Investing can be quite a feat if you are not familiar with the language of the trade. You need to understand the different terminologies in the financial world if you want to be an effective investor. For that reason, we have compiled the most popular terms that you might encounter while researching for your investment online. Check them out below and be sure to familiarise yourself with these terms:
An asset is any type of investment that presents an opportunity for equal or higher value returns. When using the term asset allocation, most people mean it as the practice of limiting your risks by trying to balance your assets in your portfolio. This is possible through diversifying what you are investing in and not just focusing all your efforts on one type of investment.
Ask or bid
You might find some assets sold in the format of bids. This means that the highest price offer for the asset would win the bid and purchase what was being sold. The term ask is the lowest amount a seller is willing to accept for the asset that they are selling.
A bear market is when the price of the market starts trending lower at a rapid pace. This can often happen if the economy is facing a crisis. This term can also be used on stocks that are perceived to fall.
A bond can be likened to a loan where the buyer acts as the lender and the seller acts as the borrower. This is an agreement where the buyer gives money to the seller while also keeping hold of their non-monetary asset. The seller should pay back the principal amount upon the agreed date along with a couple of other periodic fees called interests.
A market is referred to as bull or bullish if the trend starts going higher at a rapid rate.
Capital gain or loss
The capital gain is the amount you earn in your investment minus the amount that you have put forward. For example, you invested $200 and you earned $500. Your capital gain is $300. Meanwhile, a capital loss is an amount that you lose from your investment. An example of this is if you invest $200 and only sold it for $100. Your capital loss is $100.
The dividend is the portion of a company’s income that is paid to its shareholders.
Exchange trade funds (ETF)
ETF acts like a stock that you can buy and sell. However, instead of a single asset, it allows you to have ownership over several assets.
A hedge fund is a pooled fund that is often used to generate returns for investors. What makes it different from mutual funds is that most hedge funds are handled by firms and the money used is raised by investors.
An index is a term used to refer to the performance of several assets like bonds, stocks and more.