75 Financial terms and their meaning

75 Financial terms and their meaning

If you’re new to finance, many unfamiliar terms can make it difficult to process financial news or quickly pick out important information.

This situation can be difficult at first, but learning it makes it easier because these financial terms make communication more effective.

So, if you’re ready to learn, here are the key financial terms and what they mean.

Personal financial conditions

  • Net Income – All of your income is called gross income. After subtracting your expenses, you have your net income. Say you make $20,000 in sales from your ice cream business, but you spent $13,000 on supplies and transportation. In this case, $20,000 is your gross income, while $7,000 is your net income (Gross Income – Expenses).
  • Selection – The return that comes from an investment. It is usually calculated as a percentage of the principal each year. For example, 3% per year on a $1,000 investment means you get $30 each year.
  • Compound Interest – The process of continuously reinvesting the proceeds of investment back into principal to build your capital over time.
  • 401(k) – A retirement account that you contribute to yourself and your employer matches the amount of support.
  • Beneficiary – Recipient of a money transfer, which can range from a simple wire transfer to life insurance, pensions, and investment accounts.
  • Collateral – An asset that you agree to lend money so that the lender has security. Collateral is usually more valuable than the loan and can be sold to pay back the loan if you don’t pay.
  • FICO Score – Creditworthiness of a borrower. It is used by lenders to make quick approval decisions on loan applications.

Corporate Finance Conditions

  • APR (Annual Percentage) – Used when calculating the interest on an account. It can be a credit or investment account, but the associated costs are not mentioned. This makes it more attractive to borrowers.
  • APY (Annual Percentage Yield) – Also used when calculating interest on an account, but includes compounded returns for the year.
  • Asset Allocation – Splitting investments into different asset classes to balance risk. These classes can include bonds, cash, and stocks.
  • Blue chip – A stock with a good reputation, including good performance, quality, and long-term reliability.
  • EBITDA – Earnings before interest, taxes, depreciation, and amortization. It is used to measure the profitability of a company’s core business before considering debt and payment obligations.
  • Fairness – An asset can also have liabilities attached, such as real estate with a mortgage. Your equity is what remains when you sell the house and pay off the mortgage.
  • Debt Financing – The process of borrowing money to run a business, which you pay back with interest.

Public Finance Terms

  • Recession – A decrease in economic activity in a region.
  • Inflation – An increase in the price of goods and services in an economy.
  • stagflation – Also called recessionary inflation. This is a period of high inflation in combination with stagnant economic growth. The result is high unemployment and higher prices.
  • Deflation – The reduction in the price of goods and services in an economy.
  • Legal Tender – Notes or coins that all businesses in a jurisdiction must accept as currency.
  • Fractional reserve – A banking system that keeps only a portion of deposits for withdrawal. The rest is then loaned to borrowers to stimulate the economy. However, the downside is that there won’t be enough money if everyone decides to withdraw their deposits at once.
  • Gold Standard – A monetary system where a country’s currency is pegged to the value of gold. Countries can also peg their currencies to valuable commodities, such as oil or natural gas.
  • GDP (Gross Domestic Product) – The measure of all economic activity in a given region and time. GDP is usually calculated annually and focuses on the value of finished goods and services.
  • Fiscal Policy – ​​The use of government policies and spending to influence economic activity in a region.
  • Monetary Policy – ​​Using control over the money supply to influence economic activity. This process may include printing more money or changing interest rates.
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Conditions for Companies and startups

  • ROI (Return on Investment) – The profit you make from a company, in relation to the invested capital. It is usually expressed as a percentage of the principal. So if you invest $100 and earn $50 to have a total of $150, you’ve achieved a 50% ROI.
  • Liquidity – The ease with which an asset can be converted into cash without affecting its price. Any asset that you can easily sell, such as a bond or the stock of a large company, is highly liquid. Real estate is less liquid because it can take longer to sell.
  • Income Statement – ​​Financial statement showing a company’s income and expenses for a specific period of time. Also known as a profit and loss statement, it is used to demonstrate a company’s performance or financial health.
  • Pledge – A legal claim on a property used as collateral to borrow money. The lender retains this right until the debt is paid.
  • Business Plan – A document that formally describes a company’s business goals, how it tries to achieve those goals, and where it currently stands in the market. Business plans are often used to raise capital from investors, but can also help with the company’s internal operations.
  • bootstrapping – Process of growing a startup business without outside investment. The founder uses personal savings or contributions from friends and family.
  • IPO (IPO) – Official launch of a company’s stock to the public. An IPO is usually handled by investment banks and is also referred to as an exit because most early investors use it to cash out.
  • Unicorn – A start-up company with a value of $1 billion or more. The term comes from the venture capital world.

Trading and Speculation Terms

  • Bear Market – A bearish market. This means that prices for the asset are falling or are expected to fall.
  • Bull Market – An upward trend in the market. Bull markets are either seeing rising prices or there is hope that prices are about to rise.
  • Bid/Ask Price – The bid is the highest price a broker will offer to buy an asset from you, while the ask is the lowest price he will buy an asset from you. As a trader or investor, you buy assets from your broker at ask prices and sell to them at bid prices. The ask of any Ask/Bid pair is always higher than the bid.
  • Bid/Ask Spread – The Ask price is always higher than the Bid price for the same asset and this difference is called the spread. Most brokers make their profit from the spread, otherwise, they may also charge commissions.
  • Broker – The company that acts as an intermediary between an investor and the stock exchange. They often offer trading or investing software, customer support, and margin accounts.
  • Pip (Price Point of Interest) – Used in trading transactions, a pip represents one-hundredth of a percent, 0.01%, or 0.0001 mathematically. Each asset also has a pip value, which is how much money it is worth per contract.
  • Margin – A collateral that an investor or trader must deposit in a brokerage account to cover all the risks of dealing with financial instruments. This means that the broker offers credit to its account holders to purchase financial products if they can deposit a certain amount to cover basic risks.
  • Principal – The initial size of a loan or investment. From it, you can calculate all kinds of profit or loss statistics.
  • Rally – A sharp and sustained increase in the price of an asset, usually due to good economic news.
  • selloff – A sharp and sustained drop in the price of an asset. It is usually a result of bad economic news.
  • Risk Tolerance – Amount of capital a trader or investor is willing to put in per trade or investment. It’s a double-edged sword because lower risk means limited potential gains, while higher risk means higher potential gains.
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Capital Markets Conditions

  • Mutual fund – A financial product that invests in various types of assets, including stocks and bonds, with capital drawn from a pool of investors. It is usually a relatively safe investment.
  • Hedge Fund – An institutional investor or investment firm that manages risk by simultaneously buying and selling related assets or securities. The thinking here is that if the company bought asset A and it loses its value, the decline in the comparable asset B that the company sold will reduce the overall risk. Today the term Hedge Funds mainly refers to investment companies that focus on high-net-worth individuals.
  • Institutional Investor – A company that invests on behalf of clients. An institutional investor can be a hedge fund, a pension fund, a mutual fund, an insurance company, and so on.
  • Capital Gain – The profit made from the sale of an asset that has increased over time. Such an asset can be a car, a company, stocks, and other intangible assets.
  • Bonds – A security that provides the investor with a steady income and can also be traded on the secondary market. The issuer of the bond borrows money from the investor for a specified period of time during which the principal must be repaid. Meanwhile, proceeds are paid at agreed intervals, usually every few months.
  • Shares – Partial ownership of a company. A share can also be called equity and a share is a share. Shares entitle their owner to a share of the company’s profits, as well as its assets, but these rights are related to the number of shares owned.
  • REIT – Abbreviation for Real Estate Investment Trust. It is an organization that owns and manages real estate such as warehouses, apartment buildings, commercial properties, shopping malls, and so on.
  • Trust Fund – A trust is a legal instrument that allows a trustee to hold and manage assets for its beneficiary. The fund refers to assets of the trust that belong to the beneficiary.
  • Index – A group (or basket) of financial instruments that reflect the health of a particular market. Most popular indices such as the S&P500 combine data from stocks of the major companies in the United States.
  • S&P500 – The Standard and Poor’s 500 is an index of 500 publicly traded domestic US companies. It is used as a measure of the stock market performance of US companies.
  • NASDAQ – Abbreviation for National Association of Automated Securities Dealers. An exchange for trading shares of 3,000 companies with a focus on high-tech companies.
  • NYSE – The New York Stock Exchange.
  • stock exchange – An organized market where traders and investors can buy and sell securities such as stocks, bonds, and commodities.
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Terms and Conditions for Stocks and Shares

  • EPS (earnings per share) – This figure tells you how much cash the company will pay you for each share of the stock you own. A higher earnings per share is good because it means the investment is more profitable.
  • P/E Ratio (Price Earnings Ratio) – A mathematical relationship between the amount you pay for a stock and the amount you earn for that stock. Lower P/E ratios are better for investors because they indicate that the company may be undervalued. Higher P/E ratios indicate overvalued companies.
  • Penny Stocks – Low-value stocks of small businesses that typically sell for less than $5 per share.

Accounting Terms

  • Account Payable – Money that a business owes its suppliers or vendors for services or goods it has received but not yet paid for.
  • Accounts Receivable – Money owed by a company from its customers for goods or services that the company has sold or provided, but for which payment has not been received.
  • Balance – The overview of your personal or business financial balances, making it clearer. It includes assets, liabilities, and net worth. As well as detailed breakdowns where necessary.
  • Cash Flow – Amount of money that goes in and out of a company over a period of time. It helps monitor the company’s liquidity, the amount of cash available.
  • Asset – A property that generates income for you, such as patents, trademarks, real estate, distribution rights, and securities that you can sell.
  • Liability – Anything that causes you or your company to spend money, such as a loan, a mortgage, business expenses, payroll, and accounts payable.
  • Capital – The assets of an individual or company that can be invested in a business venture. It can be in cash or other forms of assets.

Cryptocurrency Terms

  • Wallet – A system to securely store a cryptocurrency’s access codes. A wallet can be a software platform, a hardware device, or a piece of paper.
  • Escrow – A service that holds payment from one party and releases it only when the other party completes its portion of the transaction in a verifiable manner.
  • ICO – Initial Coin Offering. The process of funding a crypto venture by selling tokens to the public.
  • Defi – Decentralized Finance. A financial system that does not rely on a central entity to provide services. This method means bypassing commercial and central banks, as is the case with Bitcoin and other cryptos.


We have come to the end of these top 75 financial terms and their meaning. And as you can see, most of these terms make it easier to communicate once you know what they mean.

While it may take some time to learn them, you will gain a deeper understanding of the world of finance. So it’s worth it.


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