Basis point

One hundredth of a percentage point. A move from 4.00 percent to 4.25 percent is a rise of 25 basis points. Often shortened to bps.

Bear market

A sustained period of falling prices, often defined as a drop of 20 percent or more from a recent high. It is the opposite of a bull market.

Blue chip

A large, well-established company with a long record of stable earnings, generally seen as lower-risk than smaller firms.

Bond

A loan you make to a government or company that pays regular interest and returns the amount borrowed on a set date. Bonds are generally less volatile than stocks.

Bull market

A sustained period of rising prices and optimism in a market. It is the opposite of a bear market.

Capital gain

The profit you make when you sell an asset for more than you paid for it. A capital loss is the opposite, and many countries tax capital gains.

Central bank

The institution that sets a country’s main interest rate and manages its money supply, such as the US Federal Reserve, the European Central Bank or the Bank of England.

Compound interest

Interest earned on both your original money and the interest it has already earned. Over long periods this compounding can grow savings substantially.

Diversification

Spreading money across different investments so a loss in one has less effect on the whole. The aim is to reduce risk without giving up all of the potential return.

Dividend

A payment a company makes to its shareholders out of its profits, usually in cash and often paid every quarter or year.

Dividend yield

A company’s annual dividend as a percentage of its share price. It shows the income a share pays relative to what it costs.

ETF

Exchange-traded fund: a fund that trades on a stock exchange like a single share. Many ETFs track an index and charge low fees.

Earnings per share

A company’s profit divided by its number of shares. Often shortened to EPS, it shows how much profit is attributed to each share.

Equity

Ownership in a company, represented by its shares; "equities" is another word for stocks. In personal finance, equity can also mean the share of an asset, such as a home, that you own outright.

Government bond

A bond issued by a national government, such as a US Treasury or a UK gilt. Its yield is widely watched as a benchmark for interest rates across an economy.

Gross domestic product

The total value of the goods and services an economy produces in a period. Its growth rate, usually shortened to GDP, is the main gauge of whether an economy is expanding or shrinking.

Index

A measure that tracks the combined value of a group of investments, such as the S&P 500 or the FTSE 100, used as a benchmark for how a market is doing.

Index fund

A fund that aims to match an index rather than beat it, by holding the same investments in the same proportions. It usually charges low fees.

Inflation

The rate at which prices rise over time, which reduces how much a unit of money can buy. It is usually reported as an annual percentage.

Initial public offering

The first time a company sells its shares to the public and lists them on a stock exchange, turning a private company into a public one. Usually shortened to IPO.

Interest rate

The cost of borrowing money, or the reward for saving it, expressed as a percentage. Central-bank rates influence the rates on loans and savings across an economy.

Liquidity

How easily an asset can be turned into cash without moving its price much. Cash is the most liquid asset; property is among the least.

Market capitalization

The total market value of a company’s shares, found by multiplying the share price by the number of shares. Often shortened to market cap.

Mutual fund

A fund that pools money from many investors and is managed as one portfolio. Unlike an ETF, it is usually priced once a day rather than traded live.

Portfolio

The full collection of investments a person or institution holds, such as stocks, bonds, funds and cash.

Price-to-earnings ratio

A company’s share price divided by its earnings per share. Often written as the P/E ratio, it is one way to gauge how expensive a share is relative to its profits.

Recession

A significant, broad decline in economic activity that lasts more than a few months, often marked by falling output and rising unemployment.

Short selling

Trying to profit from a falling price by borrowing an asset, selling it, and aiming to buy it back cheaper later. If the price rises instead, the losses can be very large.

Stock

A share of ownership in a company. Owning stock, also called equity or shares, makes you a part-owner entitled to a slice of the company’s profits and assets.

Ticker symbol

The short code that identifies a listed company’s shares on an exchange, such as AAPL for Apple or HSBA for HSBC.

Volatility

How much and how quickly a price moves up and down. Higher volatility means larger, faster swings and usually more risk.

Yield

The income an investment pays as a percentage of its price. For a bond it reflects the interest relative to what you pay; for a share it usually means the dividend yield.