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BrokerChooser's financial glossary

Confused about the terminology used by online brokers? Not sure about the difference between a stop-loss and a stop-limit order? BrokerChooser's analysts help you cut through the financial jargon with the following easy-to-use glossary of terms.

Missing a term that you would like to see explained? Write to us and we'll make sure to add it to our glossary!

Also check out our Forex trading glossary dedicated to terms specifically related to forex trading.

Financial glossary
Glossary

401(k)

401(k) is a retirement savings plan provided by some US companies. Employees can contribute a percentage of pretax or after-tax wages to the plan, and many companies match at least part of their contributions.

Acquisition

An acquisition is a transaction when a company buys another. Most transactions are acquisitions, not mergers, because here one company is dominant. 

American depositary receipts (ADRs)

ARDs represent a stake in a non-US company and are mostly traded on US stock markets. 

Antitrust

Antitrust refers to laws and policies designed to curtail trusts, monopolies, and other unfair business practices in an effort to encourage competition. 

Arbitrager

An arbitrager is someone who seeks to profit from price discrepancies between markets by buying a cheaper asset and selling a more expensive asset. 

BaFin

BaFin is the abbreviation of The Federal Financial Supervisory Authority which s the financial regulatory authority for Germany. It is an independent federal institution with headquarters in Bonn and Frankfurt and falls under the supervision of the Federal Ministry of Finance.

Basis point

The equivalent of 0.01 percentage point. 

Bonds

A bond is a piece of debt, but with the usual roles reversed: you, the investor, lend money to a government or a corporation and receive regular interest payments in return, until the bond matures and you get your money back.

Bond yields

The yield of a bond shows the anticipated return on your investment, expressed as an annual percentage. For example, if you buy a bond paying $225 interest each year and you pay $10,000 for it, its current yield is 2.25%. If you sold the same bond later for $12,000, the buyer would have purchased it at a lower yield ($225 / $12,000 = 1.875%) although the interest (coupon) payments ($225 in this case) stayed the same.

Bitcoin 

Bitcoin was the first cryptocurrency launched in 2009, invented by a mysterious person or group of people going by the name Satoshi Nakamoto. It is a digital asset that is built on a decentralized digital record called the blockchain, which eliminates the need for a central authority such as a bank or a government.

Blockchain

A blockchain is essentially a digital ledger for recording transactions, a specific type of database. The blockchain is also the key record-keeping technology behind most cryptocurrencies that enables the system to circumvent the need to rely on a central authority, such as a bank or a government.

Buyback

Buyback is when a company repurchases shares of its stock, usually on the open market. 

Buy-side and sell-side

Buy-side refers to mutual funds, hedge funds, private equity funds, and insurance companies that buy large quantities of securities. Sell-side refers to brokers and dealers. 

Capital controls

Capital controls are government-imposed limits on how money enters and leaves the country. 

Carry trade

Carry trade refers to a trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return. A carry trade is typically based on borrowing in a low-interest rate currency and converting the borrowed amount into another currency. 

Commission

Commissions are usually based on traded volume or, alternatively, charged as a flat fee per trade.

Contract for difference (CFD)

In finance, a contract for difference is a contract between two parties, typically described as "buyer" and "seller", stipulating that the buyer will pay to the seller the difference between the current value of an asset and its value at the contract time. 

Conversion fee

A currency conversion fee is charged when your transaction requires a currency conversion.

Currency swap 

A currency swap is an agreement between two parties to exchange their periodic interest-rate payments based on a set amount of money, for a set amount of time, but in different currencies. 

Currency pairs

Forex trading involves exchanging one currency for another, therefore currencies come in twos, in a currency pair. A pair is the quotation of two different currencies, with the value of one currency being quoted against the other. The first listed currency is called the base currency, the second currency is called the quote currency. Currencies are expressed with currency symbols, such as USD for the US dollar, GBP for the British pound, and so on.

Custody fee

Custody fees are a type of investment fee paid to an institution or brokerage firm for the services associated with taking care of and managing your investments. Fees vary by brokerage firm and account type, and they will usually be automatically deducted from your account at regular intervals.

Cryptocurrency

Cryptocurrencies are systems that allow for secure payments online which are denominated in virtual cryptocurrency "tokens." These are digital assets created by cryptographic means, mostly using blockchain technology as their backbone. Cryptocurrencies are generally not issued by any central authority, making them theoretically immune to government interference. Similarly to traditional currencies, digital currencies can be used for buying products and services.

Crypto exchanges

A cryptocurrency exchange is a service provider that allows customers to buy and sell digital currencies in exchange for other assets, such as fiat money or other digital currencies. Cryptocurrency exchanges act as an intermediary between a buyer and a seller and make money through commissions and transaction fees. A cryptocurrency exchange typically works 24/7.

CySEC

CySEC is the abbreviation of the Cyprus Securities and Exchange Commission, which is the financial regulatory agency of Cyprus.

Demo account

A demo account is a type of account offered by trading platforms that is funded with fake money, enabling a prospective customer to experiment with the trading platform and its various features before deciding to set up a real account.

Derivatives 

Derivatives can mean two things, depending on the context. 

Derivatives are contracts whose values are derived from stocks, bonds, loans, currencies, and commodities or linked to specific events such as changes in interest rates or the weather.

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies, and commodities or linked to specific events like changes in the weather or interest rates. Options and futures are the most common types of derivatives.

Digital wallet

A digital wallet, also known as "e-Wallet", is an electronic device, online service, or software program that allows one party to make electronic transactions with another party bartering digital currency units for goods and services.

ESG investing

ESG investing stands for a strategy that incorporates environmental (E), social (S), and corporate governance (G) factors besides traditional financial measures. This approach is not only for responsible investors, it can help anyone make better-informed choices as it goes far beyond the traditional risk and return concept. Integrating ESG factors into your investment strategy may improve long-tail risk management and long-term financial performance.

ESMA

The European Securities and Markets Authority (ESMA) is a European Union financial regulatory agency and European Supervisory Authority, located in Paris.

Eurodollars

Dollars are held in banks outside the US and are typically used to settle international transactions. The Euro- prefix also applies to other currencies: Japanese yen deposited outside Japan are called Euroyen.

Exchange traded funds (ETFs)

ETFs are mutual funds that combine features of closed-end funds, which have a fixed number of shares outstanding, and open-end funds, which sell new shares continuously and buy back shares. ETF shares are traded on stock exchanges and don’t have a fixed number of shares outstanding.

FCA

The Financial Conduct Authority is a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry.

Federal funds 

Money that US banks have on deposit at Federal Reserve banks. In the federal funds market, banks borrow and lend deposits that exceed the Fed’s reserve requirements.

Federal Reserve (Fed) 

The Fed is the US central bank. Run by the Federal Reserve Board, consisting of a chairman, vice-chairman, and five governors who oversee the Federal Reserve System’s 12 regional banks. All board members and some bank presidents are voting members of the Federal Open Market Committee, which determines monetary policy.

Financing rate

A financing rate or overnight rate is charged when you hold a leveraged position for more than a day. A typical example of this would be a forex trade or a CFD trade. A leveraged position means you borrow money from the broker to trade. For this borrowed money, you have to pay interest (or in certain cases, can also receive interest). This is the financing rate.

Finra

The Financial Industry Regulatory Authority, or Finra, oversees US securities firms. It was created in July 2007 after the merger of the National Association of Securities Dealers and a regulatory unit of the New York Stock Exchange.

Forex trading

Forex trading means the buying and selling of currency pairs. You are basically buying one currency while selling another in the hopes of closing the position later with a profit.

Fundamental data

The fundamental data of equity includes information that pertains to the qualities and quantities of equity performance on financial markets. This information is used to assess a company’s value and for fundamental analysis of the asset.

Futures

Futures are agreements to buy or sell assets at a set price and date. Futures differ from forwards in that they are traded on exchanges and are standardized. Futures often are bought as a bet on price fluctuations and sold before the delivery date.

Gross margin

The gross margin shows how much a company earned after deducting costs directly related to the product, including certain wages and manufacturing costs. Expressed as percentage of sales. Can also be stated as cents per dollar of sales or the equivalent in local currency.

Hedge fund

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

Hedging

Hedging is a financial instrument used to guard against adverse swings in interest rates, currencies or other securities. For example, a European investor buying US stocks might reduce currency risk by locking in an exchange rate for the dollar for the period of the investment.

Inactivity fee

An inactivity fee is charged by brokers to brokerage account which hasn’t met the minimum buying or selling activity over a specific period. ​​

Index funds

A fund is a collection of securities or other instruments in an investment basket -to put it simply: a portfolio of individual stocks or bonds, or a mix of the two. An index fund is either a mutual fund, or an ETF, with an asset allocation aiming to match or track a real financial index, like the Dow Jones Industrial Average, Nasdaq Composite, or Standard & Poor's 500 index.

Individual Retirement Accounts (IRAs)

An Individual Retirement Accounts (IRAs) is a tax-advantaged savings account offered in the US for individuals to earmark their retirement savings. IRAs act as tax-deferred or tax-free investment forms. 

Individual Savings Accounts (ISAs) 

An Individual Savings Account (ISA) is a tax-free saving account offered in the UK that lets you save or invest money up to a certain amount without paying tax on your returns. You don’t even have to declare your ISA holdings in your annual tax return. 

Inflation

Inflation means rising prices for goods and services, resulting in a decrease in the purchasing power of money.

Initial public offering (IPO)

IPOs are the first time that a company sells stock to the public. 

Interbank rates

Interbank rates are rates at which banks will lend money to each other for a specified period. Use offered rates, not offer rates. The most common ones include Libor for the London interbank offered rate, Euribor for the euro rate, Tibor for Tokyo, and Sibor for Singapore.

Interest-rate swap

This exchange of cash flows is one of the most common types of derivatives. It’s an agreement between two parties to exchange their periodic interest-rate payments for a set amount of time. Typically, one party will swap its variable-rate payments on a set amount of money for another’s fixed-rate payments. Borrowers use swaps to match the type of interest rates on their debt with the rates on their income, which can help reduce borrowing costs. Lenders and speculators use swaps to profit from changes in the direction of interest rates. A bet on higher rates, for example, means paying fixed rates and receiving variables.

Investor protection

Investor protection means that up to a certain limit, you receive your money back if the broker goes into bankruptcy or commits fraud. It is an important factor to consider when you open an account with an online broker. When you open a trading account at a brokerage, you usually get investor protection.

Junk bonds

Acceptable on first reference with an immediate explanation that they are high-yield, high-risk debt. Elaborate lower that the bonds are rated below BBB– by Standard & Poor’s and Baa3 by Moody’s.

Large-cap

Large-cap is an abbreviation for large-capitalization used to describe a stock market’s largest companies by market value.

Leverage

Leverage is an investment strategy of using borrowed money, or debt, rather than fresh equity, to increase the potential return of an investment. lt is a loan that the broker gives the trader, which works as a multiplier not just for your gains, but losses as well.

Limit order

A limit order lets you specify a price (called the limit price) at which you want to buy or sell a given asset. The asset you picked will be bought or sold once the price has reached or passed your pre-set limit.

Long (sale/trade)

When it comes to stock market trading, the terms long and short refer to whether a trade was initiated by buying first or selling first. A long trade is initiated by purchasing with the expectation to sell at a higher price in the future and realize a profit.

Lot

A lot is the number of units of a financial instrument that is traded on an exchange. For stocks, a round lot is 100 share units, but they can also be traded in any number of shares. One option represents 100 shares of the underlying stock, while forex is traded in micro, mini, and standard lots.

Margin

In trading, the margin is the money borrowed from a brokerage firm to purchase an investment. It is the difference between the total value of securities held in an investor's account and the loan amount from the broker. Buying on margin is the act of borrowing money to buy securities. The practice includes buying an asset where the buyer pays only a percentage of the asset's value and borrows the rest from the bank or broker. The broker acts as a lender and the securities in the investor's account act as collateral.

Margin rate

Trading on margin basically means that you borrow money from your broker to trade. For example, if you have a margin account at a US stockbroker and deposited $5,000 cash, you may actually buy US stocks worth more than $5,000 if you want, but you'll have to pay interest on the money you borrowed.

Mid-cap

Mid-cap is an abbreviation for mid-capitalization used to describe companies with too little market value to be among the stock market’s largest and too much value to be considered small.

Market order

A market order is the most basic and default option you can select. It means your trade is executed at the current best price. A market order is the best choice if you want your order to be fulfilled immediately.

Minimum account balance

A minimum balance requirement is the minimum amount of money that you have to keep in your brokerage account. In margin accounts, the minimum balance is the minimum deposit amount required before trading occurs, and the maintenance margin is required in the account after trading has begun.

Minimum deposit

The minimum amount of money required to open an account with a financial institution, such as a bank or brokerage firm.

Mutual fund

A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. Mutual fund investors may be retail or institutional in nature. 

Negative Balance Protection (NBP) 

It is an automated adjustment of the account balance to zero in case it became negative. Forex accounts are considered to be highly leveraged which may potentially increase the risk to lose more than invested.

Negative equity

Negative equity is when liabilities exceed assets.

Net interest income

Interest that banks receive on loans and on investments such as bonds, minus the interest paid on deposits. It shows whether a bank makes more on lending than it pays to borrow.

Net interest margin

Spread that a bank makes on loans compared with what it pays on borrowings. Expressed as a percentage of assets.

NFT (non-fungible token)

NFTs are unique digital assets that can be used in multiple ways, such as to prove the ownership of a real-world asset, to be collected and used as part of an online game, or simply collected for the unique artwork often attached to them. Each NFT is a unique asset that cannot be counterfeited as it sits on a blockchain. 

Non-trading fees

Non-trading fees are fees charged by your broker for services not directly related to trading. They typically include the cost of depositing money, withdrawing money, or not using the broker for an extended amount of time (inactivity fee).

Operating margin

Shows how much a company earned after paying expenses for production, sales and marketing, research and development, and administration and after taking accounting charges to reduce the value of its assets. Expressed as a percentage of sales.

Options

Options are contracts granting their buyers the right, but not the obligation, to buy or sell a security, a commodity, or an index’s cash value at a set price. There are two basic types: call options, conveying the right to buy, and put options, representing the right to sell. The contracts are said to be in the money when the underlying asset has a price above the strike price of a call option or below that of a put option. The contracts are called out of the money when the underlying asset price is below the call’s strike or above that of a put option.

Oversubscribed

The term oversubscribed describes a stock or bond sale in which investors offer to buy more securities than the total amount available.

Payment for Order Flow (PFOF)

The payment for order flow (PFOF) is a controversial practice whereby a broker receives compensation from a market maker in exchange for routing its clients' trades to that particular firm. The PFOF model, used by some zero-commission brokers to generate income (rather than relying on commissions), could potentially create a conflict of interest between you and your broker. This may result in trade execution (like routing your orders to specific market makers) that might be unfavorable for you under certain market conditions, especially when using market orders (as opposed to limit orders, which seem to be less affected).

Portfolio

Investments include stocks, bonds, and other holdings. Portfolio advice is investment advice. A portfolio manager is a money manager. 

Premium

It is a price exceeding face value. Used most often when referring to bond prices or to the share price of a company targeted for takeover. 

Price-earnings ratio (P/E)

Share price divided by earnings per share. This is the amount that an investor has to pay for every currency unit, such as a dollar or a euro, of earnings. 

Private equity

Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity.

Profit margin

Profit margin is the percentage of sales that a company earns after subtracting all of its costs and expenses. The gross margin is calculated after production costs have been subtracted. The operating margin also subtracts expenses for sales and marketing, administration, and research. Net margin is based on net income. 

Program trading 

Program trading is trading related to stock-index arbitrage and other strategies that require the use of computers. Use a more specific term, such as computer-guided trading or computer-driven trading.

Regulator

A financial regulator regulates oversees the functioning and transparency of the financial services industry, investigates and sanctions fraud. They often work for government bodies or are independent organisations with strict standards.

Robo-advisor

A robo-advisor is an online platform that gives you automated investment advice. 

Securities 

Securities are tradable financial instruments that comprise most assets bought and sold on financial markets. Securities play a key role in allowing investors to exchange their money for something that is considered to be a store of value and has a potential upside or pays dividends or interest. Bonds, stocks, and exchange-traded funds (ETFs) are part of the broad definition that makes up fungible (exchangeable) financial securities.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is a US government oversight agency responsible for regulating the securities markets and protecting investors.

Short (sale/trade)

In finance, being short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional "long" position, where the investor will profit if the value of the asset rises. 

Short squeeze

A short squeeze is a situation in which a number of short-sellers buy back the shares they borrowed and sold because the price has risen, rather than fallen. 

Small-cap

Small-cap is an abbreviation for small capitalization, used to describe companies with relatively little stock-market value.

Social trading 

Social trading is a form of investing that allows you to copy investment strategies from others. It's suitable for people who don't want to invest too much time to find good trading opportunities or strategies. A social trading platform is a service that lets you copy other people's trades and actually do social trading.

Spread

When referring to bonds, the spread is the extra return that investors demand to own a given security rather than Treasuries or some other benchmark. The spread refers to the difference in yield between a given Treasury and the bond in question. If the gap in the yield is widening, holders perceive more risk. If the spread is narrowing, holders consider the bond to be less risky.

Stock split

A stock split or stock divide increases the number of shares in a company. A stock split causes a decrease of market price of individual shares, not causing a change of total market capitalization of the company.

Stop order

Once your market or limit buy order is executed and you have an open position, you'll probably want to both secure your profits and minimize your losses, depending on how the market turns. This is what stop orders are designed to do. 

Stop-limit order

Sometimes the price of an asset you hold jumps so much that it triggers your stop order for closing your position, but after a few minutes it reverses course and moves back closer to the original price level. For such cases, a stop-limit order is useful.

Stop-loss order

This is a stop order for minimizing your losses. 

Once your market or limit buy order is executed and you have an open position, you'll probably want to both secure your profits and minimize your losses, depending on how the market turns. This is what stop orders are designed to do.

Take-profit order 

This is a stop order for securing your profit.

Once your market or limit buy order is executed and you have an open position, you'll probably want to both secure your profits and minimize your losses, depending on how the market turns. This is what stop orders are designed to do.

Tracking stock

Class of shares whose value reflects the performance and prospects of a unit, rather than the entire company.

Trading account

A trading account is an online account that allows you to trade and invest on exchanges online. You can think of it as a digital bank account that allows you to buy and store securities like stocks, ETFs or bonds.

Trading fees

Trading fees are brokerage fees that occur when you make a trade. They typically include commissions (the fee you pay your broker to execute a trade), spread (the difference between the buy and the sell price), the margin rate (the broker will charge you interest for the borrowed money from them), currency conversion fee (when your transaction requires a currency conversion).

Zero-commission trading 

Some brokerages offer commission-free online trading, in other words, they scrap their commissions. This type of new and popular business model has been spearheaded by Robinhood, which came to the market in 2013. However, commission-free trading is not synonymous with free-of-charge trading. Even though the broker does not charge a fee for executing a particular trade, it may and most often will charge other fees and costs. 

Author of this article

Eszter Zalan

Author of this article

Eszter is a Brussels-based content editor and writer with over fifteen years of experience in journalism. She thrives in researching complicated issues and explain their essence in a plain and clear language to guide you through the world of finance.

Eszter Zalan

Content Editor

Eszter is a Brussels-based content editor and writer with over fifteen years of experience in journalism. She thrives in researching complicated issues and explain their essence in a plain and clear language to guide you through the world of finance.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology

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