Investing glossary
Understand investing terms through definitions and numerical examples.
- Compound interestCompound interest
- Growth earned on principal and on previously accumulated interest or reinvested returns.
- ReturnReturn
- Gain or loss relative to the amount invested, usually expressed as a percentage. The period and treatment of costs matter.
- Average costAverage cost
- Total acquisition cost divided by total quantity. Unequal quantities make it different from a simple average of purchase prices.
- VolatilityVolatility
- The extent of variation in prices or returns, not a synonym for upside potential or loss probability.
- LiquidityLiquidity
- How readily a quantity can trade without substantially affecting its price.
- DiversificationDiversification
- Spreading exposure across assets or risk drivers to reduce concentration in any one source.
- LeverageLeverage
- Using borrowing or derivatives to create exposure larger than the capital committed.
- Market orderMarket order
- An order seeking execution at available prices without setting a specific price limit. It does not guarantee a fill price.
- Limit orderLimit order
- An order to buy at the limit price or lower, or sell at the limit price or higher.
- Stop orderStop order
- An order that typically becomes a market order when its stop price is reached; distinct from a stop-limit order.
- SlippageSlippage
- The difference between an expected or reference price and the actual execution price. It can be favorable or unfavorable.
- DrawdownDrawdown
- A decline from a preceding peak within a chosen period. Maximum drawdown is the largest such decline.