Stock Market Glossary: 140+ Investing Terms Explained

Also called: 200 DMA

The average closing price over the previous 200 trading days, roughly one calendar year. Treated as the standard dividing line between a long-term uptrend and downtrend.

Large institutions genuinely watch this level, which makes it somewhat self-fulfilling. Falling decisively below the 200-day average is one of the most widely reported technical signals.

Also called: 50 DMA

The average closing price over the previous 50 trading days. Widely used as a gauge of medium-term momentum, and often treated as short-term support or resistance.

A share trading above its 50-day average is generally described as being in a short-term uptrend. Crossings of the 200-day average draw far more attention.

Also called: 52-week range

The highest and lowest prices a share has traded at over the past year. The range gives immediate context for whether a current price is historically high or low.

Shares near 52-week highs tend to keep performing well, which is counter-intuitive to most beginners. Being near the low is not by itself evidence of a bargain.

Also called: Alternative Investment Market

The London Stock Exchange's market for smaller, growing companies, with lighter listing requirements than the main market. AIM shares carry higher risk and generally trade less frequently.

Many AIM shares qualify for business relief, meaning they can fall outside an estate for inheritance tax after two years of ownership. That tax treatment drives a lot of AIM demand.

The return a portfolio or fund generates beyond what its market exposure alone would explain. Positive alpha is the conventional measure of genuine skill in active management.

Alpha is difficult to sustain and easy to mistake for luck over short periods. Most active funds fail to produce it after fees over a full decade.

The same idea as depreciation, applied to intangible assets such as patents, software and licences. Amortisation spreads their cost across the years the company expects to benefit from them.

Goodwill is no longer amortised under current standards; it is tested for impairment instead. That change is why acquisition-heavy companies now report sudden large writedowns rather than steady annual charges.

Also called: Offer price

The lowest price a seller in the market is currently willing to accept for a share. Buying immediately means paying the ask, which sits above the price offered to sellers.

Also called the offer price in UK usage. The difference between what you pay buying and receive selling is an immediate cost, before any commission or stamp duty.

How a portfolio is divided between broad asset types such as shares, bonds, property and cash. Asset allocation explains most of the variation in long-run portfolio returns.

The split between shares and everything else matters far more to your outcome than which individual shares you pick. Beginners routinely invert that priority.

Everything a company owns that has economic value — cash, inventory, property, equipment and intangibles like patents. Assets appear on one side of the balance sheet, funded by liabilities and equity.

Split into current assets, expected to convert to cash within a year, and non-current assets held for longer. The split matters more than the total.

Also called: Statement of financial position

A snapshot of what a company owns and owes on one specific date. Assets always equal liabilities plus shareholders' equity — the balance sheet balances by construction, which is where the name comes from.

Unlike the income statement, which covers a period, the balance sheet is a single moment — the last day of the quarter. Two companies can look identical on profits and completely different here.

Selling shares held in a taxable account and immediately repurchasing them inside an ISA. A bed-and-ISA moves existing holdings into a tax-free wrapper, using part of the annual allowance.

The sale is a disposal for capital gains tax purposes, so a large gain can create a bill in the year you transfer. Our ISA transfer calculator works out that cost.

A measure of how much a share moves relative to the wider market. A beta of 1.5 implies the share historically moved 50% more than the index, in both directions.

Beta describes past volatility, not risk of permanent loss. A stable company with a high beta may be far safer than a low-beta company heading towards insolvency.

The highest price a buyer in the market is currently willing to pay for a share. Selling immediately means accepting the bid, which sits below the price quoted to buyers.

Quote screens showing a single price usually display the mid-price, halfway between bid and ask. The price you actually receive when selling is the lower bid.

Also called: Spread

The gap between the highest price buyers will pay and the lowest price sellers will accept. The spread is a hidden transaction cost paid on every round trip.

A FTSE 100 share might trade on a 0.1% spread while a small AIM company shows 5% or more. On the second, the shares must rise 5% before you break even.

Also called: Blue chip

A large, long-established company with a record of stable earnings and, usually, reliable dividends. Blue-chip shares are treated as the lower-risk end of the equity market.

The label describes reputation rather than a guarantee: plenty of former blue chips have cut dividends or collapsed. Size slows decline; it does not prevent it.

Two lines plotted a set number of standard deviations above and below a moving average. The bands widen when volatility rises and narrow when it falls.

A squeeze, where the bands contract sharply, is often read as a sign that a large move is coming — though the bands say nothing about which direction.

Total assets minus total liabilities, as recorded in the accounts. Book value is the accounting estimate of what shareholders would be left with if the company sold everything and repaid its debts.

The word 'accounting' is doing heavy lifting: assets sit at historic cost less depreciation, not resale value. Property bought decades ago is often worth far more than the books admit.

A move where a share price pushes decisively through an established support or resistance level. Breakouts are usually only trusted when accompanied by unusually heavy trading volume.

False breakouts, where the price briefly clears a level and then reverses, are extremely common. Volume is the main filter traders use to separate the two.

Also called: Candlesticks

A price chart where each period is drawn as a body showing open and close prices, with wicks marking the high and low. Candlesticks convey four data points per bar.

Developed by Japanese rice traders in the eighteenth century. A long lower wick shows sellers pushed the price down during the period but buyers reclaimed most of the ground.

How management decides to deploy the cash a business generates — reinvestment, acquisitions, dividends, buybacks or debt repayment. Capital allocation is the clearest evidence of management quality.

Over a decade, allocation decisions compound into an enormous difference in shareholder returns. Read several years of annual reports and check whether stated plans actually happened.

Also called: Capex

Money spent buying or upgrading long-lived assets such as factories, equipment and technology. Capex appears on the cash flow statement rather than as a cost on the income statement.

Worth separating maintenance capex, which merely keeps the existing business running, from growth capex, which expands it. Only the second is genuinely optional.

Also called: CGT

Tax charged on the profit made when selling an asset for more than it cost. Capital gains tax applies to shares held outside an ISA or pension, and is due only when you actually sell.

Unrealised gains are never taxed, so timing a sale across tax years is a legitimate planning tool. Rates depend on your income tax band.

A financial statement tracking actual cash moving in and out of a business, split into operating, investing and financing activities. Cash flow shows what really happened, stripped of accounting judgement.

Profit is an opinion; cash is a fact. A company can report rising net income for years while operating cash flow falls — a divergence worth taking seriously.

A tax-free savings account holding cash rather than investments. Interest earned inside a Cash ISA is free of income tax, and the balance counts towards the same annual ISA allowance.

Suited to money needed within about five years, where a market fall before you spend it would be genuinely damaging. Over longer periods, cash has historically lost purchasing power to inflation.

Also called: CGT allowance

The amount of capital gains a UK taxpayer can realise each tax year before any capital gains tax becomes payable. Gains below the threshold are not taxed at all.

The allowance has been cut sharply in recent years, pulling many ordinary investors into filing for the first time. It cannot be carried forward, so an unused allowance is simply lost.

A portfolio structure holding a large diversified core, usually index funds, alongside smaller satellite positions in individual shares. The core provides stability while satellites allow concentrated bets.

A common split is 80% core and 20% satellites. The structure lets an investor pick individual shares without risking their entire retirement on those picks.

A measure of how closely two investments move together, ranging from +1 for identical movement to −1 for exact opposites. Low correlation is what makes diversification work.

Correlations rise towards 1 during market crashes, exactly when diversification is most needed. Assets that behaved independently for years can fall together in a single week.

Also called: COGS, Cost of sales

The direct cost of producing what a company sells — materials, manufacturing and delivery. COGS excludes overheads like marketing, research and head-office salaries, which are counted further down the income statement.

UK accounts usually label this cost of sales. For a software company COGS is mostly hosting and support, which is why software gross margins reach 80% while supermarket margins sit near 25%.

Assets a company expects to convert into cash within twelve months: cash itself, money owed by customers, and inventory. Current assets fund the day-to-day running of the business.

Compared against current liabilities, this is the basis of the current and quick ratios — the standard tests of whether a company can pay its near-term bills.

Debts and obligations that fall due within the next twelve months, including supplier payments, short-term borrowing, tax owed, and the portion of long-term loans repayable during this year.

A company with more current liabilities than current assets may be perfectly healthy — supermarkets operate this way deliberately, collecting cash from shoppers long before paying suppliers.

Current assets divided by current liabilities. The current ratio tests whether a company holds enough short-term resources to meet the bills falling due over the next year.

Above 1.5 is conventionally comfortable and below 1.0 warrants a closer look. Sector matters enormously though — supermarkets run well below 1.0 as a matter of routine.

Also called: Cyclical

A company whose profits rise and fall with the economic cycle — housebuilders, miners, airlines, luxury goods. Cyclical earnings can swing violently between boom and recession.

Cyclicals look deceptively cheap at the top of the cycle, when profits peak and the P/E looks low. Buying them on a low P/E is a classic and expensive error.

A chart pattern where the 50-day moving average falls below the 200-day moving average. Technical analysts read a death cross as a signal that a long-term downtrend has taken hold.

The dramatic name outstrips its record: death crosses have often appeared close to market bottoms, after the fall has already happened. Like the golden cross, it lags.

Also called: Defensive

A company whose demand holds up regardless of economic conditions — utilities, food producers, healthcare. Defensive earnings are stable, which usually means slower growth in good times.

People keep buying electricity and medicine during recessions. That reliability is why defensives outperform in downturns and lag badly in strong bull markets.

The accounting practice of spreading the cost of a physical asset across its useful life rather than charging it all in the year of purchase. Depreciation is a non-cash expense.

A £5m machine expected to last ten years generates a £500,000 annual charge. No cash leaves the business in those later years, which is why depreciation is added back on the cash flow statement.

Also called: Fully diluted earnings per share

Earnings per share calculated as if every share option, convertible bond and similar instrument had been exercised. Diluted EPS shows the profit per share once all likely future dilution is counted.

Always the more conservative figure, and the one to use. A wide gap between basic and diluted EPS signals heavy stock-based compensation, common at technology companies.

Also called: Required rate of return

The annual percentage used to convert future cash into present-day value, reflecting both the time you wait and the risk you carry. Higher risk demands a higher discount rate.

At a 10% discount rate, £110 received in a year is worth £100 today. Raising the rate from 8% to 10% can cut a DCF valuation by a third, which is why the choice matters so much.

Also called: DCF

A valuation method that forecasts a company's future cash flows and converts them into today's money using a discount rate. DCF produces an estimate of intrinsic value from the business's own economics.

Small changes to the growth or discount assumptions swing the answer enormously, which is why a DCF is easy to bend towards whatever conclusion you already wanted. Its value lies in forcing the assumptions into the open.

Spreading money across different companies, sectors and asset types so that no single failure is ruinous. Diversification reduces the risk specific to individual holdings without reducing expected return proportionally.

Most of the benefit arrives within the first 20 to 30 holdings; beyond that, additional names add administration more than protection. Holding 15 bank shares is not diversification.

A cash payment made by a company to its shareholders out of profits, usually quarterly or twice a year. Dividends are the direct return on owning a share, separate from price movement.

Paying a dividend is a choice, not an obligation, and cuts happen. Companies that have never cut tend to guard that record closely, which itself shapes their behaviour.

The amount of dividend income a UK taxpayer can receive each year before dividend tax applies. The allowance covers dividends from shares held outside an ISA or pension.

Like the CGT exemption, this allowance has shrunk substantially, making ISAs materially more valuable for income investors than they were a decade ago.

A company that has raised its dividend every year for a long unbroken run — commonly 25 years for US aristocrats, or around 20 for UK equivalents.

The status signals financial discipline and stability, and also creates pressure to keep raising the payment even when reinvesting the cash would serve shareholders better.

Also called: Dividend coverage

Earnings per share divided by dividend per share — how many times over the company could pay its dividend from current profits. Cover below 1 means the dividend exceeds earnings.

Cover of 2 or more is generally considered comfortable. The inverse of the payout ratio, and preferred by UK analysts for exactly the same purpose.

Also called: Pay date

The date on which a declared dividend actually reaches shareholders' accounts. The payment date typically falls several weeks after the ex-dividend and record dates, and is set by the company.

The lag means a dividend you become entitled to in March may not arrive until May. Selling the shares in between does not forfeit the payment.

Also called: Payout ratio

The proportion of net income paid out as dividends rather than reinvested. A payout ratio of 40% means the company distributes two-fifths of profits and retains the rest.

Above 100% means the company is paying dividends it has not earned, funded from cash reserves or borrowing. Sustainable for a year or two, rarely longer.

Also called: DRIP

An arrangement automatically using dividend payments to buy more shares in the same company, rather than paying cash. A DRIP compounds holdings without requiring any action.

Reinvested dividends account for a large share of long-run equity returns. Note that the dividend usually remains taxable in a general account even though no cash reaches you.

The annual dividend per share divided by the current share price, expressed as a percentage. Dividend yield states the income return an investor receives at today's price, before any tax.

Yield rises as the price falls, so an unusually high yield often signals the market expects a cut rather than a bargain. Above roughly 8% on a UK share, treat it as a warning.

Also called: EPS

Net income divided by the number of shares in issue — the profit attributable to a single share. EPS is the denominator in the P/E ratio and the figure most earnings headlines quote.

EPS can rise while profits stay flat if the company buys back shares, shrinking the denominator. Always check whether growth came from the business or from the share count.

Earnings per share divided by share price — the P/E ratio inverted, shown as a percentage. Earnings yield states profit as a return on the price paid, like a savings rate.

A P/E of 20 is an earnings yield of 5%. Framing it this way makes comparison with gilt yields or cash rates immediate, which is why value investors prefer it.

Earnings before interest, tax, depreciation and amortisation. EBITDA approximates the cash a business generates from its operations by adding back the largest non-cash accounting charges to operating profit.

Charlie Munger's objection is worth remembering: depreciation is a real cost, because machinery genuinely wears out and must be replaced. Treat EBITDA as a starting point, not a profit figure.

Also called: Moat, Competitive advantage

A durable structural advantage protecting a company's profits from competitors, such as a strong brand, network effects or high switching costs. Moats allow high returns to persist.

Warren Buffett's term. The test is simple: if a competitor with unlimited money could replicate the business in five years, the moat is narrower than it appears.

The cost advantage a company gains as it grows, because fixed costs spread across more units. Economies of scale let large firms undercut smaller rivals while still earning better margins.

Genuine only where scale is hard to replicate. Being large in an industry where a competitor can rent equivalent capacity from a cloud provider confers very little.

Also called: EV

The cost of buying a company outright: market capitalisation plus net debt. Enterprise value reflects what an acquirer would actually pay, because taking over a business means taking on its borrowings too.

Two companies can share a £500m market cap while one carries £200m of debt and the other £100m of net cash. Their enterprise values — £700m and £400m — tell the truer story.

Also called: Exchange-traded fund

A fund that trades on an exchange like an ordinary share, usually tracking an index, sector or commodity. ETFs combine the diversification of a fund with intraday tradability.

Check whether an ETF is physical, holding the actual shares, or synthetic, using derivatives to replicate returns. Synthetic ETFs introduce counterparty risk that physical ones avoid.

Also called: Enterprise multiple

Enterprise value divided by EBITDA. The measure compares the full cost of buying a business against its cash profits before financing and accounting choices distort the picture.

Because it strips out debt costs and depreciation, EV/EBITDA lets you compare a heavily indebted company with a debt-free one. Analysts favour it for capital-intensive sectors like telecoms and industrials.

Also called: Ex-div date

The first day a share trades without entitlement to the next declared dividend. Buying on or after the ex-dividend date means the previous holder receives that payment.

The share price typically drops by roughly the dividend amount on the ex-dividend date. Buying just beforehand to capture the payment gains nothing, since the price adjusts.

Also called: Forward price-to-earnings

Share price divided by forecast earnings per share for the next twelve months. Forward P/E prices the company on what analysts expect it to earn, rather than what it has already earned.

Forward P/E is almost always lower than trailing P/E, because forecasts assume growth. That makes it flattering — and only as reliable as the estimates behind it.

Also called: FCF

Operating cash flow minus capital expenditure — the cash left over after a company has paid to maintain and grow its asset base. Free cash flow is what funds dividends, buybacks and debt repayment.

A company reporting healthy profits but negative free cash flow year after year is funding itself from somewhere else, usually borrowing or issuing shares. Both come at shareholders' expense eventually.

Also called: FCF yield

Free cash flow divided by market capitalisation, shown as a percentage. The figure states how much spare cash the business generates each year relative to what the shares cost.

Harder to massage than an earnings-based yield, because cash either arrived or it did not. A yield above roughly 5% is generally treated as attractive, though a very high one often signals the market expects the cash to dry up.

Also called: Float

The proportion of a company's shares actually available to trade, excluding blocks held by founders, governments or other long-term holders. Free float determines real tradability.

A company with a large market capitalisation but a small free float can be surprisingly volatile, because relatively few shares change hands. Index providers weight by free float for this reason.

Also called: Footsie

An index of the 100 largest companies listed on the London Stock Exchange by market capitalisation. The FTSE 100 is the headline measure of the UK stock market's performance.

Despite being the UK index, its constituents earn roughly three-quarters of their revenue abroad. It behaves more like a global commodity and banking index than a bet on the British economy.

An index of the 250 companies ranked immediately below the FTSE 100 by market capitalisation on the London Stock Exchange. These are mid-sized businesses rather than international giants.

The FTSE 250 earns far more of its revenue domestically than the FTSE 100, which makes it the better proxy for the UK economy — and considerably more volatile.

Also called: GIA, Dealing account

A standard dealing account carrying no tax wrapper, generally used once ISA and pension allowances have been exhausted. Gains and dividends inside a GIA are fully taxable in the year they arise.

Holdings can be moved into an ISA through a bed-and-ISA transaction, though the sale itself may trigger capital gains tax. Records of purchase prices matter here in a way they never do inside an ISA.

A chart pattern where the 50-day moving average rises above the 200-day moving average. Technical analysts read a golden cross as confirmation that a long-term uptrend has begun.

By construction the signal arrives well after the move has started, since both averages are backward-looking. It confirms a trend rather than predicting one.

An intangible asset created when a company pays more for an acquisition than the fair value of its identifiable assets. Goodwill represents the premium paid for brand, staff and expected synergies.

Large goodwill balances are a standing risk: if the acquisition disappoints, the company must write it down, producing enormous paper losses. Serial acquirers deserve extra scrutiny here.

Gross profit expressed as a percentage of revenue. Gross margin shows how much of every pound of sales survives production costs, and is the clearest single measure of pricing power.

Rising gross margin usually means the company can raise prices faster than its costs rise — a strong signal of competitive advantage. Falling margin often means the opposite.

Revenue minus the cost of goods sold — what remains after paying to make the product, but before overheads, interest and tax. Gross profit measures the raw economics of what a company sells.

A business with weak gross profit has a structural problem no amount of cost-cutting elsewhere can fix. Everything below this line is discretionary spending by comparison.

A company expected to grow revenue and earnings much faster than the market average, typically reinvesting profits rather than paying dividends. Growth shares command high valuation multiples.

The high multiple is the risk: a growth company that merely meets expectations often falls, because the price already assumed more. Growth must exceed what is priced in.

Also called: P&L, Profit and loss statement, Profit and loss account

A financial statement showing revenue, costs and profit over a period, usually a quarter or a year. The income statement answers whether the business made money and where that money went.

Also called the profit and loss account, or P&L. Read it top to bottom: revenue at the top, then progressively more costs subtracted until net income at the bottom.

Also called: Tracker fund, Passive fund

A fund that mechanically holds every constituent of an index rather than selecting shares. Index funds charge very low fees because no analyst is deciding what to buy.

Annual charges of 0.1% or less are normal, against 0.75% or more for actively managed funds. Over decades that gap compounds into a substantial share of total returns.

Purchases of a company's shares by its own directors and senior executives. Insider buying is watched closely because those people know the business better than any outside analyst.

Buying carries more signal than selling, since insiders sell for many innocent reasons and buy for essentially one. Several directors buying at once is the strongest version.

The proportion of a company's shares held by pension funds, insurers, asset managers and similar large investors rather than individuals. High institutional ownership indicates professional scrutiny.

It also means less scope for an information edge, since teams of analysts already cover the company. Smaller, less-followed businesses are where individual research can pay off.

Assets without physical form — patents, trademarks, software, licences and goodwill. Intangible assets often carry the real value at modern companies while barely registering on older accounting conventions.

Internally built brands cannot be capitalised, so Coca-Cola's most valuable asset appears nowhere on its balance sheet. Bought brands do appear — an inconsistency worth remembering.

An investor's estimate of what a business is genuinely worth, based on the cash it will produce over its life. Intrinsic value is independent of the share price the market happens to quote.

Two careful analysts will reach different intrinsic values for the same company, because the estimate rests on assumptions about growth and risk. Treat it as a range, never a precise number.

Also called: Closed-ended fund

A listed company whose business is holding a portfolio of other investments. Because the number of shares is fixed, an investment trust's price can drift away from the value of its holdings.

That fixed share count is the key difference from an open-ended fund, and the reason trusts trade at discounts or premiums to net asset value. Trusts can also borrow to invest, magnifying both directions.

Also called: Initial public offering, Flotation

The first sale of a company's shares to the public, at which point it becomes listed on an exchange. An IPO raises money for the company, existing shareholders, or both.

The seller chooses the moment, which structurally favours them over the buyer. Lock-up periods typically prevent insiders selling for six months, so the expiry date is worth noting.

Also called: Annual ISA allowance

The maximum amount a UK resident can pay into ISAs across a single tax year, spread across cash, stocks and shares, and other ISA types in any combination.

The allowance runs from 6 April to 5 April and disappears if unused — it cannot be carried into the following year. Transferring an existing ISA does not consume any of it.

Also called: JISA

A tax-free account held in a child's name, funded by parents or others up to an annual limit. The child gains control at 16 and can withdraw the money at 18.

The money legally belongs to the child, and nothing prevents them spending it all at 18. Families uncomfortable with that sometimes prefer a general account held in the parent's name.

Everything a company owes to others — supplier invoices, bank loans, bonds, tax due and pension obligations. Liabilities represent claims on the company's assets that rank ahead of shareholders.

In a wind-up, liabilities get paid first and shareholders receive whatever is left. That ordering is the whole reason debt levels matter to equity investors.

Also called: LISA

A UK account for people aged 18 to 39, paying a 25% government bonus on contributions. Funds must go towards a first home or be left until age 60, or a withdrawal charge applies.

The withdrawal charge exceeds the bonus, so taking money out early leaves you with less than you paid in. The property price cap has not moved in years, which limits usefulness in London.

An instruction to buy or sell only at a specified price or better. Limit orders guarantee the price you get but not that the trade will happen at all.

Setting a buy limit below the current price means waiting for the shares to come to you. The trade-off is straightforward: control the price, or control the certainty of execution.

How easily a share can be bought or sold without moving its price. Liquid shares trade in large volumes with narrow spreads; illiquid ones do neither.

Liquidity disappears precisely when it is most needed. A small-cap holding that trades comfortably in calm markets can become nearly unsellable during a sharp sell-off.

Also called: LSE

The primary UK stock exchange, home to the FTSE 100 and FTSE 250 indices as well as the smaller AIM market. Trading runs from 8am to 4.30pm on business days.

Many LSE-listed shares are quoted in pence rather than pounds, so a price shown as 2,450 means £24.50. Misreading this is one of the most common beginner errors.

Also called: Moving average convergence divergence

A momentum indicator built from the difference between two moving averages, plotted with a signal line. Crossovers between the two lines are read as shifts in momentum.

Standing for moving average convergence divergence. Like all moving-average indicators it works reasonably in trending markets and generates constant false signals in sideways ones.

The gap between a company's estimated intrinsic value and the lower price an investor is willing to pay. Buying with a margin of safety leaves room for the estimate to be wrong.

Coined by Benjamin Graham. If you value a business at £10 a share and buy at £7, the 30% margin absorbs a forecasting error or an unexpected shock without turning into a permanent loss.

Also called: Market cap

The total value of a company's shares, calculated by multiplying the share price by the number of shares in issue. Market cap is what the market says the whole business is worth.

A company with 50 million shares at £4 has a £200m market cap. Size brackets are rough conventions rather than rules: below roughly £250m is small-cap, and above £5bn is large-cap.

A firm that continuously quotes both a buying and a selling price for a share, standing ready to trade. Market makers provide liquidity and earn the spread between the two prices.

On smaller UK companies, market makers are often the only reliable counterparty. Their quoted size limits how many shares you can deal at the displayed price.

An instruction to buy or sell immediately at whatever price is currently available. Market orders guarantee execution but not the price you end up paying or receiving.

Fine for large, liquid shares where the spread is narrow. On thinly traded stocks a market order can fill far from the price displayed a second earlier.

The proportion of an industry's total sales captured by one company. Market share indicates competitive position, and changes in it often matter more than the level.

A company gaining share in a shrinking industry may still be a poor investment, while one losing share in a booming one can grow revenue for years. Read both together.

Also called: Drawdown

The largest peak-to-trough fall a portfolio or share has suffered over a given period. Maximum drawdown measures the worst loss an investor would have lived through.

A 50% drawdown requires a 100% gain to recover, which is why deep falls matter more than the arithmetic suggests. Drawdown predicts whether you will actually stay invested.

The tendency of a share that has been rising to keep rising, and one that has been falling to keep falling. Momentum is among the most persistent effects documented in market research.

Momentum works until it reverses, and reversals are violent. It sits in direct tension with value investing, which buys precisely what momentum is selling.

Also called: MA

The average closing price over a set number of recent days, recalculated each day as new prices arrive. Moving averages smooth out short-term noise to make the underlying trend visible.

Shorter averages react quickly but generate false signals; longer ones are reliable but late. The 50-day and 200-day are the two most widely watched.

A major US stock exchange, historically associated with technology and growth companies. Nasdaq also lends its name to indices including the Nasdaq Composite and Nasdaq 100.

The Nasdaq Composite tracks every company listed on the exchange, while the Nasdaq 100 covers only the largest non-financial names. The two are quoted interchangeably in the press but differ substantially.

Also called: NAV

The value of a fund's or trust's holdings minus its liabilities, usually quoted per share. NAV is the benchmark against which an investment trust's own share price is judged.

Investment trusts routinely trade at a discount or premium to NAV. A trust priced at 90p with a 100p NAV sits at a 10% discount — you buy £1 of assets for 90p, and the gap can persist for years.

Total borrowings minus cash and cash equivalents. Net debt states what a company would still owe if it used every pound of available cash to repay lenders tomorrow.

UK analysts often describe the same idea as gearing, the ratio of debt to equity. Net debt above roughly three times EBITDA is generally treated as heavily indebted, though stable utilities carry more comfortably.

Also called: Net profit, Bottom line, Profit after tax

What remains of revenue after every cost, interest payment and tax charge has been deducted. Net income is the bottom line, and the figure earnings per share is calculated from.

Also called net profit or, in UK accounts, profit after tax. Net income is the most heavily influenced by accounting choices of any headline figure, which is why cash flow deserves equal attention.

Also called: Net margin

Net income as a percentage of revenue — the share of every pound of sales that survives all costs, interest and tax. Net margin is the bottom line stated as a proportion.

One-off items such as asset sales, legal settlements and writedowns distort net margin badly in any given year. Check whether a jump reflects the business improving or an accounting event.

A dynamic where a product becomes more valuable as more people use it. Network effects create powerful moats because each new user increases the cost of switching for everyone else.

Exchanges, marketplaces and social platforms are the classic examples. The same dynamic runs in reverse during decline, which is why network businesses can unravel unexpectedly quickly.

Also called: Cash from operations

The cash a company actually generated from its trading activities during a period, calculated by adjusting reported profit for non-cash charges and for changes in working capital.

Compare operating cash flow with net income over several years. Persistent cash flow well below reported profit is one of the most reliable early warnings in fundamental analysis.

Also called: EBIT, Operating profit

Profit from a company's core operations after deducting all operating costs, but before interest and tax is applied. Often labelled EBIT, standing for earnings before interest and tax.

Operating income is the number to watch when comparing two companies with very different debt loads, because it measures the business itself rather than its financing decisions.

Operating income as a percentage of revenue. Operating margin captures how much profit the core business generates after all running costs, but before interest payments and tax.

The most useful margin for comparing operational quality, because it ignores how the company chose to finance itself. A retailer at 5% and a software firm at 30% can both be excellent for their sector.

Also called: Price-to-earnings ratio, Earnings multiple, Price earnings

Share price divided by earnings per share — how many pounds you pay for £1 of a company's annual profit. A higher P/E means the market expects faster future growth.

A P/E of 20 means £20 paid per £1 earned. Compare only within a sector: 15 is expensive for a bank and cheap for software. A low P/E is often a value trap rather than a bargain.

Also called: Price/earnings-to-growth

The P/E ratio divided by the company's expected earnings growth rate. PEG adjusts valuation for growth, so a fast-growing company on a high P/E can still screen as reasonably priced.

A P/E of 30 with 30% growth gives a PEG of 1.0, traditionally treated as fair value. The weakness is obvious: the answer depends entirely on a growth forecast that may not happen.

A share trading at a very low price, usually with a small market capitalisation and thin trading volume. Penny shares carry wide spreads and a high risk of total loss.

A low price per share says nothing about whether a company is cheap — that depends on market capitalisation. Penny shares are also the most common vehicle for pump-and-dump schemes.

Deciding how much of a portfolio to commit to a single holding. Position sizing determines how much damage any one mistake can do to overall returns.

A 2% position that falls to zero costs 2%; a 20% position doing the same is close to unrecoverable. Sizing matters more to long-run outcomes than selection accuracy.

Also called: Dollar-cost averaging, DCA

Investing a fixed amount at regular intervals regardless of price, so more shares are bought when prices are low and fewer when high. The approach removes timing decisions.

Known as dollar-cost averaging in American writing. Investing a lump sum immediately has historically produced higher returns on average, but averaging in is easier to stick with.

Also called: Target price

An analyst's published estimate of where a share price will trade within a set period, typically twelve months. Price targets summarise a forecast, not a guarantee.

Targets cluster near the current price and get revised after the shares move, rather than before. Their most useful content is often the reasoning attached, not the number itself.

Also called: P/B ratio

Share price divided by book value per share — what the market charges for £1 of the company's net accounting assets. A P/B below 1 means the shares trade for less than balance-sheet worth.

Useful for banks and insurers, where assets are mostly financial and carried near market value. Close to meaningless for software or pharma, whose real assets — code, brands, patents — barely appear on the balance sheet.

Also called: P/S ratio

Share price divided by revenue per share. Price-to-sales values a company on its turnover rather than its profit, which makes it usable for businesses that do not yet make money.

Sales are much harder to manipulate than earnings, which is the ratio's appeal. Its blind spot is margin: £1 of revenue at a supermarket is worth far less than £1 at a software firm.

Also called: Panel on Takeovers and Mergers levy

A fixed £1 charge applied to UK share transactions above £10,000, funding the Panel on Takeovers and Mergers. The levy appears as a separate line on contract notes.

Trivial in isolation, but it appears on both purchases and sales above the threshold. It is one of the small charges that make very frequent trading more expensive than it looks.

Also called: Acid-test ratio

Current assets excluding inventory, divided by current liabilities. The quick ratio is a stricter liquidity test, on the assumption that unsold stock may not convert to cash quickly.

Also called the acid-test ratio. The gap between current and quick ratio tells you how much of a company's short-term safety depends on selling inventory it still holds.

Periodically selling the assets that have grown beyond their target weight and buying those that have shrunk, returning a portfolio to its intended allocation. Rebalancing enforces selling high and buying low.

Annual rebalancing is usually sufficient; more frequent adjustment adds costs without improving results. Inside an ISA there is no tax consequence, which makes it considerably easier.

The date on which a company checks its share register to determine who qualifies for a dividend. Only shareholders listed on the record date receive the payment.

The record date usually falls a day or two after the ex-dividend date, reflecting the time settlement takes. For practical purposes the ex-dividend date is the one that matters.

Also called: RSI

A momentum indicator scoring recent price gains against recent losses on a scale of 0 to 100. Readings above 70 are conventionally called overbought and below 30 oversold.

Overbought does not mean a fall is due. Strongly trending shares can hold an RSI above 70 for months, and selling purely on that reading is a common way to exit winners early.

Also called: Resistance

A price at which a rising share has repeatedly met enough selling to halt the advance. Resistance marks a level where supply has historically overwhelmed demand.

Round numbers and previous highs often act as resistance, partly because so many investors place orders there. A decisive break above it on heavy volume is read as bullish.

Also called: ROE

Net income divided by shareholders' equity, as a percentage. ROE measures how much profit the company generates from the capital shareholders have left in the business.

Sustained ROE above 15% usually signals a genuinely good business. Check the debt though — borrowing heavily shrinks equity and inflates ROE without improving the underlying operation.

Also called: ROIC

Operating profit after tax divided by the total capital — both debt and equity — employed in the business. ROIC measures how efficiently a company turns all its funding into profit.

The single most useful profitability measure, because unlike ROE it cannot be flattered by leverage. A company earning ROIC consistently above its cost of capital is creating value; below it, destroying value.

Also called: Turnover, Top line, Sales

The total money a company brings in from selling its products or services, before any costs are deducted. Revenue sits at the top of the income statement, which is why it is called the top line.

UK accounts often use the word turnover instead. Growing revenue while margins shrink is common and rarely good — it usually means the company is buying growth with discounts.

An index of 500 large companies listed on US exchanges, weighted by market capitalisation. The S&P 500 is the most widely used benchmark for the American stock market.

Weighting by size means the largest handful of technology companies drive a disproportionate share of the index's movement. Buying a tracker is far less diversified than the count of 500 suggests.

Also called: Stock, Equity

A unit of ownership in a company. Owning a share entitles you to a proportional claim on the company's profits and assets, and usually to a vote at the annual general meeting.

British usage prefers shares, American usage prefers stock, and they mean the same thing. Owning one share of a company with a million in issue makes you a one-millionth owner of the business.

Also called: Buyback, Share repurchase

A company purchasing its own shares in the market and cancelling them, reducing the number in issue. Buybacks return cash to shareholders by increasing each remaining share's claim on profits.

Buybacks only create value when shares are bought below intrinsic value. Companies have a persistent habit of buying heavily at peaks and stopping during crashes, which destroys value.

Also called: Dilution

The reduction in existing shareholders' ownership that occurs when a company issues new shares. Dilution means each remaining share represents a smaller claim on the same pool of profits.

Check the share count across several years, not just profits. Companies issuing 5% more shares annually must grow earnings faster than that just to keep EPS flat.

Also called: Net assets, Book equity

Total assets minus total liabilities — the shareholders' residual claim on the business. Shareholders' equity is what would theoretically remain if the company sold every asset and settled every debt.

Also called net assets or book value. Negative equity is not automatically fatal — heavy buybacks can cause it at profitable companies — but it always warrants explanation.

A measure of the return earned per unit of volatility taken, calculated as excess return over the risk-free rate divided by standard deviation. A higher Sharpe ratio is better.

A Sharpe ratio around 1 is respectable and above 2 is excellent. The measure penalises upside volatility as heavily as downside, which many investors consider a flaw.

Also called: Shorting, Going short

Borrowing shares, selling them, and aiming to buy them back more cheaply later. Short sellers profit when a share falls and lose when it rises.

Losses on a short position are theoretically unlimited, because a share can keep rising indefinitely. Heavy short interest also creates the conditions for a short squeeze if the price turns upward.

Also called: Self-invested personal pension

A pension you manage yourself, choosing the investments rather than leaving them to a provider. Contributions receive tax relief at your income tax rate, and the money is locked until at least age 55.

That access age is rising to 57 in 2028. Tax relief makes a SIPP more efficient than an ISA for higher-rate taxpayers, at the cost of losing access for decades.

A one-off payment to shareholders outside the normal dividend schedule, typically after an asset sale or an unusually strong year. Special dividends carry no expectation of repetition.

Screening tools sometimes fold special dividends into the trailing yield, producing a figure that vastly overstates the ongoing income. Always check what a very high yield is made of.

Also called: SDRT, Stamp duty on shares

A UK tax of 0.5% charged when buying shares in UK-incorporated companies electronically. Stamp duty reserve tax is paid by the buyer and collected automatically by the broker.

AIM shares and most overseas shares are exempt, which is why buying US stocks avoids it entirely. The charge applies on purchase only, never on sale.

A statistical measure of how far returns typically stray from their average. Standard deviation is the usual basis for the volatility figures quoted in fund factsheets.

The measure assumes returns follow a normal distribution, which markets demonstrably do not. Extreme moves happen far more often than the maths predicts.

A regulated marketplace where shares are bought and sold. Exchanges match buyers with sellers, publish prices, and impose listing rules that companies must meet to keep trading.

Companies raise money at listing, not on every subsequent trade. Once shares are in issue, buying them means buying from another investor rather than from the company itself.

Also called: Index, Market index

A measure tracking the combined performance of a defined group of shares, such as the FTSE 100 or S&P 500. Indices provide a benchmark against which portfolios are judged.

Most indices weight holdings by market capitalisation, so the largest companies move the number most. Equal-weighted versions exist and often tell a very different story about market breadth.

Also called: S&S ISA, Investment ISA

A tax-free wrapper allowing UK residents to hold shares, funds and bonds without paying tax on gains or income. Nothing inside a Stocks and Shares ISA is subject to capital gains or dividend tax.

The annual allowance resets each tax year on 6 April and cannot be carried forward. Withdrawals from a standard ISA do not restore the allowance unless the account is specifically flexible.

Also called: Stop loss

A standing instruction to sell automatically once a share falls to a set price, intended to cap losses. Once triggered, it usually becomes a market order.

Stop-losses offer no protection against overnight gaps: if bad news breaks and the shares open far below your trigger, the sale executes at the lower opening price.

Also called: Support

A price at which a falling share has repeatedly attracted enough buying to stop the decline. Support marks a level where demand has historically overwhelmed supply.

Support becomes more credible the more times it holds, and broken support frequently becomes resistance on the way back up. Nothing about it is guaranteed.

The time, money or disruption a customer faces in moving to a competitor. High switching costs keep customers in place even when a rival offers a better product.

Enterprise software embedded in a company's accounting is the archetype: migrating means retraining staff and risking errors. Look for high customer retention rates as evidence.

Also called: Market risk

Risk that affects the entire market rather than one company, such as recessions, interest rate moves or war. Systematic risk cannot be diversified away by simply holding more shares.

Also called market risk, and the reason beta exists as a measure. The only defence is holding assets outside the market, such as bonds or cash.

Also called: Charting

The practice of forecasting price movement by studying charts, past prices and trading volume rather than a company's financial results. Technical analysis focuses on market behaviour, not business fundamentals.

Long-term investors typically use it for timing an entry into a company they have already researched, rather than for deciding what to own in the first place.

The estimated worth of a company beyond the explicit forecast period in a valuation model, capturing every year after the detailed projections stop. Terminal value usually dominates the total.

In a typical ten-year DCF, terminal value accounts for two-thirds or more of the result. The uncomfortable implication is that most of the valuation rests on the least knowable part of the forecast.

Also called: Ticker

The short code identifying a company's shares on an exchange, such as AAPL for Apple or BP for BP. Tickers are unique within an exchange but not across exchanges.

London tickers often carry a .L suffix on data services, so Shell appears as SHEL.L. The same company can trade under different tickers in different countries.

Also called: TAM

The total annual revenue available if a company captured 100% of demand for its product. TAM indicates how much room a business has to grow before saturating its market.

Company-supplied TAM figures are routinely inflated by defining the market as broadly as possible. Treat any TAM presented in an investor deck with scepticism.

The complete return from holding a share, combining price change and dividends received. Total return is the only fair basis for comparing an income share against a growth share.

The FTSE 100 price index looks far weaker over recent decades than its total return equivalent, because UK shares pay high dividends. Comparing price indices alone is misleading.

Also called: Volume

The number of shares traded over a given period, usually a single day. Volume indicates how much genuine market interest sits behind a price move, and whether that move deserves attention.

A price rise on heavy volume suggests broad conviction; the same rise on thin volume may reflect a single buyer. Technical analysts treat volume as confirmation of a trend.

Also called: TTM P/E

Share price divided by earnings per share over the last twelve reported months. Trailing P/E uses figures the company has actually published, so nothing about it depends on a forecast.

Often shortened to TTM, for trailing twelve months. For a business whose profits have just collapsed or spiked, trailing P/E can look absurd until the next few quarters catch up.

Also called: Specific risk, Idiosyncratic risk

Risk specific to one company or industry — a failed product, a fraud, a regulatory ruling. Unsystematic risk is the portion diversification is designed to remove.

Because it can be diversified away at no cost, financial theory holds that the market does not reward you for bearing it. Concentrating in one company means taking uncompensated risk.

Also called: Multiple

Any ratio that expresses a company's price as a multiple of a financial figure such as earnings, sales or cash flow. Multiples exist to make companies of different sizes comparable.

A multiple carries no meaning in isolation. It only becomes informative next to the same company's history, its direct competitors, or its own growth rate.

A company trading at a low price relative to its earnings, assets or cash flow. Value shares are bought on the expectation that the market has underrated the business.

The central difficulty is separating a genuinely mispriced company from one that is cheap because it is deteriorating. The second is a value trap.

How much and how quickly a share price fluctuates. High volatility means large swings in both directions, and is the most common statistical proxy for risk.

Equating volatility with risk is contested. For a long-term investor who never has to sell, a price that swings wildly is an inconvenience rather than a danger.

Also called: W-8BEN

A US tax form UK investors complete to reduce withholding tax on American dividends from 30% to 15%. Brokers usually handle the form during account setup.

The form expires after three calendar years and must be renewed. An expired W-8BEN quietly doubles the tax taken from every US dividend you receive.

Tax deducted at source by a foreign government before a dividend reaches an overseas investor. Withholding tax reduces the income actually received from international shares, and an ISA does not prevent it.

Rates vary by country and by treaty: 15% on US dividends with a W-8BEN in place, but 35% on Swiss shares unless reclaimed. ISAs shelter you from UK tax, not foreign withholding.

Current assets minus current liabilities — the short-term capital tied up in running the business day to day. Working capital reveals whether a company can cover its near-term obligations comfortably.

Rapidly rising working capital at a growing company often means cash is being swallowed by unsold inventory or customers paying late. Growth that consumes cash is fragile.