Market Primer Glossary

Educational content only. Not financial advice.

Definitions are descriptive only; examples are hypothetical.

Stocks and markets

Stock

A stock is a slice of ownership in a company, whose value can rise or fall, including to zero.

Analogy: Owning one slice of a pizza shop. See lesson: What Is a Stock? (Module 1)

IPO

An initial public offering is the first time a company sells its shares to the public.

Analogy: A private shop opening its doors to outside owners for the first time. See lesson: What Is a Stock? (Module 1)

Exchange

An exchange is an organized, regulated marketplace where buyers and sellers trade shares and other investments.

Analogy: A large farmers market with posted hours and rules. See lesson: How Stock Markets Work (Module 1B)

Broker

A broker is a licensed firm that routes orders to the market for customers and is paid through commissions, fees, or other arrangements.

Analogy: A real estate agent who places an offer on your behalf. See lesson: How Stock Markets Work (Module 1B)

Bid

The bid is the highest price a buyer is currently offering to pay.

Analogy: A shopper saying, "I'll pay $3.00 for those apples." See lesson: How Stock Markets Work (Module 1B)

Ask

The ask is the lowest price a seller is currently willing to accept; the gap from the bid is the spread.

Analogy: The vendor replying, "I'll take $3.10." See lesson: How Stock Markets Work (Module 1B)

Market order

A market order asks to be filled right away at the best available price, which can differ from the last price shown.

Analogy: "I'll take the apples at whatever you're charging now." See lesson: How Stock Markets Work (Module 1B)

Limit order

A limit order sets the highest price to pay or lowest price to accept, and it may never be filled.

Analogy: "Only if the apples are $3.00 or less." See lesson: How Stock Markets Work (Module 1B)

Index

An index is a measuring stick that tracks the combined value of a set basket of investments.

Analogy: The total on a grocery receipt for a standard basket. See lesson: How Stock Markets Work (Module 1B)

Company basics

Market cap

Market capitalization is a company's share price multiplied by its number of shares, describing the size of the whole company.

Analogy: The size of the whole pie, not one slice. See lesson: Stock Types and Valuation Basics (Module 1C)

Earnings

Earnings are a company's profit for a period, what's left after its costs, and they can be negative.

Analogy: The lemonade stand's cash left after paying for lemons and cups. See lesson: Stock Types and Valuation Basics (Module 1C)

EPS

Earnings per share is a company's earnings divided by its number of shares.

Analogy: The lemonade stand's leftover cash split across every slice. See lesson: Stock Types and Valuation Basics (Module 1C)

P/E ratio

The price-to-earnings ratio is the share price divided by earnings per share, a description of pricing rather than a verdict on value.

Analogy: Price per square foot, most useful when comparing similar houses. See lesson: Stock Types and Valuation Basics (Module 1C)

Dividend

A dividend is a payment some companies make to shareholders, decided by the board, and it can be cut or stopped.

Analogy: A pizza shop handing out part of the week's profits to slice owners. See lesson: Dividends, Splits, and Shareholder Basics (Module 1D)

Ex-dividend date

The ex-dividend date is the cutoff: shares bought on or after it don't receive that upcoming dividend.

Analogy: The velvet rope after which new arrivals aren't on the party guest list. See lesson: Dividends, Splits, and Shareholder Basics (Module 1D)

Stock split

A stock split divides each share into more shares at a lower price each, without changing the company's total value at that moment.

Analogy: Cutting a pizza into 16 slices instead of 8; same pizza. See lesson: Dividends, Splits, and Shareholder Basics (Module 1D)

Buyback

A buyback is when a company uses its cash to repurchase its own shares, which can be paused or stopped.

Analogy: The pizza shop collecting some slices back from owners. See lesson: Dividends, Splits, and Shareholder Basics (Module 1D)

Bonds

Bond

A bond is a loan to a government or company that schedules interest payments and repayment, though payments can be missed.

Analogy: An IOU from a friend. See lesson: What Is a Bond? (Module 2A)

Principal

Principal, or face value, is the amount a bond issuer is scheduled to repay at maturity.

Analogy: The $1,000 your friend borrowed. See lesson: What Is a Bond? (Module 2A)

Coupon

A coupon is a bond's scheduled interest payment, which depends on the issuer's ability to pay.

Analogy: The $50 a year your friend promised for the loan. See lesson: What Is a Bond? (Module 2A)

Maturity

Maturity is the date a bond's principal is scheduled to be repaid.

Analogy: The day your friend promised to pay you back. See lesson: What Is a Bond? (Module 2A)

Yield

Yield describes a bond's scheduled income relative to the price paid, and a higher yield often reflects higher risk.

Analogy: The same $30 a year looks like a bigger percentage when the IOU costs less. See lesson: Bond Prices and Interest Rates (Module 2B)

Credit rating

A credit rating is an agency's letter-grade opinion of a borrower's ability to pay, and it can change or be wrong.

Analogy: A report card for borrowing. See lesson: What Is a Bond? (Module 2A)

High-yield bond

High-yield bonds, sometimes called junk bonds, are rated below investment grade, usually pay more interest, and carry a higher risk of default.

Analogy: Lending to a friend with a spotty repayment record. See lesson: What Is a Bond? (Module 2A)

Duration

Duration measures how sensitive a bond's price is to interest rates: a bond fund or bond with a duration of 5 might fall roughly 5% if rates rose 1 percentage point. It's an estimate that works best for small rate moves, and it isn't a prediction.

Analogy: Sitting farther out on a seesaw means a bigger swing. See lesson: Bond Prices and Interest Rates (Module 2B)

Treasury

A Treasury is a bond issued by the U.S. federal government, generally considered low in credit risk, though its price still moves with interest rates.

Analogy: Lending to a long-trusted relative. See lesson: Bond Prices and Interest Rates (Module 2B)

Municipal bond

A municipal bond is issued by a state, city, or local agency; interest on many municipal bonds is exempt from federal income tax, and sometimes state tax, but rules vary and some munis are taxable. This isn't tax advice.

Analogy: Lending to the town for a new bridge. See lesson: Bond Prices and Interest Rates (Module 2B)

Funds

Mutual fund

A mutual fund pools money from many people to hold many investments and is priced once a day after the market closes.

Analogy: A bakery that totals up variety-pack orders at closing time. See lesson: Mutual Funds and ETFs (Module 3A)

ETF

An exchange-traded fund pools money to hold many investments and trades on an exchange throughout the day like a stock.

Analogy: The same variety pack on a store shelf whose price tag can change while the store is open. See lesson: Mutual Funds and ETFs (Module 3A)

Expense ratio

The expense ratio is a fund's yearly fee, shown as a percentage of assets and charged whether the fund goes up or down.

Analogy: A small membership fee deducted automatically. See lesson: Mutual Funds and ETFs (Module 3A)

Diversification

Diversification means spreading money across many holdings, which can reduce some risks but doesn't remove them.

Analogy: One stale flavor doesn't ruin a variety pack, but a bad factory batch can affect every flavor. See lesson: Mutual Funds and ETFs (Module 3A)

Charts and the economy

Candlestick

A candlestick shows a period's open, high, low, and close prices, describing the past without predicting what comes next.

Analogy: A daily weather report for price. Market Primer charts: hollow = close above open, solid = close below open. See lesson: Charts and Candlesticks (Module 4A)

Volume

Volume is the number of shares traded in a period, measuring activity rather than direction.

Analogy: Foot traffic at the farmers market. See lesson: Charts and Candlesticks (Module 4A)

Business cycle

The business cycle is the economy's repeating pattern of expansion, peak, contraction, and trough, with phases that vary in length.

Analogy: Seasons without a fixed calendar. See lesson: What Is the Business Cycle? (Module 5A)

Recession

A recession is a significant, widespread decline in economic activity lasting more than a few months, often identified only after it starts.

Analogy: The economy's winter. See lesson: What Is the Business Cycle? (Module 5A)

Inflation

Inflation is the rate at which prices across the economy rise, so each dollar buys less.

Analogy: A grocery bill that keeps growing for the same cart. See lesson: What Is the Business Cycle? (Module 5A)