Financial terms, explained in plain English.
Build your financial vocabulary across everyday banking, investing, markets, retirement, taxes, real estate and more. Search 220 definitions or browse alphabetically.
220 terms shown
1031 Exchange
A U.S. tax provision that can allow deferral of gain on qualifying exchanges of real property held for investment or business use when statutory requirements are met.
401(k)
An employer-sponsored defined-contribution retirement plan that can allow eligible employees to contribute part of their pay, subject to plan and tax rules.
403(b)
A tax-advantaged retirement plan available to eligible employees of certain public schools, nonprofits, and other qualifying organizations.
Account Balance
The amount shown in an account before considering transactions that may still be pending or unavailable.
ACH Transfer
An electronic bank-to-bank transfer processed through the Automated Clearing House network, commonly used for deposits, bill payments, and account transfers.
Active Management
An investment approach in which a manager selects holdings and makes portfolio decisions in an effort to meet a stated objective, often including attempts to outperform a benchmark.
Alpha
A performance measure intended to describe return beyond what a selected benchmark or risk model would imply.
Amortization
The process of paying down a loan through scheduled payments that allocate amounts to principal and interest over time.
Annuity
A contract issued by an insurance company that can provide accumulation features, income payments, or both, subject to contract terms, fees, and insurer claims-paying ability.
Appreciation
An increase in the market value of an asset over time.
APR
Annual percentage rate; a yearly measure of borrowing cost that can include interest and certain fees depending on the product.
APY
Annual percentage yield; a standardized measure of deposit earnings that includes the effect of compounding over one year.
Ask Price
The lowest price at which a seller is currently offering to sell a security in the quoted market.
Asset Allocation
How a portfolio is divided among asset classes such as stocks, bonds, cash, real estate, and other investments.
Assets Under Management (AUM)
The market value of assets managed by an investment firm, fund, or manager under a stated methodology.
ATM
Automated teller machine; a terminal used for activities such as cash withdrawals, deposits, and balance inquiries.
Authorized Participant
A financial institution that has an agreement allowing it to create or redeem large blocks of ETF shares directly with the fund.
Available Balance
The amount a financial institution currently makes available to spend or withdraw after holds and pending activity are considered.
Backwardation
A futures-market condition in which longer-dated contract prices are lower than nearer-dated prices, all else equal.
Bank Statement
A periodic record from a financial institution summarizing balances, deposits, withdrawals, fees, and other account activity.
Bear Market
A commonly used term for a substantial, sustained market decline; a 20% drop from a recent high is a frequently used convention.
Benchmark
A standard, often an index, used to compare the performance or characteristics of an investment or portfolio.
Beneficiary
A person, trust, estate, or organization designated to receive assets or benefits after an account owner's death, subject to account and legal rules.
Beta
A measure of how a security's historical price movements have related to movements in a selected market benchmark.
Bid Price
The highest price a buyer is currently offering to pay for a security in the quoted market.
Bid-Ask Spread
The difference between the highest current bid and the lowest current ask price for a security.
Bitcoin
A decentralized digital asset and blockchain network introduced in 2009 with a protocol-defined issuance schedule and maximum supply.
Blockchain
A type of distributed ledger in which transactions or records are grouped and linked using cryptographic methods across a network.
Blue-Chip Stock
An informal term for shares of a large, established company generally known for a long operating history and substantial market presence.
Bond
A debt security through which an investor lends money to an issuer under specified interest and repayment terms.
Book Value
An accounting measure of a company's net assets, generally calculated as assets minus liabilities on the balance sheet.
Brokerage Account
An account at a brokerage firm that allows an investor to hold cash and buy, sell, or hold permitted investments.
Budget
A plan for how income will be allocated among spending, saving, investing, and debt payments over a period.
Bull Market
A commonly used term for a sustained period of broadly rising market prices.
Callable Bond
A bond that allows the issuer to redeem the security before maturity under specified terms.
Cap Rate
Capitalization rate; a real-estate measure generally calculated as annual net operating income divided by property value or purchase price.
Capital Gain
A gain arising when a capital asset is sold or disposed of for more than its adjusted tax basis.
Capital Loss
A loss arising when a capital asset is sold or disposed of for less than its adjusted tax basis.
Capital Loss Carryforward
Unused eligible capital losses carried to future tax years under applicable tax rules.
Cash Account
A brokerage account in which purchases generally must be paid for with available cash rather than borrowed funds.
Cash Flow
Money moving into and out of a household, business, or investment over a period of time.
Cash-on-Cash Return
A real-estate metric comparing annual pre-tax cash flow with the amount of cash invested, using the assumptions chosen for the calculation.
Cashier's Check
A check issued and backed by a bank or credit union after the customer provides the funds.
Catch-Up Contribution
An additional contribution amount permitted for certain participants who meet age or other eligibility requirements under current law.
Certified Check
A personal check for which the bank verifies the signature and confirms or sets aside sufficient funds according to its procedures.
Check Register
A personal record used to track checks, deposits, withdrawals, fees, and the running balance of a checking account.
Checking Account
A deposit account designed for frequent transactions such as purchases, bill payments, deposits, and withdrawals.
Cleared Transaction
A transaction that has completed processing and has been posted to the account.
Closing Costs
Fees and expenses associated with completing a real-estate transaction or mortgage, separate from the property's purchase price.
Cold Wallet
A cryptocurrency storage approach designed to keep private-key signing capability offline when not in use.
Commodity
A basic good or raw material, such as energy, metals, or agricultural products, that can be traded in physical or derivatives markets.
Common Stock
A class of corporate ownership that can provide voting rights and a residual claim on company assets and earnings.
Compound Interest
Interest calculated on principal plus previously accumulated interest, causing the base on which interest is earned to change over time.
Concentration Risk
The risk created by having too much exposure to one security, issuer, sector, asset class, or other common factor.
Contango
A futures-market condition in which longer-dated contract prices are higher than nearer-dated prices, all else equal.
Contribution Limit
The maximum amount that may be contributed to a particular tax-advantaged account during a specified period under applicable rules.
Corporate Bond
A debt security issued by a corporation to borrow money from investors.
Correction
A market decline often described as roughly 10% or more from a recent peak, though there is no single official definition.
Correlation
A statistical measure describing how two variables, such as asset returns, have moved in relation to each other.
Cost Basis
The amount used for tax purposes to measure gain or loss on an investment, generally based on purchase cost with required adjustments.
Coupon Rate
The stated annual interest rate on a bond, generally applied to its face value to determine coupon payments.
Creation and Redemption
The process through which authorized participants generally exchange baskets of securities or cash for large blocks of ETF shares and vice versa.
Credit Rating
An opinion from a rating organization about an issuer's or debt issue's relative creditworthiness; it is not a guarantee.
Credit Report
A record compiled by a consumer reporting company containing information about credit accounts, payment history, inquiries, and certain public-record information.
Credit Risk
The risk that a borrower or counterparty will not meet its financial obligations.
Credit Score
A numerical measure generated from credit-report information to estimate credit risk under a particular scoring model.
Credit Utilization
The percentage of available revolving credit currently being used, commonly calculated from reported balances and credit limits.
Current Yield
A bond's annual coupon payments divided by its current market price.
Custodian
A financial institution or entity responsible for holding and safeguarding financial assets on behalf of clients or accounts.
Cyclical Stock
Shares of a company whose business results tend to be especially sensitive to changes in the economic cycle.
Day Order
An order that remains active for the trading day unless it is executed or canceled earlier.
Debit Card
A payment card that generally draws money from a linked deposit account when a transaction is processed.
Debt Service
Required principal and interest payments on borrowed money over a specified period.
Debt-to-Income Ratio
A comparison of recurring monthly debt obligations with gross monthly income, often used by lenders when evaluating borrowing capacity.
Deductible
The amount a policyholder generally must pay toward a covered loss or expense before insurance begins paying according to policy terms.
Default Risk
The risk that a borrower or bond issuer will fail to make required interest or principal payments.
Defensive Stock
Shares of a company whose products or services may experience relatively steady demand across economic conditions.
DeFi
Decentralized finance; blockchain-based financial applications that seek to provide services such as trading, lending, or borrowing through software protocols.
Defined-Benefit Plan
A retirement plan that promises eligible participants a benefit determined by a formula rather than an individual account balance alone.
Defined-Contribution Plan
A retirement plan in which contributions are made to individual participant accounts and final benefits depend on contributions, investment performance, fees, and withdrawals.
Depreciation
A decline in value in everyday usage; for tax purposes, it can also mean allocating the cost of qualifying property over prescribed recovery periods.
Direct Deposit
An electronic payment sent directly into a bank or credit-union account, commonly used for payroll or government benefits.
Discount to NAV
A condition in which an ETF's market price is below its reported net asset value per share.
Diversification
Spreading exposure across investments, issuers, sectors, regions, or asset classes to reduce reliance on any single holding or source of risk.
Down Payment
Money paid upfront toward the purchase price of an asset, reducing the amount that must be financed.
Drawdown
The decline in an investment or portfolio from a previous peak to a subsequent low before a new peak is reached.
DSCR
Debt service coverage ratio; a measure comparing income available for debt service with required debt payments under the chosen methodology.
Duration
A measure related to a bond's sensitivity to interest-rate changes and the timing of its cash flows.
Earnings Per Share (EPS)
A measure of company profit allocated to each common share, usually calculated from net income adjusted for preferred dividends and weighted-average shares.
Emergency Fund
Money set aside in a liquid, accessible form to help cover unexpected expenses or temporary income disruptions.
Employer Match
An employer contribution to a retirement plan that is based on an employee's eligible contributions or compensation under the plan formula.
Escrow
Money or documents held by a third party until specified conditions are met; in mortgages it can also refer to an account used to collect taxes and insurance payments.
Estimated Tax
A periodic tax payment that may be required when enough tax is not withheld from income during the year.
ETF
Exchange-traded fund; a pooled investment vehicle whose shares generally trade on an exchange throughout the trading day.
Ethereum
A blockchain network designed to support programmable smart contracts and decentralized applications; ether is its native asset.
Expense Ratio
Annual fund operating expenses expressed as a percentage of average net assets.
Face Value
The amount a bond issuer generally promises to repay at maturity, also called par value.
FDIC Insurance
Federal deposit insurance for eligible deposits at FDIC-insured banks, subject to coverage rules and limits.
Financial Goal
A specific money-related outcome a person plans to pursue, ideally defined by amount, purpose, and time horizon.
Float
The portion of a company's shares that is generally available for public trading.
Fractional Share
Ownership of less than one full share of a stock or fund, when a brokerage supports fractional investing.
Fund Turnover
A measure of how frequently securities within a fund are bought and sold during a period.
Funds From Operations (FFO)
A non-GAAP measure commonly used in the REIT industry that adjusts net income for specified real-estate depreciation and gains or losses on property sales.
Futures Contract
A standardized agreement traded on a futures market to buy or sell an underlying asset or financial reference at a specified future time under contract terms.
Good-Til-Canceled Order
An order that remains active beyond the current trading day until executed, canceled, or expired under the broker's rules.
Gross Income
Income before taxes, payroll deductions, and other reductions are taken out.
Growth Stock
A stock associated with a company expected by investors to grow revenue or earnings faster than a broader benchmark or peer group.
Hedge Fund
A privately offered pooled investment vehicle that may use flexible strategies, leverage, derivatives, or short selling and is generally available only to qualifying investors.
High-Yield Bond
A bond with a lower credit rating than investment-grade debt and generally a higher yield to compensate for greater credit risk.
Home Equity
The portion of a property's value attributable to the owner, commonly estimated as market value minus debts secured by the property.
Hot Wallet
A cryptocurrency wallet whose signing capability is connected to an internet-enabled device or service.
HSA
Health Savings Account; a tax-advantaged account available to eligible individuals with qualifying health coverage for qualified medical expenses and, subject to rules, long-term saving.
Index
A rules-based measure designed to represent the performance of a selected market, asset class, or group of securities.
Index Fund
A fund designed to track the performance of a specified market index or rules-based benchmark.
Inflation Risk
The risk that rising prices reduce the purchasing power of money or investment returns.
Interest
The cost of borrowing money or compensation paid for the use of deposited or invested funds, usually expressed as a rate.
Investment-Grade Bond
A bond assigned a rating within the higher credit-quality categories of recognized rating scales.
IPO
Initial public offering; the process through which a company first offers shares to the public under applicable securities rules.
Leverage
The use of borrowed money or financial instruments to increase investment exposure, magnifying both gains and losses.
Limit Order
An instruction to buy or sell only at a specified price or better, without guaranteeing execution.
Liquidity Risk
The risk that an investment cannot be sold quickly at a reasonable price when cash is needed.
Load
A sales charge that may apply to the purchase or sale of certain mutual fund shares.
Loan-to-Value Ratio (LTV)
A loan balance or amount expressed as a percentage of the value or purchase price used by the lender for the calculation.
Long Position
Ownership of an asset or exposure that generally benefits when the asset's price rises.
Long-Term Capital Gain
A capital gain on an asset held for more than one year under U.S. federal tax rules, potentially eligible for preferential tax rates.
Margin Account
A brokerage account that may allow an investor to borrow from the broker using eligible securities as collateral, increasing both potential gains and losses.
Margin Call
A broker's demand that an investor add funds or securities, or reduce positions, when account equity falls below required levels.
Marginal Tax Rate
The tax rate applied to the next dollar of taxable income within a progressive tax system.
Market Capitalization
The market value of a company's outstanding shares, generally calculated as share price multiplied by shares outstanding.
Market Order
An instruction to buy or sell a security at the best available price, with execution generally prioritized over a specific price.
Market Risk
The risk of losses caused by broad market movements that affect many securities or asset classes.
Maturity Date
The date on which a bond's principal is scheduled to be repaid according to its terms.
Minimum Payment
The smallest payment a lender or card issuer requires by a due date to keep an account current under its terms.
Money Market Deposit Account
An interest-bearing bank or credit-union deposit account that may combine savings features with limited transaction features.
Money Market Fund
A mutual fund that invests in high-quality, short-term debt instruments and seeks liquidity and capital preservation; it is not the same as an FDIC-insured bank deposit.
Mortgage
A loan secured by real property, with the property generally serving as collateral for repayment.
Municipal Bond
A debt security issued by a state, local government, or related entity, sometimes with federal or state tax advantages depending on the bond and investor.
Mutual Fund
A pooled investment company whose shares are generally purchased or redeemed at a calculated net asset value rather than traded intraday like an ETF.
Net Asset Value (NAV)
The per-share value of a fund's assets minus liabilities, generally calculated according to the fund's valuation procedures.
Net Income
Income remaining after specified taxes, deductions, or expenses, depending on the context in which the term is used.
Net Investment Income Tax
An additional federal tax that can apply to certain net investment income of taxpayers whose income exceeds statutory thresholds.
Net Operating Income (NOI)
Property operating income minus qualifying operating expenses before financing costs, income taxes, and certain non-operating items.
Net Worth
The value of assets minus liabilities at a particular point in time.
NSF
Nonsufficient funds; a situation in which an account does not contain enough available money to cover a transaction.
Opportunity Cost
The value of the next-best alternative given up when one choice is made instead of another.
Order Execution
The process by which a broker completes a customer's buy or sell order in the market or through another execution venue.
Ordinary Dividend
A dividend distribution generally reported as ordinary income unless it qualifies for different tax treatment.
Overdraft
A transaction or account condition in which withdrawals or payments exceed the available balance, potentially triggering fees or other consequences.
Par Value
The stated principal amount of a bond, commonly the amount repaid at maturity if the issuer meets its obligations.
Passive Management
An investment approach generally designed to track an index or rules-based strategy with relatively limited discretionary security selection.
Pension
A retirement arrangement, often a defined-benefit plan, designed to provide eligible participants with benefits determined under a plan formula.
Precious Metals
Scarce metals such as gold, silver, platinum, and palladium that have industrial, monetary, jewelry, or investment uses.
Preferred Stock
A class of equity that generally has priority over common stock for dividends and liquidation claims but often has limited voting rights.
Premium to NAV
A condition in which an ETF's market price is above its reported net asset value per share.
Principal
The original amount invested or borrowed, excluding interest or investment earnings.
Private Credit
Loans and other debt investments negotiated outside traditional public bond markets, often through private funds.
Private Equity
Investment ownership in privately held companies, often through pooled funds with long holding periods and limited liquidity.
Private Key
Secret cryptographic information that can authorize transactions or control assets associated with a blockchain address; loss or disclosure can result in loss of control.
Property Management Fee
A fee paid to a manager or management company for services related to operating and administering rental property.
Property Tax
A tax generally imposed by local governments based on the assessed value of real property under local rules.
Qualified Distribution
A retirement-account distribution that meets applicable requirements for favorable tax treatment.
Qualified Dividend
A dividend that meets federal tax requirements to be taxed at applicable long-term capital-gain rates rather than ordinary income rates.
Real Estate Crowdfunding
An online investment structure that pools money from multiple investors for real-estate projects, debt, or funds, often with significant liquidity and investment risks.
Realized Gain
A gain generally created for tax or accounting purposes when an asset is sold or otherwise disposed of for more than its adjusted basis.
Rebalancing
Buying, selling, or redirecting contributions to move a portfolio back toward its intended asset allocation.
REIT
Real estate investment trust; a company that owns, operates, or finances qualifying income-producing real estate and elects to operate under specific tax rules.
Rental Yield
Rental income expressed as a percentage of property value or cost, with gross and net versions calculated differently.
Required Minimum Distribution (RMD)
A minimum amount that certain retirement account owners or beneficiaries must withdraw under federal tax rules after applicable starting points.
Risk Capacity
An investor's financial ability to withstand losses or volatility without jeopardizing important goals.
Risk Tolerance
An investor's willingness to accept uncertainty and potential declines in investment value.
Risk-Adjusted Return
A way of evaluating investment performance in relation to the amount or type of risk taken to achieve it.
Rollover IRA
An IRA commonly used to receive eligible assets moved from an employer-sponsored retirement plan or another retirement account.
Roth Conversion
Moving eligible pre-tax retirement assets into a Roth account, generally creating taxable income in the year of conversion.
Roth IRA
An individual retirement arrangement funded with after-tax money in which qualified distributions can be tax-free under applicable rules.
Routing Number
A nine-digit number used in the United States to identify a financial institution for certain payment and transfer transactions.
Sector Fund
A fund concentrated in companies from a particular industry or economic sector.
Sequence-of-Returns Risk
The risk that poor investment returns occurring early during withdrawals can have an outsized effect on how long a portfolio lasts.
Settlement
The completion of a securities transaction when ownership and payment are formally exchanged according to the applicable settlement cycle.
Shares Outstanding
The total shares of a company currently held by shareholders, including certain restricted holdings.
Short Position
A position that generally benefits when the referenced asset's price falls and loses when it rises.
Short Selling
Selling borrowed securities with the expectation of buying them back later; losses can be substantial if the price rises.
Short-Term Capital Gain
A capital gain on an asset held for one year or less under U.S. federal tax holding-period rules, generally taxed at ordinary income rates.
Simple Interest
Interest calculated only on the original principal under the stated calculation method.
Sinking Fund
Money intentionally saved over time for a known or anticipated future expense.
SIPC
Securities Investor Protection Corporation; a nonprofit membership corporation that may protect missing cash and securities at a failed SIPC-member brokerage within legal limits, but does not protect market losses.
Smart Contract
Code deployed on a blockchain that executes specified functions when its programmed conditions are met.
Spot Price
The current market price for immediate or near-immediate delivery of an asset under prevailing market conventions.
Stablecoin
A digital asset designed to maintain a relatively stable value against a reference asset such as a currency, though stability and redemption are not guaranteed.
Staking
Committing or delegating certain digital assets in proof-of-stake systems in exchange for potential protocol rewards while accepting technical, market, and other risks.
Standard Deviation
A statistical measure of how widely observations, such as investment returns, vary around their average.
Stop Order
An order that generally becomes a market order after a specified stop price is reached or crossed.
Stop-Limit Order
An order that generally becomes a limit order after a specified stop price is reached, combining a trigger with a price limit.
T+1 Settlement
A settlement cycle in which most covered U.S. securities transactions settle one business day after the trade date.
Target-Date Fund
A diversified fund that generally changes its asset allocation over time as a stated target year approaches.
Tax Bracket
A range of taxable income subject to a specified marginal tax rate under a tax schedule.
Tax Lot
A record of a specific purchase or acquisition of an investment, including information such as date, quantity, and cost basis.
Tax-Advantaged Account
An account that receives special tax treatment, such as tax deferral, tax-free qualified withdrawals, or other benefits under applicable rules.
Tax-Deferred
A tax treatment in which taxes on certain income or growth are postponed until a later taxable event, such as a withdrawal.
Tax-Loss Harvesting
A strategy of realizing investment losses to offset certain taxable gains or income, subject to tax rules and limitations.
Taxable Account
An account in which investment income and transactions can create current tax consequences rather than receiving the special treatment of a qualified retirement account.
Ticker Symbol
A short identifier used by an exchange or market-data system to represent a publicly traded security.
TIPS
Treasury Inflation-Protected Securities; U.S. Treasury securities whose principal adjusts with changes in the Consumer Price Index under program rules.
Tracking Error
A measure of how closely a portfolio's returns follow the returns of its benchmark over time.
Trade Confirmation
A record from a broker describing the details of an executed transaction, such as security, quantity, price, and date.
Trading Volume
The number of shares or contracts traded during a specified period.
Traditional IRA
An individual retirement arrangement that may allow tax-deductible contributions depending on circumstances and generally taxes taxable withdrawals as income.
Treasury Bill
A short-term U.S. Treasury security with a maturity of one year or less when issued.
Treasury Bond
A longer-term U.S. Treasury security generally issued with an original maturity greater than ten years.
Treasury Note
A U.S. Treasury security generally issued with an original maturity of more than one year and up to ten years.
Unrealized Gain
An increase in an asset's value above its basis while the asset is still held and has not been sold.
Vacancy Rate
The percentage of available rental units or space that is unoccupied during a specified period.
Venture Capital
Private investment financing focused primarily on young or early-stage companies with high growth potential and substantial failure risk.
Vesting
The process by which a worker gains nonforfeitable ownership of certain employer-provided retirement benefits over time or immediately under plan rules.
Volatility
The degree to which an investment's price or return fluctuates over time.
Wash Sale Rule
A U.S. tax rule that can disallow a current loss deduction when substantially identical securities are acquired within the specified period around a loss sale.
Wire Transfer
An electronic transfer of funds that is generally processed individually and can move money domestically or internationally.
Withdrawal Rate
The percentage of a portfolio withdrawn for spending over a specified period, often discussed in retirement-income planning.
Withholding
Money withheld from a payment and sent to a taxing authority as a prepayment of potential tax liability.
Yield to Maturity
An estimated annualized return for holding a bond to maturity based on price, coupon payments, time to maturity, and repayment at par, assuming specified conditions.
Zero-Coupon Bond
A bond that generally does not make periodic coupon payments and is typically issued at a discount to its face value.