Terminology

Updated: September 28, 2024

List of financial terms often used in conversation in the financial field.

‼️ This information is for learning and should not be considered financial advice.
‼️ This page is not operated by a financial advisor. Use information at your own risk.

Stockology
Options
Flationary
Monetary Policy
Financial
Economics
Downturns

STOCKOLOGY

Short Term Capital Gain - Asset held for less than a year (Taxed at ordinary income tax brackets)
Long Term Capital Gain - Asset held for more than a year (Taxed single at 0% ~$40k, 15% ~$40k-$445k, 20% ~$445k+)
Wash Sale - Asset sold and then repurchased within 30 days (IRS removes tax incentive)
Alpha - A measure of a stocks performed in relation to it’s peers as a percent. Like 3 or -5
Arbitrage - Simultaneously buying and selling a commodity in two diffrent markets exploiting short lived variations in price.
Averaging Down - Add to a losing position at a lower price bring down cost basis.
Bear Market - When a major index or stock falls more than 20% of recent high.
Bull Market - Prolonged period of stock price increase over 20% from recent low.
Beta - Measure of a stock’s volatility. Market = Beta of 1. A beta of 1.5 means stock is 50% more volatile than the market.
Blue Chip - Large industrial leading companies.
Black Swan - An extremely rare and unpredictable event.
Bourse - Non US stock exchange or Paris stock exchange.
Dogs of the Dow - Tilting portfolia to high yield stocks to beat the Dow Jones Industrial Average.
Dollar Cost Averaging - Buy stock at regular intervals regardless of price.
Forex - Abbreviation for foreign exchange market (fx)
Haircut - Thin spread between market makers bid and ask. (also difference between stock’s value and amount bank will recognize as collateral for a loan)
Leverage - Borrow capital from the broker to increase profits. (don’t do this!)
Margin - Difference between loan amount and securities price.
Moving Average - Average price per share during a specific period.
Overbought - When a stock is thought to be trading above it’s instrinsic value.
Oversold - When a stock price is lower than it’s perceived intrinsic value.
Over the Counter - OTC stocks trades exclusively electronically. Usually small foreign companies that don’t meet Exchanges listing requirements.
Pink Sheet Stocks - Lowest Tier of OTC stocks. Usually sketchy companies with low trade value.
Spread - Price between a stock’s bid and ask price.
Witching Hour - Last hour of the trading day.
Triple Witching Hour - Last hour of the trading day on the third friday of March, June, September and December.
Systematic Risk - Inherent risk an investor takes by having money invested.
Widow & Orphan Stock - Stock that has regular dividends and steady growth over the long term.

OPTIONS TRADING

Call Option - Buy the right but not the obligation to purchase stock at an agreed upon price.
Put Option - Buy the right but not the obligation to sell stock at an agreed upon price.
In the Money - Met the option strike price and has intrinsic value, therefore can be excercised.
Out of the Money - Has not met option strike price and has no intrinsic value, cannot be excercised.
Execution - When a buy or sell order completes.
Stop Order - Automatically buy or sell a stock once it’s price reaches a target.
Straddles - Take advantage of implied volatility while movement direction is unknown.
Strike Price - Set price which a contract can be bought or sold when it is excercied. (exercise price)

FLATIONARY

Inflation - Rate at which overall prices rise.
Hyperinflation - Period of fast rising inflation. Prices rise 50%+ a month!
Stagflation - Period of spiking inflation combined with slow ecomomic growth & high unemployment.
Deflation - Negative inflation. Smaller money supply or lower consumer spending increases money value, lowering prices.
Reflation - Increase in prices after a contraction in the economy. Rise in wages and consumer goods.
Cost-push Inflation - Business costs rise so producers increase prices to retain margins.
Demand-pull Inflation - Aggregate Demand (total demand) outstripes aggregate supply (total supply) thus prices increase economy-wide.
Creeping Inflation - Prices rise less than 3% per year.
Walking Inflation - Prices rise 3-10% per year.
Galloping Inflation - Prices rise 10%+ per year.
Core Inflation - Measures rising prices in everything except food and energy. (Fed doesn’t want to have to adjust for volitily of oil)
Wage Inflation - Workers pay rises faster than the cost of living.
Asset Inflation - An asset bubble that occurs in one class (housing bubble)

MONETARY POLICY

Hawkish - Long range goal of the fed is to control inflation.
Dovish - Long range goal of the fed is to maximize employment.
Quantitative Easing - Central Bank buys bonds at low rates to increase money supply to expand economic activity. Leads to inflation.

FINANCIAL

Hedonic Adjustment - Adjusting prices when the products including in the CPI change due to innovation or being completely new products.
Consumer Price Index - Average change in price overtime for a market basket of goods and services. (CPI)
Fiduciary - Someone who has legal responsibility to put your needs above their own.
Rule of 72 - a simplified equation to estimate the number of years to double money at a specified rate of return.
Quantity Theory of Money - MV = PQ (Money Supply * Velocity = {Price Index{Inflation or Deflation} * Real GDP} Nominal GDP)
Velocity Curve - Measure of the rate of turnover in the money supply.
Nominal Rate - The yield an asset pays that’s not factored for inflation.
Negative Real Rates - When the inflation rate is higher than the nominal rate. Fed uses this to bend the Velocity Curve. (Good time to borrow)
Inflationary Shock - Lie about inflation to add shock while creating Negative Real Rates to cause panic spending to get nominal GDP back to trend, then substitute in Real GDP.

ECONOMICS

Keynesian - Aggregate demand is the prime mover of economic development. (Pro government intervention)
Monetarist - Concerned with the effects of changes to the money supply. (Con government intervention)

DOWNTURNS

Recession - Period of declining economic performance over several months.
Depression - Long term downturn of economic activity.
Correction - A decline of more than 10% of a security.
Crash - A decline of more than 10% of a market or index.