THE

FINANCE & MARKET

TERMINOLOGY
HANDBOOK
THE 80 MOST IMPORTANT FINANCE &
MARKET RELATED TERMS YOU MUST KNOW!

SECOND EDITION

RIZWAN MEMON
Table Of Contents
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1. Introduction Page 3

2. Market Instruments Page 4

3. Order Execution Page 6

4. Market Conditions Page 8

5. Trading And Investing Page 9

6. Financial Institutions Page 12

7. Benchmarks And Indexes Page 13

8. Central Banks Page 14

9. Brokerage Accounts Page 15

10. Conclusion Page 16

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Introduction
The world of banking, finance, trading and investing can often seem overly complex to the
average individual but it doesn’t have to be that way. Whether you are a beginner trader or are
intrigued by the world of high finance, understanding the market lingo can leave you better
positioned for ongoing success no matter what direction you go in.

With so many different terms being thrown around so rampantly, reading editorials, market
updates and news articles from Bloomberg, Wall Street Journal, Financial Times and a host of
other sources can seem daunting and overwhelming. Fear not, I am here to help!

I have gathered and narrowed down the thousands of different terms that are out there and
am sharing with you the most significant ones that I believe are necessary to understand and
grasp. It will likely take some time for you to get used to these terms (especially if you are
completely new to finance) as you further expose yourself to the vast landscape of trading,
investing and financial markets.

Instead of throwing out a massive list in alphabetical order, I have done my best to arrange and
categorize the terms into major topics. The terms below have been defined in my own words
and you will not find any contrived or monotone textbook and dictionary definitions in here.
These are direct and to-the-point explanations that I have made as easy as possible to
comprehend and understand.

Without further ado, below are my personal 80 must-know finance, trading and investing
terms!
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Market Instruments
There are many different asset classes and instruments that can be bought and sold in various
different financial markets. Below are the most important ones:

Stocks/Equities/Security – Represents an ownership or stake in a company or holding position

in a fund. The more shares in a company/fund you own, the bigger share of the pie you have.

Cryptocurrencies – Digital assets that have no physical representation and are transferable
from one digital entity or wallet to another. There is no country, government or corporation
that owns or regulates the worldwide cryptocurrency markets as inherently cryptocurrencies
are decentralized

REITs – Some investors prefer to buy real estate through real estate investment trusts, or REITs,
which trade as if they were stocks and have special tax treatment. There are many different
types of REITs specializing in all different types of real estate. For example, if you wanted to
invest in hotel properties, you could consider investing in a REIT that holds assets in various
different hotels.

Exchange Traded Funds (ETF) – A security that holds multiple different stocks and is readily
traded on a stock exchange. Think of it like a basket of stocks specific to an industry. For
example, a Technology ETF could own shares of companies like Apple, Amazon etc. and
provides exposure to those stocks and their price movements all without having to buy each
stock independently.

Commodities – A basic good in commerce that is often used as a method to supplement goods
or services. Commodities often are items like gold, oil, natural gas, grains, etc.

Futures – A financial agreement/contract between two parties (buy and seller) that sets the
price of an asset (often a physical commodity like gold, oil, cattle etc.) for a specific price.
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Bonds – A debt instrument where money is borrowed (often by corporation and/or

governments) for a specific amount of time with an agreed upon fixed interest rate that is paid
out to the creditor/lender.

Derivatives – A financial product that has its price dependent on or derived from another asset
or security.

Options – A contract that gives the buyer the right, but not the obligation, to buy or sell an
underlying asset (a stock of Microsoft could be the underlying) at a specific price on or before a
certain date. An option, just like a stock or bond, is a security. It is also a binding contract with
strictly defined terms. By owning an option contract on Microsoft, you can take a side on
whether you think Microsoft’s stock price will go up, down or even sideways. This is an
extremely simplified explanation as options can either be generally simple or exponentially
complex based on the objective and strategy used.

Currency (Forex or FX) – The price of a country’s currency compared to the price of another’s.
For example: USD/CAD, the value of one American dollar to the value of one Canadian dollar.
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Order Execution
Understanding what a specific term means when wanting to place trades is extremely
important. Take a look at some of the most vital ones below:

Ticker/Stock Symbol – Commonly one to four characters from the alphabet representing a
publicly traded company. For example, the ticker for Apple Inc. is AAPL.

Quote – The latest data on a stock’s price that a buyer and seller agreed upon. The number you
see on a price quote for a specific stock is the last agreed upon transaction by the buyer and
seller.

Buy – A decision to purchase specific shares/stocks/securities from a seller.

Sell – A reference to closing out a position on shares that were purchased.

Bid – A “bid” from a buyer to purchase a given stock expressed at a specific price. Example: I am
bidding on a 100 shares of XYZ Company for $5.

Ask – The other side of a bid, this is a price a seller is “asking” for their stock. Example: I am
asking for $5 a share for my 100 shares of XYZ Company.

Bid-Ask Spread – The difference in price between someone wanting to buy and someone
wanting sell a stock. Example: Person A is bidding on $5.00 on XYZ Company shares and
Person B is asking for $5.10 for his XYZ Company shares. That would be a Bid-Ask Spread of
$0.10/10 Cents.

Market Order – Instruction to execute, in rapid availability, a buy or sell transaction at current
market price. If you are buying, the order will be executed at the current “Ask” price. If you are
selling, the order will be executed at current “Bid” price.
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Limit Order – An order to buy or sell a stock at a designated price. This order type is most
commonly used.

Good Till Cancelled (GTC) Order – An order placed to buy or sell a stock at a defined price that
will remain until it is either canceled, expired or completed/filled.

Day Order – A given order that is only good for the hours the market is open on the day it’s
placed. If the order does not get filled, it expires.

Day High and Low – A gauge comparing daily highs and lows in a given market and/or stock.

Position – The amounts of shares/stock in a company either held (or wanting to buy/sell)
Example: My position in XYX Company currently is 500 shares.

Volume – The number of shares or select contracts that are traded in a market or stock over a
specific time.

Close – The ending of a specific trading session in the financial markets. The US markets open at
exactly 9:30 AM Eastern Time and close at exactly 4:00 PM Eastern Time on business days.

After-Hours Trading – The market remains open for after-hours from 4:00 PM Eastern Time to
8:00 PM Eastern Time on business days. The volume during this time is often significantly less
than normal market hours and only limit orders are allowed during after-hours trading.

Pre-Market Trading – The market open for pre-market from 4:00 AM Eastern Time to 9:30 AM
Eastern Time on business days. The volume during this time is often significantly less than
normal market hours and only limit orders are allowed during pre-market hours trading.
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Market Conditions
The financial markets and global economy are shifting and moving all the time, some slower
and some faster. Understanding where the markets have been and where they are now is
crucial to understanding where they may go next. Below are some terms specific to market
conditions as a whole:

Bull Market – A market environment where prices are rising or anticipated to rise. While
typically referencing the stock market it can also be applied to bonds, commodities and even
cryptocurrencies. When the market rises by 20% from a recent low point, this signifies a bull
market.

Bear Market – A market where certain conditions have traders and investors generally
expecting prices to decline. In this market environment, selling increases and short selling is
frequent while buying is decreased. A 20% or more decline from the high’s indicates a bear
market.

Market Correction – The market declining at least 10% from the highs indicates a market that is
in a correction phase.

Market Crash – A large scale and often fast drop in the market, usually more than 30% from the
highs is indicative of a market crash.
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Trading And Investing

It is beyond necessary to know the essential trading and investing terms in order to grasp what
is going on around you. Below I have defined the most important terms out of literally hundreds:

Returns – What is gained or lost through a trade/investment over a specific time frame.
Example: John’s return on XYZ Company was 10%.

Dividend – A portion of a company’s earnings that is paid to shareholders (those who own the
stock).

Dividend Yield – The current return generated from holding a stock at its present dividend rate
and price. If a stock is trading at $100 per share and pays out $5 in annual dividends, the
dividend yield would be 5%. The yield goes up if the dividend remains the same and the price
drops. The yield goes down if the dividend remains the same and the price increases.

Personal Yield – Like the dividend yield but the percentage return is based on your specific
purchase price of the stock. Example: I own shares of XYZ Company at price of $10/share. XYZ
Company pays $1/share to shareholders throughout the year. That would mean that by holding
XYZ Company shares, I would have a personal yield of 10% (1 divided by 10 then multiplied by
100).

Rally – A continued rise in the price of the market and/or a stock. This movement varies
depending on the market environment and duration.

Correlation – Comparison of price movement between one asset to another

Income Statement – Shows a company's revenues, expenses, taxes, and net income/loss.

Balance Sheet – Shows a company's assets, liabilities, and shareholders' equity.

Form 10-K – An annual disclosure document certain firms are required to file with the SEC, it
contains in-depth information about the business, including its finances, business model, and
much more.
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Earnings Per Share (EPS) – This is the company’s profit divided by the number of shares
outstanding. Example: If XYZ Company had total profit for the year of $1,000,000 and it has a
500,000 shares outstanding (shares out trading in the markets) than the EPS for XYZ Company
would be $2.

Price-to-Earnings Ratio (P/E Ratio) – It tells you how many years it would take for a company to
pay back its current price per share at current profits with no growth. In other words, the P/E
ratio tells you how much money you are paying for $1 of the company's earnings. If a company
is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10
because you are paying ten times earnings ($20 per share divided by $2 per share earnings =
P/E ratio of 10). The higher the P/E, the higher the multiple that you are paying. Always
compare P/E ratios of similar companies in similar industries and sectors.

Market Capitalization – The market value of a company on a stock exchange. Calculated by

taking the shares outstanding and multiplying it by the current stock price. This provides a
dollar amount that clearly gives as an ideas as to the current value of the company. It may or
may not be a fair valuation, overvaluation, or undervaluation of a company.

Going Long – An expectation that a stock, commodity or currency will rise in value. Often an
effort to purchase low and sell high. For example, you buy a stock at $10 a share and hold for a
couple months and sell the stock at $15 a share. You went long and ended up making $5 a
share.

Going Short – An expectation that a stock, commodity or currency will drop in value. An act of
borrowing the subsequent shares from your brokerages inventory and selling the stock prior to
owning it so that you may buy it back at a lower price. Example: Sell short XYZ Company at $10
a share with the goal that the price will drop. Price does indeed drop a few days later and you
cover/buy back the stock at $5 a share. You keep the difference, which is $5 a share.

Averaging Down – The process of purchasing more stock of a company as the price goes down,
thus decreasing your average purchase price per share.

F.O.M.O. (Fear of Missing Out) – Literally what is sounds like, having the fear of missing out on
something, most often “potential” profits in a stock or other security that is trending or hyped
up.

Volatility – The statistical rate at which a stock increases or decreases. Typically refers to
uncertainty or risk in changes of a stock.

Liquidity – The ability for investors to get in and out of a stock or given security.

Fundamental Analysis – Looking at various quantitative and qualitative factors of the markets
and/or a specific stock. Example: Analyzing financial statements and ratios of a company to
determine current value future market/fair value.
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Technical Analysis – Connecting the price movement of a company and the supply and demand
in a stock/commodity/cryptocurrency. Often incorporates various prior price data, chart
patterns and mathematical based indicators.

P/L – Profit and Loss – Either defined by a dollar amount or percent to signify the profit or loss
of either a trade in a specific security or a portfolio. Example: after buying and selling XYZ
Company multiple times, my P/L was $5,000 (meaning I made a profit).

Portfolio – A series of stocks and/or different assets an investor holds (stocks, commodities,
ETF’s etc.).

Day Trading – A practice in which a trader buys and sells stocks within a trading day. The
methodology for day trading varies by the market and individual. By definition, no trades are
left open and are not held overnight.

Swing Trading: A practice in which a trader buys or sells stocks with the intention of holding
them for a longer period than a day. Often time’s positions are held for a few days to a few
weeks (perhaps even a few months).

Investing – The practice of going long (buying) a company with the goal being that the
company’s share price will grow in the longer term (years) and eventually reach it’s fair and
represented value.

Sector – Companies that are within the same or connected business/industry.

Initial Public Offering (IPO) – The first price offering of a private company’s stock just before it
is publicly traded in a market.

Secondary Offering – An issuance of more stock of a company that is already publicly traded on
the stock market. Often done to raise more capital and can be seen as a negative as it dilutes
the current shares (more shares out in the market and hence more supply).

Public Float – A company’s shares are available and held by outside

investors/traders/institutions and can be traded publicly on the stock market.
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Financial Institutions
The terms below are crucial ones to understanding the most important intuitions that pertain to
the global financial markets:

New York Stock Exchange (NYSE) – A stock exchange in New York, NY considered one of the
world’s largest lists of securities. All large and well known countries have their own stock
exchanges within their financial hub cities. For example, Canada’s main stock exchange in
Toronto is the Toronto Stock Exchange (TSX or TSE). Britain/U.K. has their exchange in London
called the London Stock Exchange (LSE).

NASDAQ (The Exchange) – Second largest stock exchange that lists over 3,000 technology
stocks and facilities trading between buyers and sellers.

SEC (Securities and Exchange Commission) – The independent securities governing body of the
American federal government. Its purpose is to enforce and oversee regulatory laws within the
securities and financial markets. Most large financially independent countries have their own
securities governing body similar to the SEC.

Broker – An individual or firm that acts on behalf of an investor for an agreed fee or
commission. Broker’s house an individual’s stock as well as provide access to place trades.

Hedge Fund – An alternative investment management firm that uses “pooled capital” in order
to employ diverse strategies in the markets in order to drive greater returns. They often charge
a fixed annual management fee (commonly 2% annually) and a performance fee as well
(commonly 20% annually on profits above a benchmark/index). They are also less restricted as
they are usually only available to high net worth individuals, pension funds, etc.

Mutual Funds - A pool of capital from many "regular" investors and is managed by an
investment management company. Has limited access to the types of strategies it may use.
Cannot short and cannot trade/invest in derivative products.

Exchange – The location housing various investments and securities that are traded amongst
buyers and sellers.
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Benchmarks And Indexes

Each of these prominent benchmarks/indexes is an average of many (even hundreds) of stocks
and is considered to be the key metric that a trader and investor can compare themselves and
their performance to.

S&P 500 – The Standard & Poor’s 500 is an index that tracks the 500 largest American
companies. It aggregates and averages them (based on market capitalization) and represents
them as a number.

NASDAQ COMPOSITE INDEX– An index that tracks over 3,000 different American technology
companies.

Dow Jones Industrial Average (DJIA) – An average of thirty large and significant stocks from
different industries/sectors. Often referred to as “The Dow.”
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Central Banks
The overarching ideology of a central bank has been in place for many years. Every country has
one and it is seen as the primary lender and financial policy making/upholding institution. It is
beneficial to know the tools and methods at a Central Bank’s disposal and the way it can
influence the economy on a macro level. Below are the most vital ones to grasp:

Central Bank – A national monetary authority that is directly overseen by a country’s

government. Not to be confused with a regular “bank” that you have a bank account with and
can deposit your money in.

Monetary Policy – Actions of a central bank and other regulatory departments that determine
money supply (how much money is printed) and national benchmark interest rates.

Federal Reserve – The central bank of the U.S that influences monetary policy and credit
conditions. Every country has its “Federal Reserve”. For Canada, it’s the Bank of Canada, for
countries that are a part of the European Union; it is the European Central Bank.

Treasury Department – A U.S government department that is directly responsible for printing
money, collecting tax, managing government accounts, overseeing government debt and
promoting economic growth domestically. Again, every country has its own Treasury and
money supply department.

Quantitative Easing – A irregular monetary policy where a central bank buys government
securities in a given market with the intent on lowering interest rates and driving up money
supplies.

Credit Risk – The threat that a borrower may not meet obligations of a loan and a lender could
experience loss on the principal or interest of a specific loan.
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Brokerage Accounts
Having a grasp of various account types that you can use to buy and sell securities in can be the
difference between making and losing money. Not to mention some of the fantastic
opportunities to utilize tax sheltered accounts so that the tax man stays away from your gains.
Although the registered accounts below are specific to American residents and accountholders,
most countries offer similar type of registered tax preferred and tax sheltered accounts. Below
are the ones you will come across most often:

Non-Registered/Cash Account – The default account opened at a brokerage that lets you
purchase securities with cash/available funds that will can be attributed to your personal taxes
(capital gains or capital loss).

Margin Account – Brokers will often lend customers money against the value of certain stocks,
bonds, and other securities within them. When you open a brokerage account, you need to
specify if you want a cash account or a margin account. If you borrowed on margin, the broker
can issue a margin call if your account value is below the margin requirements. It does this by
selling your investments, triggering potentially steep capital gains or losses, without giving you
advanced warning or an opportunity to deposit additional cash or securities. If using margin,
always stay within margin requirements and do not overextend yourself.

Registered Account Traditional IRA (American) – A Traditional IRA (individual retirement

account) is the earliest type of IRA. Investors can contribute money to it if they qualify based
on the income limitations and pay no taxes on certain types of investment gains held within the
account until they withdrawal it at 59.5 years old or are forced to at 70.5 years old.

Registered Account - Roth IRA (American) – Similar yet simpler in its restrictions than the
traditional IRA. Although there are annual contribution limits to the Roth IRA, money
contributed comes from after-tax dollars, meaning you don't get a tax deduction for it. Like the
traditional IRA, you do not pay any taxes on any capital gains and what makes it even better is
that you are not taxed on any withdrawals/redemptions from the account.
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Conclusion

I founded Riz International in 2012, guided by the belief that "knowledge is power" and
recognizing the desire of independent minds to rely on self rather than institutions. Riz
International has been empowering individuals with a passion for trading and investing
for over a decade and have gone on to help thousands across the globe.

We have been at the forefront of providing top-tier trading and investing education with
a focus on transparency and practical real-world experience.

Together we can be a positive force for change and help increase financial literacy for
the current and future generations to come.

Visit rizinternational.com and see how we can help you take your trading and investing
skills to the next level!

To your success,

Rizwan Memon, Founder & President

Riz International