Financial glossary
for new-age investors

Discover financial terms and learn new concepts.

Beta

Beta (β) is a measure of a stock's volatility relative to the overall market. A beta higher than 1 suggests the stock is more volatile, potentially experiencing sharper swings than the market. Conversely, a beta below 1 indicates the stock is less volatile, offering a smoother ride compared to the market. This metric is important in understanding a stock's risk profile in the context of wider market movements.

Bid/Ask Spread

The bid/ask or bid/offer spread is the buying and selling range around the “real” price of an asset. It represents the difference between the price a prospective buyer is willing to pay for an asset (bid price) and the price a seller is willing to accept (ask or offer price). When you buy a stock, for example, you pay the ask price, which is typically higher than the price you’d receive if you were selling the stock at the same time (the bid) – and that gap is the spread.

Blue-Chip Stocks

Blue-chip stocks are those of big, well-established companies that are typically leaders in their industries. These companies tend to have strong brand recognition, dependable earnings, and regular dividends. And investors, therefore, may see them as a proxy for low volatility – especially compared to more speculative “penny stocks” or high-growth stocks. As a result, blue-chips tend not to offer the prospect of meteoric share price returns like some high-growth stocks, but they do boast large market capitalizations and are listed on major stock exchanges. The term “blue-chip” comes from the highest-value chips used in poker, reflecting these companies’ high value to investors.

Board Of Directors

A group of individuals that oversee the management of a company on behalf of its shareholders. “Management”, which typically includes the CEO, CFO and other senior executives, typically operates under the authority of the board (sometimes, those executive officers are also board members). A board has a chairperson that acts as its head.

Bond

A bond is like a tradable loan. Imagine I lend you $100. In return, you agree to pay me $5 (a.k.a. 5%) each year in “interest” until 5 years have passed, at which point you pay me back the $100 that I lent you. Except, I sell your loan to someone else, so that you pay them $5 each year and pay them the $100 back after 5 years.

Bond Yield

A bond's yield is the amount that it pays each year in interest as a percentage of its current price.

Bull Market

An investment is said to be in a bull market when its value is going up – specifically when it’s risen 20% or more from a recent trough. A bull market typically signifies a period of rising stock prices, often associated with robust economic growth, surging corporate profits, and widespread investor optimism. It typically emerges during phases of high consumer confidence and low unemployment, creating an environment where investment prices climb, sometimes over many years. Bull markets aren’t limited to stocks: bonds, real estate, and other financial assets can also run into bullish territory.

Business Model

How a business makes money. This includes what the product is, how it is made, how it is sold, how much it all costs, how much revenue is generated and how much profit is made.

Buy The Rumor, Sell The Fact

Investors often look for an indication of what companies or central banks are likely to say before their official statements. These “rumors” can have an effect on the prices of assets as investors “buy” into them. When the actual announcement is made – i.e. the “facts” are out – investors who were right, having bought in ahead of any news may “sell” and take profits from any upwards price moves in the run-up to the release – hoping that other investors who’d also seen the news but not bought would be encouraged to buy as earlier investors sell.

Capital Gains Tax

Capital gains tax (CGT) is levied on the profit realized from selling assets like stocks, bonds, precious metals, and property. The tax is calculated on the difference between the selling price and the acquisition cost, adjusted for allowable expenses and reliefs. Tax rates on capital gains can vary significantly based on factors like the asset type, the duration of ownership, and the taxpayer's residency status. For instance, in the US, the tax rate on capital gains depends on how long the asset was held before being sold. In contrast, the UK doesn’t differentiate between long and short-term gains but does offer a tax-free allowance depending on the taxpayer’s total income.