Operating Leverage

  IntermediateGlossary

  Operating leverage describes how much a company's profits swing when sales change, because of fixed costs. A software firm with mostly fixed costs sees profits jump when sales rise — and fall hard when they drop.

• Overweight and Underweight

  BeginnerGlossary

  As analyst ratings, overweight means the analyst expects a stock to beat its sector or market and underweight that it will lag. In portfolios, overweight means holding more of something than the benchmark does.

• PCE InflationPCE

  IntermediateArticle in preparation

  The Personal Consumption Expenditures price index measures how prices of what US consumers buy change over time. Published by the Bureau of Economic Analysis, it is the Federal Reserve's preferred inflation gauge, and the Fed's 2% target is set in PCE terms.

• Phillips Curve

  AdvancedGlossary

  The Phillips curve describes a trade-off between unemployment and inflation: tighter labour markets push wages and prices up. The link broke down in the 1970s stagflation and has looked flat in some decades since, but central banks still watch it.

• Poison Pill

  IntermediateGlossary

  A poison pill, formally a shareholder rights plan, lets existing holders buy extra shares cheaply if a hostile bidder crosses an ownership threshold. The dilution makes a takeover far more expensive and pushes the bidder to negotiate with the board.

• Present and Future ValuePV · FV

  BeginnerArticle in preparation

  Future value is what money grows to at a given rate; present value is what a future amount is worth today. $100 at 5% a year becomes $110.25 after two years, so $110.25 due in two years is worth $100 today at that rate.

• Private Placement

  IntermediateGlossary

  A private placement sells securities directly to a select group of investors, such as funds or wealthy individuals, instead of through a public offering. It is faster and cheaper but usually comes with resale restrictions and less disclosure.

  Rules differ between countries; this is general information, not tax or legal advice.

• Profit Margins

  BeginnerArticle in preparation

  Profit margins show how much of each dollar of sales a company keeps. Gross margin subtracts the direct cost of goods; operating margin also subtracts running costs; net margin is what is left after interest and tax. Rising margins usually mean pricing power or efficiency.

• Prospectus

  BeginnerGlossary

  A prospectus is the formal document that describes securities being offered to the public: the business, its finances, the terms and the risks. Funds and IPOs must provide one.

• Pure Play

  BeginnerGlossary

  A pure play is a company focused almost entirely on one business or theme, such as a single-product chipmaker. Investors buy pure plays to get clean exposure to that theme, without the other businesses a conglomerate would bring.

• Quality of Earnings

  AdvancedGlossary

  Quality of earnings asks how much of a company's reported profit comes from repeatable operations backed by cash, rather than one-off gains or accounting choices. Profits that rise while operating cash flow falls are a classic warning sign.

• Quiet Period

  IntermediateGlossary

  A quiet period is a time when a company and its advisers limit public comments: around an IPO, and in the weeks before quarterly results. Afterwards, analysts at the underwriting banks often begin coverage.

• Random Walk Theory

  IntermediateGlossary

  Random walk theory holds that price changes are unpredictable, so past prices cannot forecast future ones. It was popularised by Burton Malkiel's book A Random Walk Down Wall Street.

• Reflation

  IntermediateGlossary

  Reflation is a policy push — rate cuts, money creation or government spending — to lift growth and inflation back up after a slump or a bout of deflation. “Reflation trades” favour cyclical stocks, commodities and higher bond yields.

• Reserve Currency

  IntermediateGlossary

  A reserve currency is one that central banks hold in large amounts and that is used to price global trade. The US dollar makes up more than half of the world's disclosed central-bank reserves, followed by the euro; this status keeps demand for dollars high.

• Retail Sales

  BeginnerArticle in preparation

  The monthly US retail sales report from the Census Bureau measures sales at stores, online retailers and restaurants. Because consumer spending drives much of the US economy, a surprise in either direction can move bonds, the dollar and stocks.

• Return on Capital EmployedROCE

  IntermediateGlossary

  Return on capital employed measures how well a company turns its capital into operating profit: EBIT divided by capital employed (total assets minus current liabilities). It is useful for comparing capital-heavy businesses.

• Reverse Merger

  IntermediateGlossary

  In a reverse merger, a private company goes public by merging into a company that is already listed, often a dormant shell. It is quicker and cheaper than an IPO but skips much of the scrutiny, so reverse-merger stocks have a patchy record.

• Seasonally Adjusted DataSAAR

  IntermediateGlossary

  Seasonally adjusted figures strip out predictable calendar swings — holiday shopping, summer hiring, harvests — so underlying changes stand out. US data are often shown as a seasonally adjusted annual rate (SAAR), scaling one month or quarter up to a full year.

• SEC Filings: 10-K, 10-Q and 8-K

  IntermediateArticle in preparation

  US public companies file a 10-K annual report with audited financials, a 10-Q for each other quarter, and an 8-K within four business days of major events such as a merger or a CEO change. All are free to read on the SEC's EDGAR database.

• Share Buyback

  BeginnerArticle in preparation

  A share buyback is a company repurchasing its own shares. Fewer shares outstanding lifts earnings per share; repurchased shares are cancelled or held as treasury stock. Buybacks return cash to shareholders without paying a dividend.

• Shares Outstanding

  BeginnerArticle in preparation

  Shares outstanding are all the shares a company has issued that investors currently hold, insiders included. Multiply by the share price for market cap; authorised shares are the legal maximum the company may issue, and float is the part freely traded.

• Stock Dividend

  IntermediateGlossary

  A stock dividend pays shareholders in extra shares instead of cash — for example 5 new shares for every 100 held. Like a split, it does not change the company's value; the share price adjusts down.

• Taylor Rule

  AdvancedGlossary

  The Taylor rule, proposed by economist John Taylor in 1993, suggests where a central bank's policy rate should be based on how far inflation is from target and how far output is from its potential. It is a benchmark, not a rule central banks follow mechanically.

• Top-Down and Bottom-Up Investing

  BeginnerGlossary

  Top-down investors start from the economy and sectors and then pick companies that fit the big picture. Bottom-up investors start from individual companies' strengths, paying less attention to the wider economy. Many combine both.

• V-Shaped and Other Recoveries

  BeginnerGlossary

  Economists describe recoveries by their shape: V for a sharp fall and fast rebound, U for a longer trough, W for a double dip, L for a slump with no quick recovery, and K when some sectors recover while others keep falling.

• Wealth Effect

  IntermediateGlossary

  The wealth effect is the tendency of people to spend more when their homes or portfolios rise in value, even if their income has not changed. It links asset prices to consumer spending — in both directions.

• White Knight

  IntermediateGlossary

  A white knight is a friendlier buyer who steps in to acquire a company facing a hostile takeover, usually on terms its board prefers. Its arrival can spark a bidding war that lifts the target's share price.

• Zombie Companies

  IntermediateGlossary

  Zombie companies are firms that for years have not earned enough to cover even their interest payments, surviving only by rolling over debt. They multiply when rates are very low and become vulnerable when borrowing costs rise.