Alpha: A measure of an investment’s performance relative to a benchmark index, often expressed as a percentage. Positive alpha indicates that the investment outperformed the benchmark, while negative alpha suggests underperformance.
Beta: A measure of an investment’s sensitivity to market movements, used to assess the risk associated with the investment. A beta of 1 indicates the investment moves in line with the market, while a beta greater than 1 suggests higher volatility, and a beta less than 1 implies lower volatility.
Dark Pools: Private, off-exchange trading venues that allow institutional investors to execute large orders without impacting the market or disclosing their intentions to the public.
Dead Cat Bounce: A temporary recovery in the price of a declining asset, followed by a continued downtrend. This term is based on the idea that even a dead cat will bounce if dropped from a sufficient height.
Elliott Wave Theory: A technical analysis method that attempts to predict future price movements by identifying recurring patterns, or “waves,” in market trends.
Fill or Kill (FOK): A type of order that requires immediate execution at the specified price, or cancellation if the order cannot be filled immediately.
Golden Cross: A bullish technical indicator that occurs when a security’s short-term moving average crosses above its long-term moving average.
Hedging: The practice of taking an offsetting position in a related asset or security to mitigate the risk associated with an existing investment.
Initial Margin: The amount of money an investor must deposit to open a leveraged position in a financial instrument, expressed as a percentage of the position’s value.
Limit Order: An order to buy or sell a security at a specified price or better. Limit orders are used by traders to ensure they get their desired price for a trade.
Margin Call: A demand from a broker for an investor to deposit additional funds or securities to meet the minimum margin requirements for a leveraged position.
Net Asset Value (NAV): The total value of a fund’s assets minus its liabilities, divided by the number of outstanding shares. NAV is used to determine the per-share value of a mutual fund, ETF, or other pooled investment vehicle.
Odd Lot: A trade involving a number of shares that is not a multiple of the standard trading unit, typically 100 shares. Odd lots may be more difficult to execute and may incur higher trading costs.
Price-to-Earnings Ratio (P/E): A valuation ratio calculated by dividing a stock’s current market price by its earnings per share (EPS). The P/E ratio is commonly used to assess whether a stock is overvalued or undervalued.
Relative Strength Index (RSI): A technical analysis indicator that measures the speed and change of price movements, used to identify overbought or oversold conditions in a security.
Short Selling: The practice of borrowing shares of a security and selling them with the expectation that the price will decline, allowing the trader to buy back the shares at a lower price and return them to the lender, profiting from the difference.
Slippage: The difference between the expected price of a trade and the price at which the trade is actually executed. Slippage can occur due to market volatility or illiquidity and can result in higher trading costs.
Stop Loss Order: An order to sell a security when it reaches a certain price, used to limit losses in the event of an adverse price movement.
Swing Trading: A short-term trading strategy that involves holding positions in securities for a period of a few days to several weeks, aiming to capture gains from short-term price movements or market trends.
Technical Analysis: A method of evaluating securities by analyzing past price movements and trading volume, using charts and other tools to identify patterns and trends that may predict future price behavior.
Theta: A measure of an option’s sensitivity to the passage of time, representing the rate at which an option’s value decays as it approaches expiration. Theta is typically expressed as a negative number, indicating that an option loses value over time.
Time Value of Money (TVM): The concept that money available now is worth more than the same amount in the future due to its potential earning capacity. TVM is a fundamental principle in finance, used to compare investment alternatives and calculate present and future values.
Unrealized Gain/Loss: The difference between the current market value of an investment and its cost basis, reflecting potential profit or loss that has not been realized through a sale or other transaction.
Value Investing: An investment strategy that involves selecting stocks that are believed to be undervalued by the market, based on fundamental analysis of the companies’ financial health, earnings, and growth prospects.
Volatility: A measure of the degree of variation in the price of a security over time, often expressed as a statistical measure called standard deviation. High volatility indicates that the price of a security can change rapidly, while low volatility suggests that price changes are more gradual.
Wash Sale: The sale of a security at a loss, followed by the repurchase of the same or a substantially similar security within 30 days before or after the sale. Wash sales are disallowed by the Internal Revenue Service (IRS) for the purpose of claiming a capital loss on tax returns.
Yield Curve: A graphical representation of the interest rates on debt for a range of maturities, typically used to show the relation between short-term and long-term interest rates. A normal yield curve is upward-sloping, indicating that long-term rates are higher than short-term rates, while an inverted yield curve suggests the opposite.
Zero-Sum Game: A situation in which one participant’s gain is exactly offset by another participant’s loss. In the context of trading, a zero-sum game implies that the total amount of wealth in the market remains constant, and that one trader’s profits come at the expense of another trader’s losses.