Investing glossary

578 investing terms explained in plain language — from compounding and diversification to carried interest, liquidation preferences and MOIC — each with a real example.

• Investing — Committing money today with the expectation of more money later, in exchange for taking on risk and giving up the ability to spend that money now.
• Asset — Anything you own that is expected to hold or produce value - a share, a bond, a property, a business.
• Capital — Money set aside to be put to work, as opposed to money earmarked for near-term spending.
• Return — The gain or loss on an investment, usually expressed as a percentage of what was put in.
• Investor — Someone who buys an asset expecting to hold it long enough for the underlying business or asset to create value.
• Trader — Someone who buys and sells based on expected near-term price movement, not on the underlying asset changing in value.
• Holding period — How long you keep an asset before selling it.
• Speculation — Putting money at risk on an outcome you cannot analyse with any real confidence, hoping for a large payoff.
• Active management — A fund manager, or you, picking specific investments in an attempt to beat a benchmark.
• Passive management — Buying a broad, pre-set basket of investments, an index, rather than trying to pick winners.
• Index fund — A fund built to track a market index, such as a broad stock index, rather than to beat it.
• Expense ratio — The annual fee a fund charges, expressed as a percentage of the money you have in it.
• Public markets — Markets where anyone can buy or sell a security, such as a stock exchange.
• Private markets — Markets for ownership stakes that are not listed on a public exchange - startups, private companies, and many funds.
• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.
• Accredited investor — A legal status, defined by each country's securities regulator, required to invest in many private deals and funds.
• Equity — Ownership in a company or asset - a claim on whatever is left after debts, and on any growth in value.
• Debt — Money lent that must be repaid with interest, regardless of how the borrower's business or asset performs.
• Shareholder — Someone who owns shares, equity, in a company.
• Creditor — Someone who has lent money and is owed repayment, ranked ahead of equity holders if the borrower runs into trouble.
• Emergency fund — Cash set aside, outside of any investment, to cover unplanned expenses or lost income.
• Risk tolerance — How much decline in the value of your investments you can withstand financially and emotionally without abandoning your plan.
• Opportunity cost — What you give up by choosing one use of your money, or time, over the next-best alternative.
• Net worth — Everything you own, minus everything you owe.
• Risk — The chance that an investment's actual outcome differs from what you expected, in either direction.
• Volatility — How much and how often an asset's price moves, up or down, over a given period.
• Permanent loss of capital — Money that is gone for good - the business failed, the asset became worthless, or it was sold at the bottom and never bought back.
• Standard deviation — A statistical measure of how spread out an asset's returns are around their average - the common numeric stand-in for volatility.
• Drawdown — The decline from an investment's highest point to its lowest point before it recovers.
• Mark to market — Valuing an asset at what it would sell for right now, rather than at what you originally paid for it.
• Inflation — The general rise in prices over time, which reduces how much a given amount of money can buy.
• Real return — An investment's return after subtracting inflation - what you actually gained in purchasing power.
• Nominal return — An investment's return in raw currency terms, before adjusting for inflation.
• Purchasing power — What a given amount of money can actually buy.
• Compounding — Earning returns on your past returns, not only on your original money.
• CAGR (compound annual growth rate) — The single steady annual growth rate that would take a starting value to an ending value over a given number of years.
• Reinvestment — Using an investment's income or gains to buy more of the same investment, rather than taking them as cash.
• Time value of money — The idea that money available now is worth more than the same amount later, because it can be invested in the meantime.
• Time horizon — How long before you plan to spend the money you are investing.
• Sequence-of-returns risk — The risk that the order in which returns happen, not just their average, damages an outcome - especially when money is being withdrawn along the way.
• Dollar-cost averaging — Investing a fixed amount at regular intervals regardless of price, rather than investing a lump sum all at once.
• Rebalancing — Buying or selling to bring a portfolio back to its intended mix after markets move it out of shape.
• Fee drag — The compounding cost of fees over time, which is far larger than the fee's annual percentage suggests on its own.
• Assets under management (AUM) — The total value of the investments a fund, advisor or firm manages on behalf of clients.
• Load fee — A sales commission charged when buying, a front-load, or selling, a back-load, certain mutual funds, on top of the fund's ongoing expense ratio.
• Expected value — The average outcome of a decision if you could repeat it many times: each possible result multiplied by its probability, all added together.
• Base rate — How often an outcome occurs across the whole population of similar cases, before you know anything specific about the one in front of you.
• Variance — How widely actual outcomes spread around their average. High variance means individual results routinely land far from the expected value, in both directions.
• Confirmation bias — The habit of seeking, believing and remembering information that supports what you already think, while discounting information that does not.
• FOMO (fear of missing out) — Buying because other people appear to be making money, rather than because you have formed a view about what the asset is worth.
• Disconfirming evidence — Information that would make your thesis wrong - facts you would have to explain away rather than cite.
• Overconfidence bias — Systematically overestimating the accuracy of your own judgement - in particular, being far more certain of a forecast than its track record justifies.
• Anchoring — Letting the first number you encounter set the reference point for every judgement that follows, even when that number carries no real information about value.
• Sunk cost fallacy — Continuing to commit money, time or attention to a position because of what you have already put in, rather than because of what it is now worth.
• Survivorship bias — Drawing conclusions from the examples that lasted long enough to be visible, while the ones that failed have quietly left the sample.
• Selection bias — Any situation where the sample in front of you was not assembled in a way that represents the whole population, so conclusions drawn from it do not generalise.
• Loss aversion — The tendency for a loss of a given size to feel considerably worse than a gain of the same size feels good.
• Disposition effect — The observed pattern of selling investments that have risen while holding on to those that have fallen.
• Herding — Taking a position mainly because many others are taking it, treating the crowd's activity as though it were evidence about value.
• Variant perception — A view that differs from what the market price already reflects, in a specific way you could check.
• Circle of competence — The set of businesses, assets or markets you understand well enough to judge what they are worth and what could realistically go wrong with them.
• Ponzi scheme — A fraud in which money from new investors is paid out to earlier ones and presented as investment returns, because the stated investment activity either does not exist or does not produce the reported profits.
• Affinity fraud — Investment fraud that spreads through a community whose members already trust one another - a congregation, a professional body, an alumni network, a diaspora group.
• Pump and dump — A manipulation in which people holding an asset promote it heavily to create buying, then sell into that buying and leave the new buyers holding the position.
• Due diligence — The work of independently verifying the claims made about an investment before committing money to it - the documents, the counterparties, the registrations and the numbers.
• Leverage — Investing with borrowed money so that you control more of an asset than your own capital would buy. Gains and losses are both multiplied by the same factor.
• Margin call — A demand from a lender for more cash or collateral because the value of a leveraged position has fallen far enough that the equity in it is below the required level.
• Maintenance margin — The minimum share of a leveraged position's current value that must be your own equity rather than borrowed money, before the lender can demand more or close the position.
• Forced selling — Selling because you have to rather than because you chose to - triggered by a lender, a redemption request, or an unrelated need for cash.
• Lock-up period — A contractual period during which you cannot withdraw money from a fund or sell a holding, however much you might want to.
• Concentration risk — The risk that a large share of your wealth depends on a single outcome - one company, sector, property, currency, employer or counterparty.
• Position size — How much of your total capital a single holding represents - the weight that decides how much any given move actually matters to you.
• Investment thesis — A written statement of what you believe about an investment, at what price it is worth owning, and what specific observation would tell you that you were wrong.
• Diversification — Holding enough genuinely different assets that no single outcome decides your result. It reduces risk specific to individual holdings; it does not reduce the risk they all share.
• Systematic risk — Risk shared by everything in a market - the economy, interest rates, inflation, currency, broad sentiment. Also called market risk.
• Unsystematic risk — Risk attached to one specific holding - a company failing, a building burning, a borrower defaulting, a product being recalled. Also called specific or idiosyncratic risk.
• Correlation — A measure from +1 to -1 of how closely two assets have moved together over a chosen period. +1 is lockstep, 0 is no relationship, -1 is exactly opposite.
• Correlation breakdown — The tendency for historical relationships between assets to stop holding under stress, as correlations between risky assets converge towards one in a severe decline.
• Asset allocation — The split of capital across broad asset types - equities, bonds, property, cash - expressed as target percentages. The decision that sits above choosing individual holdings.
• Risk capacity — How much loss your circumstances could actually absorb without damaging your plans - a financial fact, separate from how a loss would make you feel.
• Glide path — A planned shift in asset allocation over time, usually towards more stable assets as the date the money is needed approaches.
• Home bias — The tendency to hold a far larger share of domestic assets than the size of that market would suggest, because they are familiar and easy to follow.
• Rebalancing band — The range either side of a target weight within which no action is taken, so the portfolio is only adjusted when drift becomes meaningful.
• Portfolio construction — Deciding the shape of the whole - what each part of the money is for, how much goes into any one holding, what is held back, and along which dimensions the holdings are spread.
• Risk budget — The maximum damage you will allow any single holding, or group of holdings, to do to the whole portfolio - stated in advance as a share of total capital.
• Equal weighting — Giving every position in a portfolio the same size, expressing no view about which is more attractive than which.
• Power-law distribution — An outcome pattern in which a very small number of results account for most of the total, rather than results clustering around an average.
• Dry powder — Capital committed to a strategy but deliberately not yet deployed, held so that a future opportunity can be acted on.
• Reserve ratio — The split of a strategy's total capital between first positions and money held back for later investment in holdings you already own.
• Follow-on investment — Investing more money into a company you already hold, usually as part of a later financing round and at a higher valuation.
• Pro-rata rights — A contractual right to invest enough in a future round to keep your existing percentage of a company rather than being diluted by it.
• Dilution — The reduction in your percentage ownership of a company when it issues new shares to someone else.
• Stage diversification — Spreading private-market positions across how mature the underlying companies are, from earliest to latest.
• Vintage year — The period in which capital was actually committed, which fixes the level of entry prices a position carries for its whole life.
• Deployment pace — How quickly an allocation is actually committed - the difference between putting the whole amount to work in one window and spreading it across several years.
• Income statement — A report of what a business earned and what it spent over a period of time, arranged in layers from revenue at the top down to net profit at the bottom.
• Revenue — The value of goods or services a business sold during a period, before any costs are subtracted. Also called turnover or the top line.
• Cost of goods sold — The direct cost of producing or delivering what was sold in the period - materials, the labour that makes the product, and whatever else the company places above the gross profit line.
• Gross margin — Gross profit - revenue less the cost of goods sold - expressed as a percentage of revenue. It asks whether the thing being sold makes money.
• Operating margin — Operating profit as a percentage of revenue - what is left after the costs of running the business but before interest and tax. It asks whether the business around the product makes money.
• EBITDA — Earnings before interest, tax, depreciation and amortisation - in practice, operating profit with the depreciation and amortisation charge added back.
• Depreciation and amortisation — The accounting charge that spreads the cost of a long-lived asset across the years it is expected to be used - depreciation for physical assets, amortisation for intangible ones.
• Net profit — What remains after every cost, including interest and tax, has been subtracted from revenue. The bottom line of the income statement.
• Accrual accounting — The convention under which revenue is recorded when it is earned and costs when they are incurred, regardless of when money actually changed hands.
• Balance sheet — A statement of everything a business owns and everything it owes at one specific moment. What is left after subtracting the second from the first belongs to the owners.
• Accounts receivable — Money owed to the business by customers who have been invoiced and have not yet paid. Also called trade debtors.
• Inventory — Goods a business has bought or made and has not yet sold - raw materials, work in progress and finished stock.
• Accounts payable — Money the business owes suppliers for goods or services it has received and not yet paid for. Also called trade creditors.
• Shareholders' equity — What is left for the owners once every liability is subtracted from every asset. Usually made up of the capital owners put in plus the profits the business has kept.
• Retained earnings — The accumulated total of every profit the business has ever made and not paid out to its owners, carried on the balance sheet inside equity.
• Book value — The value of a business, or of an individual asset, as carried on the balance sheet - historical cost less accumulated depreciation, rather than any market estimate.
• Net debt — Borrowings minus cash. The measure of indebtedness that accounts for the money already sitting in the bank to repay it.
• Current ratio — Current assets divided by current liabilities - a rough measure of whether a business can meet what falls due within the next year out of what it expects to turn into cash in the same period.
• Quick ratio — Current assets excluding inventory, divided by current liabilities. It describes the position if stock cannot be sold quickly.
• Cash flow statement — The statement explaining how the bank balance moved over a period, split into cash from operating the business, cash spent on or received from long-term assets, and cash raised from or returned to lenders and owners.
• Operating cash flow — The cash a business generated or consumed by running itself, usually presented as net profit adjusted for non-cash charges and for the movements in receivables, inventory and payables.
• Capital expenditure — Money spent acquiring or improving long-lived assets such as buildings, machinery and equipment. Shown in the investing section of the cash flow statement rather than as a cost on the income statement.
• Free cash flow — Operating cash flow less capital expenditure - what is left after the business has funded both its trading and the assets it needs to keep running.
• Quality of earnings — How reliably reported profit turns into actual cash, most simply measured as operating cash flow divided by net profit.
• Working capital — The money tied up in ordinary trading. The operating version - receivables plus inventory minus payables - excludes cash and borrowings, and is the one that behaves like a use of money.
• Cash conversion cycle — The number of days between money leaving the business to buy or make something and money arriving from the customer who bought it. Days of receivables plus days of inventory minus days of payables.
• Days sales outstanding — How long customers take to pay, on average - receivables divided by revenue, times 365.
• Days inventory outstanding — How long stock sits before it is sold - inventory divided by cost of goods sold, times 365.
• Days payable outstanding — How long the business takes to pay its own suppliers - payables divided by cost of goods sold, times 365.
• Interest coverage — Operating profit divided by the interest charge - how many times over the year's earnings could pay the year's cost of borrowing.
• Return on equity — Net profit divided by shareholders' equity - what the owners earned on the capital recorded as theirs.
• Valuation — An estimate of what an asset is worth, as distinct from the price it currently trades at. Built from what the asset produces plus judgements about growth, duration and required return.
• Intrinsic value — What an asset is worth on the basis of what it will produce for its owner, independent of what anyone is currently willing to pay for it.
• Margin of safety — The gap between what you pay and the value you believe an asset has - deliberate room for the estimate to be wrong.
• Sensitivity analysis — Recomputing a valuation with each uncertain input moved across the range you would defend, to see how much the answer depends on each one.
• Comparable companies — Businesses similar enough to the one being valued that the prices paid for them are evidence about its price. Similarity means growth, margin, capital intensity and customer concentration - not industry label.
• Valuation multiple — A price divided by something the business produces - earnings, cash flow, revenue, subscribers. A compressed way of expressing what buyers paid.
• Enterprise value — The value of the whole business - what lenders and owners together have claims on. Equity value plus net debt.
• Equity value — The value of the owners' share alone - enterprise value less net debt. What a buyer of the shares is actually paying for.
• EV/EBITDA — Enterprise value divided by EBITDA - the most common multiple for comparing whole businesses, because both parts are calculated before the effects of borrowing.
• Price-to-earnings ratio — The price of a share divided by the earnings attributable to it. An equity multiple, because both parts are measured after interest has been paid.
• Discounted cash flow — Valuing an asset as the money it will produce, with each future amount reduced to reflect that money arriving later is worth less than money arriving now.
• Discount rate — The annual rate at which future money is reduced to a present value, reflecting both the time you wait and the risk that the money does not arrive.
• Present value — What an amount of money arriving in the future is worth today, once discounted at a chosen rate.
• Terminal value — The value assigned to everything beyond the explicit forecast period, most often by assuming the final forecast year's cash grows at a constant rate forever.
• Terminal growth rate — The rate at which cash flow is assumed to grow forever after the explicit forecast ends. Sits in the denominator of the terminal value formula alongside the discount rate.
• Free cash flow to the firm — Cash available to all providers of capital, calculated before interest: operating profit taxed as if there were no debt, plus depreciation, less capital spending and the increase in working capital.
• Capitalisation rate — The required annual return used to convert an income stream into a price, most commonly in property. Value is net operating income divided by the rate.
• Net operating income — Rent or trading income after every cost of running the asset except financing - management, maintenance, insurance, tax and an allowance for periods standing empty.
• Dividend yield — The cash dividend paid over a year divided by the current share price - the income return actually received by a holder.
• Earnings yield — Earnings divided by price - the price-to-earnings ratio turned upside down. Expresses a share's price as a return, so it can be compared with other uses of the same money.
• Payout ratio — The share of earnings paid out as dividends. What remains is retained and reinvested in the business.
• Gordon growth model — The relationship that values a growing perpetual income stream as next year's income divided by the required return less the growth rate. The same formula produces a terminal value and a capitalisation rate.
• Reverse discounted cash flow — Running a discounted cash flow backwards: instead of computing a value, solve for the growth rate and discount rate that would justify the price being asked.
• Liquidation value — What the assets would realise if the business stopped operating and everything were sold, after settling what is owed.
• Independent verification — Confirming a claim against a source that was not produced by, and has no stake in, the transaction - a bank statement, a public register, a counterparty, a regulator.
• Primary source — A document that originated outside the transaction and was created for some purpose other than persuading you - bank statements, filed returns, signed contracts, public registers.
• Management representation — A statement made by the people selling or running the thing you are examining, whether spoken, written in a deck, or set out in a document they prepared.
• Proof of cash — Totalling the cash actually received over a period and comparing it with the revenue reported for the same period, to see whether reported sales turned into money.
• Diligence request list — The written set of documents and access you ask a counterparty for, normally sent in waves rather than as one block.
• Data room — The controlled repository, almost always online, where a seller places the documents a buyer has asked for.
• Disclosure schedule — The document in which a seller lists the exceptions to what they are formally promising - the litigation, the defaults, the contracts that are not on standard terms.
• Reference check — A conversation with a customer, supplier, former employee or prior counterparty who has no stake in whether the transaction completes.
• Red flag — An observation with two plausible explanations, one ordinary and one serious, which the observation alone cannot tell apart.
• Customer concentration — The share of a business's revenue that comes from its largest few customers.
• Deal killer — An established finding that no achievable price can address - because the asset stops being the asset, because the exposure has no floor, or because the counterparty has been shown to be unreliable.
• Encumbrance — A registered claim over an asset - a charge, lien, mortgage or security interest - held by someone other than the owner.
• Change-of-control clause — A contract term letting the counterparty terminate, renegotiate or withhold consent when the ownership of the other party changes.
• Representations and warranties — The statements of fact a seller formally makes in a transaction document, which the buyer is entitled to rely on and can claim against if untrue.
• Conditions precedent — Things that must happen before a transaction completes - a consent obtained, a licence transferred, a regulatory approval granted.
• Walk-away price — The price above which, or the specific finding after which, you have decided in advance not to proceed - written down and dated before the process begins.
• Return on investment (ROI) — Total proceeds less total cost, divided by total cost - the simplest measure of what an investment produced.
• Annualised return — A return restated as the equivalent constant rate per year: total proceeds over total cost, raised to the power of one over the number of years, minus one.
• Cost basis — What an investment actually cost you: the purchase price plus every fee, tax and expense required to acquire it and make it usable.
• Internal rate of return (IRR) — The single annual rate at which every cash flow, positive and negative, discounts back to exactly zero - the r solving sum of CF_t/(1+r)^t = 0.
• Net present value — The sum of every future cash flow discounted back to today at a chosen rate, less what must be paid now.
• MOIC (multiple on invested capital) — Total value divided by the money put in - 300,000 back on 100,000 is 3.00x.
• TVPI (total value to paid-in) — A fund multiple counting cash already distributed plus the current value of everything still held, divided by the capital investors have paid in.
• DPI (distributions to paid-in) — A fund multiple counting only money actually paid back to investors, divided by the capital they paid in.
• Carried interest — The share of a fund's profit that the manager keeps, conventionally around twenty percent, usually payable only above a defined return to investors.
• Hurdle rate — The return a fund must deliver to its investors before the manager becomes entitled to a share of the profit.
• Volatility drag — The gap between the arithmetic mean of a series of returns and the compound rate actually achieved, which widens the more the series moves around.
• Time-weighted return — A return computed by cutting the period at every cash flow, measuring each segment separately and multiplying the segments together, so that the size and timing of contributions do not affect the answer.
• Money-weighted return — The single rate at which every contribution, withdrawal and the closing value balance - an IRR applied to a portfolio rather than to a deal.
• Realised gain — The difference between what an asset actually sold for and its cost basis - a completed exchange that nothing afterwards can change.
• Unrealised gain — The difference between what an asset is currently marked at and its cost basis, where no sale has taken place.
• Valuation mark — The value an asset is currently carried at - a last traded price in public markets, or a valuation produced by a process in private ones.
• J-curve — The shape a private fund's reported return typically traces: negative early, as fees are charged before anything is sold, then rising as holdings are realised.
• Management fee — A recurring charge for running an investment, usually quoted as a percentage of the assets held and taken every year regardless of the result.
• Performance fee — A share of the gain paid to a manager, often only above an agreed threshold. Also called an incentive fee or, in private funds, carried interest.
• Transaction cost — What it costs to trade rather than to hold: commission, the spread between buying and selling prices, any tax on the trade itself, and the price movement a large order causes.
• Gross return — What an investment produced before any fees, costs or tax were taken out.
• Net return — What actually reached the investor after fees and costs were deducted. Net of tax as well, if stated.
• Capital gain — The profit made by selling an asset for more than it cost, as distinct from the income the asset paid you while you held it.
• Ordinary income — Money an investment pays you while you still own it - interest, dividends, rent, coupons - typically taxed in the year it is received.
• Withholding tax — Tax deducted at source from a payment before it reaches the investor, most often on dividends or interest paid across a border.
• After-tax return — The return that remains once the tax on it has been paid. The only version of a return an investor can actually spend.
• Tax wrapper — An account or structure that changes how the assets inside it are taxed, without changing the assets themselves.
• Taxable event — The moment a tax system treats something as having happened - most commonly a sale, rather than an increase in value while you still hold the asset.
• Portfolio turnover — The proportion of a portfolio bought and sold within a year. Zero means nothing was sold; one means roughly the whole portfolio changed hands.
• Tax drag — The reduction in compounding caused by paying tax earlier than necessary - the tax itself plus everything that tax would have earned had it stayed invested.
• Tax deferral — Postponing a tax liability rather than removing it, so the money that would have gone in tax keeps compounding in the meantime.
• Capital loss — The result of selling an asset for less than it cost. In many systems a realised loss can be set against a realised gain to reduce the tax due.
• Tax loss harvesting — Deliberately realising a loss so it can be set against a gain, reducing the tax owed in that year.
• Redemption — Withdrawing money from a fund by selling units back to the vehicle itself, rather than to another investor.
• Gate provision — A clause allowing a fund to limit or suspend withdrawals when too many investors ask to leave at once.
• Capital call — A demand from a fund manager for part of the money an investor has committed, made at a time of the manager's choosing.
• Committed capital — The total amount an investor has contractually agreed to provide to a fund, whether or not it has yet been called.
• Secondary market — Where an existing investor sells a position to another investor rather than back to the issuer or the fund.
• Liquidity premium — The additional expected return an investor should require for holding something that cannot readily be sold.
• Illiquidity discount — The reduction in price a seller must accept to find a buyer for something that cannot be readily traded.
• Bid-ask spread — The gap between the highest price a buyer will pay and the lowest a seller will accept. A cost paid on every round trip.
• Net asset value — The stated value of a fund's holdings less its liabilities, usually expressed per unit. In illiquid vehicles it is produced by a valuation process rather than by trading.
• Distribution — Cash returned to investors by a fund, typically after an underlying holding is sold or produces income.
• Decision journal — A written record of why a decision was made, written at the time it was made, and never edited afterwards.
• Hindsight bias — The tendency, once an outcome is known, to recall having expected it - the genuinely uncertain version of events quietly stops being available.
• Falsifiable claim — A statement specific enough that some future fact could show it to be wrong.
• Narrative fallacy — Reading a sequence of events as a coherent story with clear causes, when a large part of what happened was chance.
• Counterfactual — What would have happened on the branch that did not occur - the same decision, with the world going the other way.
• Calibration — How closely the likelihoods you state match how often those things actually happen, measured across many stated likelihoods rather than any one of them.
• Sample size — The number of independent observations a conclusion rests on.
• Outcome bias — Judging the quality of a decision by how it turned out, when the result was produced by the reasoning and by chance in proportions you cannot observe.
• Process versus outcome — The distinction between how a decision was made and what it happened to produce. The first belongs to you; the second belongs partly to the world.
• Pre-mortem — Writing, before committing, that the decision has already failed, and describing in the past tense what happened.
• Exit criteria — Conditions set in advance that oblige you to reconsider a position - in both directions, for the thesis breaking and for the position growing beyond its intended size.
• Common stock — An ownership share in a company that carries a residual claim on its assets and earnings - whatever is left after every creditor and preferred holder has been paid - usually together with a vote on certain corporate matters.
• Residual claim — A right to what is left over after all other claimants have been satisfied. Ordinary shareholders hold a residual claim, which is why they are paid last in a wind-up and why nothing is guaranteed to them.
• Shares outstanding — The number of shares a company has issued and that are currently held by investors. The diluted figure adds shares that would exist if outstanding options and convertible instruments were exercised.
• Voting rights — The right attached to most ordinary shares to vote on certain corporate matters - electing directors, approving mergers, and sometimes executive pay - usually one vote per share.
• Preferred stock — A class of shares ranking ahead of common stock for dividends and in a wind-up, usually paying a fixed or formula-based dividend and usually carrying no vote.
• Brokerage account — An account with a regulated firm that holds your cash and securities and routes your orders to trading venues on your behalf.
• Street name — The common arrangement in which a broker or its custodian appears on a company's share register while your entitlement is recorded as a book entry in the broker's own records.
• Custody — The safekeeping of securities by a regulated institution on behalf of their beneficial owner, including holding the record of ownership and processing corporate actions.
• Dividend — A distribution of cash (occasionally shares) from a company to its shareholders, declared at the discretion of the board out of the company's available profits.
• Ex-dividend date — The date from which a share trades without the right to receive the next declared dividend. Buy on or after it and the payment goes to the seller.
• Share buyback — A company purchasing its own shares in the market and cancelling them, so that the same earnings are divided among fewer shares and each remaining holder owns a larger proportion.
• Total return — The complete return from holding an asset over a period: the change in price plus every distribution received, expressed against the amount invested.
• Earnings per share — Net profit divided by the number of shares outstanding - the portion of a company's profit attributable to each share.
• Order book — The live, price-ranked list of all resting buy and sell orders for a security, showing how many shares are available at each level on each side.
• Limit order — An instruction to buy or sell only at a stated price or better. It joins the order book and waits, and may never execute.
• Market order — An instruction to buy or sell immediately at whatever prices the order book currently offers, working through successive price levels until the full size is filled.
• Market maker — A participant that continuously quotes both a buying and a selling price in a security, standing ready to trade with either side and earning the spread between the two.
• Price discovery — The continuous process by which buyers and sellers transacting produce a current market price for an asset.
• Market capitalisation — The last traded share price multiplied by the total number of shares outstanding - the market's headline figure for the value of a company's equity.
• Free float — The proportion of a company's shares actually available to trade, excluding stakes held by founders, governments, or long-term strategic holders.
• Bond — A loan made to a government, agency or company, packaged so it can be transferred to somebody else. It obliges the issuer to pay stated interest on stated dates and to repay a stated sum at maturity.
• Par value — The sum the issuer repays at maturity, per unit of the bond. Also called face value or principal. It is the base on which the coupon percentage is calculated.
• Coupon — The periodic interest a bond pays, quoted as a percentage of par value rather than of the price. It is fixed by the contract at issue and does not change with the market.
• Maturity — The date on which a bond repays its par value and the contract ends. Bonds are commonly grouped as short, intermediate or long by how far away that date is.
• Issuer — The borrower on the other side of a bond - a sovereign government, a state or municipality, a government agency or a company. The issuer owes the coupons and the par value.
• Accrued interest — The interest that has built up since the last coupon date and belongs to the seller. Bond prices are quoted clean, without it; the buyer pays the clean price plus accrued interest, and the total is sometimes called the dirty price.
• Seniority — Where a particular claim sits in the queue for payment if the borrower fails. Secured claims are paid from their collateral first, then senior unsecured claims, then subordinated ones, with shareholders last.
• Covenant — A promise written into a bond contract that limits what the issuer may do while the debt is outstanding - additional borrowing, dividends, asset sales, or a minimum level of interest cover.
• Yield to maturity — The single discount rate at which the present value of a bond's remaining cash flows equals its current price. It has no closed-form solution for a multi-period bond and is found numerically.
• Current yield — The annual coupon divided by the current price. It measures the income received against what the bond costs today, and nothing else.
• Callable bond — A bond the issuer may repay before maturity, on stated dates and at a stated price. The option belongs to the issuer, and the coupon is higher than it would otherwise be as payment for it.
• Yield to call — The return implied if a callable bond is repaid at its first call date and call price rather than held to maturity. Quoting the lower of yield to call and yield to maturity is described as the yield to worst.
• Duration — The present-value-weighted average time until a bond's cash flows are received (Macaulay duration), and by extension the measure of how much its price moves when yields change. Modified duration is Macaulay duration divided by one plus the yield.
• Convexity — The curvature of the relationship between a bond's price and its yield. Because the relationship is a curve and modified duration is a straight line tangent to it, the duration estimate is imprecise, and increasingly so as the move grows.
• Interest-rate risk — The risk that prevailing yields move and reprice a bond you already hold, because its fixed coupon must now compete with newly issued bonds paying a different rate.
• Reinvestment risk — The risk that coupons, or the proceeds of a maturing bond, must be put back to work at a lower rate than the one they came from - which is what makes a quoted yield to maturity conditional rather than certain.
• Credit risk — The risk that an issuer fails to make a contracted payment. It is the risk most associated with bonds and, for high-quality issuers, rarely the one that moves the price.
• Credit rating — An agency's published opinion on the relative likelihood that a specific obligation is repaid, expressed on an ordinal scale and usually paid for by the issuer.
• Investment grade — The band of credit ratings above the threshold that separates the higher-quality tier of bonds from the speculative tier. Many institutional mandates permit holdings only within it.
• High-yield bond — A bond rated below the investment grade threshold, carrying a wider spread over government yields to compensate for a higher assessed chance of default.
• Credit spread — The difference between a bond's yield and that of a government bond of the same currency and maturity. It is the market's price for the default risk, the illiquidity and any adverse options the government bond does not carry.
• Default — The failure of an issuer to meet a contracted obligation - a missed coupon, a missed principal repayment, or the breach of a term that permits creditors to demand repayment.
• Recovery rate — The proportion of a claim a creditor actually receives after a default, once the borrower's assets have been realised and distributed in rank order.
• Yield curve — The set of yields available across maturities for the same kind of issuer at one moment, usually plotted from shortest to longest.
• Zero-coupon bond — A bond that pays no interim interest. It is sold below par and redeemed at par, and the whole of the return is the pull towards par over its life.
• Basis point — One hundredth of a percentage point. A move from 4.00% to 4.25% is 25 basis points; a move from 4.00% to 6.00% is 200.
• Bond ladder — A set of bonds with maturities spaced at regular intervals, so that one matures each period and the proceeds are reinvested at whatever rates then prevail.
• Duration matching — Choosing fixed income holdings whose timing corresponds to a known future obligation, so the money arrives when it is needed.
• Mutual fund — An open-ended pooled fund that transacts directly with its holders: money in creates new units and a redemption cancels them, at one price struck after the market closes each day.
• Exchange-traded fund — A pooled fund whose units are listed and traded on an exchange throughout the session, at whatever price buyers and sellers agree rather than at the fund's own valuation.
• Look-through — Reading a fund's actual holdings and their weights, rather than its name or category, to establish what exposure you hold.
• Share class — One of several versions of the same fund portfolio, differing in fee, minimum investment, currency or whether income is paid out or retained.
• Creation and redemption — The wholesale mechanism by which large blocks of exchange-traded fund units are issued in exchange for a basket of the underlying securities, or cancelled in exchange for that basket.
• Accumulating share class — A share class that retains income inside the fund and reflects it in a higher unit price, instead of paying it out to holders as cash.
• Securities lending — A fund lending holdings to other market participants for a fee, usually against collateral, generating income the holdings themselves did not produce.
• Premium or discount — The gap between an exchange-traded fund's market price and the net asset value of its holdings, expressed as a percentage of that value.
• Arbitrage — Buying and selling two forms of substantially the same thing at the same time to capture a price difference between them.
• Authorised participant — A firm permitted to create and redeem exchange-traded fund units in large blocks by delivering or receiving the underlying basket of securities.
• Tracking difference — How far a fund's return finished behind, or ahead of, the index it tracks over a stated period.
• Tracking error — How much a fund's gap to its index varies over time - the consistency of the shortfall, not its size.
• Closet indexing — Charging an active management fee on a portfolio that substantially matches the index a far cheaper fund already tracks.
• Market-cap weighting — A rule that sets each holding's share of a fund in proportion to the market value of the company, so the largest company receives the largest allocation.
• Fund prospectus — The fund's own governing document, stating its objective, its permitted holdings, every share class and its fees, and the risks the manager is obliged to disclose.
• Capital gains distribution — A payment of gains the fund realised through its own trading, passed through to holders, in systems that require the fund to distribute rather than retain them.
• Fund domicile — The country a fund is legally resident in, which determines the tax treaties that apply to the income its holdings pay it.
• Real estate investment trust — A company that owns income-producing property and is usually listed on an exchange, so its shares can be bought and sold like any other share.
• Property syndication — An arrangement in which a sponsor buys one building with capital pooled from a group of passive investors and runs it on their behalf, typically for five to seven years.
• Gross rental yield — Annual rent divided by price, before any cost is deducted. The figure quoted on almost every property listing aimed at investors.
• Net rental yield — Net operating income divided by price - rent after vacancy, management, maintenance, insurance, local property tax and any service charge, but before financing.
• Vacancy rate — The share of potential rent lost to periods when a property stands empty, usually combined with an allowance for arrears.
• Comparable sale — A recent recorded transaction in a similar nearby property, used as evidence of what the subject property is worth.
• Appraisal — A professional estimate of what a property would sell for, reconciling comparable sales with a capitalisation of the income and adjusting for what the comparables did not match.
• Appraisal smoothing — The understatement of measured volatility and correlation that arises when an asset is valued periodically by estimate, each estimate anchored partly to the previous one, rather than being traded continuously.
• Capitalisation rate compression — A fall in the income return buyers are willing to accept, which raises prices without any change in the rent.
• Cash-on-cash return — A year of cash flow after financing, divided by the cash actually invested - deposit plus purchase costs - rather than by the price of the asset.
• Debt service coverage ratio — Net operating income divided by the annual mortgage payments. Below 1.00 the asset does not pay for its own borrowing.
• Loan to value — The outstanding loan divided by the current value of the asset securing it.
• Amortisation schedule — The month-by-month split of a loan payment between interest, which is a cost, and principal repayment, which reduces the balance.
• Depreciation recapture — Tax charged on sale for the depreciation deductions an owner took during the years they held the asset, separately from tax on the remaining gain.
• Bank deposit — Money handed to a bank in exchange for a claim on it. The bank owns the money and lends most of it out; what you hold is a debt that institution owes you, repayable on the terms of the account.
• Deposit insurance — A government-backed guarantee that repays depositors when an institution fails, up to a stated limit, per depositor, per institution.
• Counterparty risk — The risk that the party on the other side of an arrangement fails to pay what it owes you.
• Money market fund — A fund holding very short-term debt, commonly sold alongside savings accounts as a cash-like holding. You own units in a portfolio rather than a claim on a single bank.
• Treasury bill — Short-term borrowing issued by a government, repaid at a stated amount on a stated date.
• Annual equivalent rate — A rate restated on a like-for-like annual basis, so accounts that add interest at different frequencies can be compared against each other.
• Fixed-term deposit — A deposit at a rate agreed for a stated period, in exchange for giving up access to the money for that period.
• Policy rate — The benchmark interest rate set by a central bank, which the rates institutions offer savers and charge borrowers are set with reference to.
• Rate pass-through — The share of a change in the central bank's policy rate that an institution actually passes on to its savers.
• Introductory rate — A temporary bonus forming part of a headline savings rate for a stated period, after which the account reverts to a lower standard rate.
• Early withdrawal penalty — What it costs to take money out of a term or notice account before the agreed date - commonly a stated number of days of interest forfeited, a fixed charge, or outright refusal.
• Digital asset — An entry on a shared ledger, transferable by whoever holds the private key controlling it. Unlike every other instrument in this curriculum it is not a claim on an issuer, a company or a borrower.
• Private key — The secret number that authorises a change to a ledger entry. Whoever holds it controls the asset, nobody else can move it, and nobody can restore it.
• Self-custody — Holding the private key to your own digital assets, rather than leaving them with a trading venue or a custodian that holds the key for you.
• Distributed ledger — A shared record maintained and checked by many independent computers, in which a settled transfer cannot be reversed by any of them.
• Token issuance — New units of a digital asset created by the protocol itself and distributed under its own rules.
• Staking yield — A rate paid to holders who commit a digital asset to some function the protocol needs, quoted in the visual language of interest.
• Market depth — How many units are resting as orders near the current price - what a market can absorb before the price itself moves.
• Slippage — The gap between the quoted price and the average price a trade actually achieves, caused by consuming successive levels of the order book.
• Circulating supply — The units of a digital asset currently in holders' hands, as distinct from the total number that will eventually exist.
• Token unlock — The scheduled release of units held back at issue - typically from a team, early backers or a treasury - into circulating supply.
• Holder concentration — How much of a digital asset's circulating supply sits with its largest holders.
• Protocol governance — Who is able to change a protocol's rules - its supply schedule, its fees, its transfer rules - and by what process.
• Commodity — A physical good that is substitutable unit for unit, so it trades at a single global price rather than on the merits of any particular producer.
• Spot price — The price at which the physical good changes hands today, set by how much of it exists and how much is being used.
• Futures contract — An exchange-traded agreement to take or make delivery of a stated quantity of a good on a stated future date, held on a deposit far smaller than the notional amount.
• Cost of carry — What it costs to hold a physical good until a future date: financing on the capital tied up, plus storage and insurance.
• Contango — A futures curve sloping upward, with dated prices above the spot price - the ordinary state of a good that is plentiful and expensive to store.
• Backwardation — A futures curve sloping downward, with dated prices below the spot price - what happens when a good is scarce now and buyers will pay a premium to have it immediately.
• Roll yield — The gain or loss a futures holder takes each time an expiring contract is replaced with a later one, as the expiring contract converges to the spot price.
• Exchange-traded commodity — A listed product giving exposure to a commodity and traded like a share. It may hold the physical good, an unallocated claim on it, or futures contracts.
• Allocated storage — An arrangement in which specific, identified bars are recorded as belonging to you, as opposed to an unallocated claim on a shared pool of metal.
• Marginal cost of production — What it costs a high-cost producer to bring one more unit of a commodity to market, including the capital needed to sustain output.
• Inflation hedge — A holding expected to keep pace with the general price level, so that its owner's purchasing power is preserved rather than merely their currency balance.
• Preference vs Thesis — The distinction between a taste (a list of things you like the sound of, which cannot be wrong) and a thesis (a claim about the world that could be shown to be false).
• Edge — The specific reason you can expect a better-than-average result in a particular market - something you know, see or can do that the average buyer of that asset cannot.
• Load-Bearing Assumption — One of the two or three facts about the world that a thesis rests on, such that if it stopped being true the whole belief would fail.
• Anti-Thesis — The written list of categories an investor has decided in advance not to invest in, each with the reason and an explicit exception clause.
• Pre-Commitment — Deciding a rule in advance, at a moment when nothing is at stake, in order to bind the version of yourself that will face the decision under pressure.
• Adverse Selection — The tendency for the opportunities most available to you to be systematically worse than average, precisely because the better ones were taken by someone with earlier access.
• Disqualifying Question — The single question, derived from your thesis, whose wrong answer ends the conversation regardless of everything else about the opportunity.
• Thesis Drift — The gradual widening of a written thesis, one reasonable amendment at a time, until it describes the portfolio rather than constraining it.
• Deal Flow — The stream of investment opportunities that reach an investor, across every channel they arrive through.
• Proprietary Deal Flow — Opportunities an investor sees because of who they know or what they have done, rather than because the opportunity was sent to a list.
• Inbound Deal Flow — Opportunities that arrive unsolicited through open channels such as website forms, public email addresses and pitch events.
• Warm Introduction — An opportunity introduced by someone who knows both the investor and the founder, rather than a cold approach.
• Screening Funnel — The stages an opportunity passes through from arrival to investment, usually intake, first look, diligence and decision, each with its own time cost.
• Hit Rate — The share of opportunities seen that become investments.
• Pattern Matching — Judging a new opportunity by its resemblance to earlier ones that succeeded or failed.
• Investment Memo — A written document setting out the case for and against an investment, the key assumptions, and the reasoning behind the decision, prepared before money moves.
• Investment Committee (IC) — The group that reviews and approves or rejects investment proposals, typically in a fund or institutional investor.
• Bear Case — The most plausible version of how an investment goes badly, argued seriously rather than as a token risk section.
• Base Case — The outcome an investor considers most likely, as opposed to the optimistic or pessimistic scenarios.
• What Would Have To Be True — A framing that lists the conditions that must hold for an investment to succeed, so each can be judged on its own plausibility.
• Devil's Advocate — A person assigned to argue against a proposal regardless of their own view, so the case against it is made properly.
• Deal Terms — The economic and control provisions of an investment, including price, instrument, preferences, rights and governance.
• Provenance — The documented history of ownership of an object such as a painting, watch or bottle of wine.
• Fractional Ownership — Owning a share of a single asset, such as a painting or a farm, usually through a platform that holds the asset.
• Royalty Interest — A right to receive a share of the revenue from an asset such as a song catalogue, a patent or mineral production.
• Cash Rent Yield — The annual rent received from leasing an asset such as farmland, divided by its price.
• Holding Cost — The ongoing cost of owning an asset, such as storage, insurance, maintenance and fees, whether or not it produces income.
• Hammer Price — The winning bid at auction, before the buyer's premium and other charges are added.
• Buyer's Premium — A fee charged by an auction house to the winning bidder, calculated as a percentage of the hammer price.
• Seller's Commission — A fee deducted by an auction house from the hammer price before paying the seller.
• Reserve Price — The minimum price below which a seller has instructed an auction house not to sell.
• Private Treaty Sale — A sale arranged privately through a dealer or auction house rather than at public auction.
• Authentication Cost — The cost of verifying that an object is genuine, such as expert opinions, certificates and scientific testing.
• Condition Grading — A standardised assessment of an object's physical state, used to price collectibles such as coins, cards and comics.
• SAFE (Simple Agreement for Future Equity) — A contract that gives an investor the right to receive shares in the future, at a price set by a formula, rather than issuing shares immediately. It is not debt and carries no interest or maturity date.
• Convertible Note — A short-term debt instrument that converts into equity at a future financing round, carrying interest and a maturity date, unlike a SAFE.
• Valuation Cap — The maximum company valuation a SAFE or convertible note's conversion price can be based on, protecting the early investor from paying a later round's higher price.
• Pre-Money Valuation — A company's agreed value immediately before a financing round's new money is added.
• Post-Money Valuation — A company's agreed value immediately after a financing round's new money has been added, equal to the total resulting share count multiplied by the round's price per share.
• Cap Table — The running ledger of who owns what percentage of a company, on what instrument and what terms, before and after each financing event.
• Liquidation Preference — A contractual right for preferred shareholders to receive a stated multiple of their investment back before common shareholders receive anything, in a sale or wind-down.
• 409(a) Valuation — An independent appraisal, required under U.S. tax law, of a private company's common stock fair market value, used to set the strike price of employee stock options.
• Down Round — A financing round priced at a lower valuation, or lower price per share, than the company's previous round.
• Anti-Dilution Provision — A contractual term that adjusts an earlier investor's conversion price downward if a later round prices shares lower, protecting them from a down round's effect on their ownership.
• Information Rights — A contractual right for an investor to receive a private company's financial statements and other operating updates on a regular basis.
• Qualified Small Business Stock (QSBS) — Stock in a qualifying domestic C-corporation, acquired at original issuance and held for a required period, that can allow a large share of the eventual gain to be excluded from U.S. federal capital gains tax under Internal Revenue Code Section 1202.
• Liquidity Event — The point at which a private company's equity can actually be converted into cash - most often an acquisition or an initial public offering, occasionally a documented secondary sale.
• Owner-Operator — A business owner who personally works in the business full time, rather than employing a manager to run day-to-day operations on their behalf.
• Key-Person Risk — The risk that a business's earnings depend heavily on one specific individual's relationships, judgement or reputation, and will not survive their departure intact.
• Goodwill — The residual value of a business purchase left over once tangible assets are valued and liabilities assumed are subtracted, representing customer relationships, reputation and other intangible value expected to transfer to the new owner.
• Asset Purchase — A business acquisition structured as the purchase of specific named assets and goodwill, rather than the legal entity itself, generally leaving known and unknown liabilities of the old entity behind with limited exceptions.
• Stock (Entity) Purchase — A business acquisition structured as the purchase of ownership in the legal entity itself, transferring the entity's full history of contracts, obligations and liabilities, known and unknown, to the buyer.
• Seller's Discretionary Earnings (SDE) — A reconstructed measure of a small business's earnings that starts from reported net income and adds back the owner's salary and other discretionary or non-recurring items, used to price owner-operated businesses.
• SDE Multiple — The multiple applied to a small business's seller's discretionary earnings to arrive at a purchase price, negotiated based on factors including size, customer concentration, revenue durability and owner dependence.
• Franchise Fee — An upfront payment made to a franchisor for the right to operate a franchised business under its brand and system, separate from the ongoing royalty.
• Franchise Royalty — An ongoing fee paid to a franchisor, typically calculated as a percentage of gross revenue, in exchange for continued use of the franchise system and brand.
• Franchise Disclosure Document — A document required in many jurisdictions before a franchise sale, setting out the franchisor's fees, obligations, territory rules, litigation history and the terms governing renewal and resale.
• Earn-Out — A portion of a purchase price paid contingent on the acquired business achieving agreed performance targets after closing, rather than paid in full at the time of sale.
• Seller Financing — An arrangement in which the seller of a business agrees to accept part of the purchase price over time, typically as a promissory note subordinated to a bank loan.
• Non-Compete Clause — A contractual restriction preventing a seller from operating a competing business within a specified geographic area and time period after a sale.
• Business Broker — An intermediary who lists and helps sell small businesses, typically paid a commission by the seller upon a successful closing.
• Semi-Absentee Ownership — A business ownership structure in which day-to-day operations are run by a paid manager rather than the owner personally, with the owner involved only periodically.
• Leveraged Buyout (LBO) — The purchase of a company financed largely with debt placed on the acquired company, which repays it from its own cash flow.
• Multiple Expansion — An increase in the valuation multiple buyers pay for the same earnings, raising a company's value without any improvement in the business.
• Dividend Recapitalisation — Adding new debt to a company in order to pay a dividend to its owners, typically a private equity fund.
• Loss Ratio — The share of a fund's invested capital that went into deals returning less than their cost.
• Derivative — A contract whose value depends on the price of another asset, such as a share, index, currency or commodity.
• Call Option — A contract giving the buyer the right, but not the obligation, to buy an asset at a set price before or on a set date.
• Put Option — A contract giving the buyer the right, but not the obligation, to sell an asset at a set price before or on a set date.
• Strike Price — The price at which an option holder can buy (for a call) or sell (for a put) the underlying asset.
• Option Premium — The price paid by an option buyer to the seller for the contract.
• Expiry Date — The last date on which an option or futures contract exists; after it the contract ends.
• Break-Even Price — The price the underlying asset must reach at expiry for an option position to neither gain nor lose.
• Intrinsic Value (Option) — The amount an option would be worth if exercised immediately, and zero if exercising would not pay.
• Time Value — The part of an option's premium above its intrinsic value, reflecting time left and expected volatility.
• Implied Volatility — The level of future price movement that current option prices assume.
• Time Decay — The loss of an option's time value as expiry approaches, usually faster near the end.
• Covered Call — Selling a call option on shares you already own, collecting the premium in exchange for capping your upside.
• Protective Put — Buying a put option on shares you own to limit the loss if their price falls.
• Assignment — The process by which an option seller is required to fulfil the contract after the holder exercises it.
• Currency Pair — Two currencies quoted against each other, showing how much of the second is needed to buy one unit of the first.
• Base Currency — The first currency in a pair, the one being priced.
• Quote Currency — The second currency in a pair, in which the price of the base currency is stated.
• Pip — The standard smallest price increment for a currency pair, usually 0.0001 for most pairs.
• Lot Size — The quantity of currency in a trade; a standard lot is 100,000 units of the base currency.
• Contract for Difference (CFD) — A leveraged contract with a provider that pays or charges the change in an asset's price, without owning the asset.
• Carry Trade — Borrowing or selling a low-interest currency to hold a higher-interest one, aiming to earn the rate difference.
• Rollover Interest (Swap) — Interest credited or charged on a leveraged currency position held overnight, based on the two currencies' interest rates minus a broker markup.
• Zero-Sum — A situation in which one participant's gain is matched by another participant's loss, so total gains and losses offset.
• Forward Rate — An exchange rate agreed today for a currency exchange that will happen on a future date.
• Interest Rate Parity — The relationship that sets forward exchange rates so that differences in interest rates between two currencies are offset.
• Stop-Loss Order — An instruction to close a position automatically once the price reaches a set level.
• Negative Balance Protection — A rule or account feature ensuring a retail client cannot lose more than the money in their trading account.
• Currency Hedging — Using contracts such as forwards to reduce the effect of exchange-rate movements on foreign investments.
• Hedged Share Class — A version of a fund that uses currency hedging so investors' returns are largely unaffected by movements between the fund's holdings' currencies and the share class currency.
• Direct Lending — Loans made directly by non-bank lenders or funds to companies, typically mid-sized businesses, rather than through public bond markets.
• Peer-to-Peer Lending — Lending to individuals or small businesses through an online platform that matches lenders with borrowers.
• Platform Risk — The risk that the intermediary arranging or servicing investments fails, is poorly run or acts improperly, harming investors regardless of the underlying assets.
• Probability of Default (PD) — The likelihood that a borrower fails to repay within a given period, usually a year.
• Loss Given Default (LGD) — The share of a loan's value that is lost when a borrower defaults, after recoveries.
• Expected Loss — The average loss a lender anticipates on a loan portfolio, calculated as probability of default times loss given default times exposure.
• Floating-Rate Loan — A loan whose interest rate is a reference rate plus a fixed margin, so payments change as the reference rate moves.
• Subordination — The ranking of claims so that some lenders are repaid only after others have been paid in full.
• Senior Secured Loan — A loan that ranks first for repayment and is backed by a claim on specific assets of the borrower.
• Employer Match — Money an employer adds to an employee's retirement account in proportion to the employee's own contributions, up to a limit.
• Pre-Tax Contribution — A retirement contribution made before income tax is applied, with tax paid instead when money is withdrawn.
• Post-Tax Contribution — A retirement contribution made from income that has already been taxed, with qualifying withdrawals typically tax-free.
• Vesting Schedule — The timetable over which employer contributions or equity become fully owned by an employee.
• Marginal Tax Rate — The rate of tax applied to your next unit of income.
• Required Minimum Distribution — A rule in some retirement systems requiring account holders to withdraw at least a set amount each year after reaching a certain age.
• Human Capital — The economic value of a person's skills, knowledge, health and experience, reflected in their capacity to earn over a working life.
• Payback Period — The time it takes for the gains from an investment to recover its cost.
• Earnings Premium — The additional income associated with a qualification, skill or experience compared with not having it.
• Skill Depreciation — The decline in the economic value of a skill over time as tools, industries or demand change.
• Founder-Market Fit — How well a founding team's experience, access and skills suit the specific market they are trying to win.
• Product-Market Fit — The point at which a product clearly satisfies strong demand from a defined group of customers, shown by retention, organic growth and willingness to pay.
• Total Addressable Market (TAM) — The total revenue available if a product captured all potential customers in a defined market.
• Bottom-Up Market Sizing — Estimating a market by counting specific potential customers and multiplying by a realistic price, rather than starting from an industry total.
• Annual Recurring Revenue (ARR) — The yearly value of subscription or contracted revenue that is expected to repeat.
• Cohort Retention — The share of customers from a given signup period who are still active or paying after a set time.
• Churn Rate — The share of customers or revenue lost over a period.
• Customer Acquisition Cost (CAC) — The total sales and marketing spend required to win one new customer.
• CAC Payback Period — The number of months of gross profit from a customer needed to recover the cost of acquiring them.
• Fully Diluted Shares — The total number of shares that would exist if all options, warrants and convertible instruments were converted into shares.
• Option Pool — A block of shares set aside to grant stock options to employees, advisers and future hires.
• Option Pool Shuffle — Requiring a new or enlarged option pool to be created within the pre-money valuation, so its cost falls on existing shareholders rather than the new investor.
• Price Per Share — The amount paid for each new share in a funding round, calculated after all option pool and conversion mechanics.
• Dead Equity — Ownership held by people no longer contributing to a company, such as departed co-founders or inactive advisers.
• Post-Money SAFE — A SAFE whose conversion ownership is calculated against the company's valuation including all SAFE money, so each holder's percentage is fixed before the priced round.
• Conversion Discount — A percentage reduction from the priced round's share price at which a convertible note or SAFE converts into shares.
• Warrant — A right to buy a set number of a company's shares at a fixed price before an expiry date, often issued alongside loans or other investments.
• Venture Debt — Loans made to venture-backed startups by specialist lenders, typically alongside or after equity rounds and often with warrants attached.
• Term Sheet — A short document setting out the main economic and control terms of a proposed investment before full legal agreements are drafted.
• Participating Preferred — Preferred shares that receive their liquidation preference first and then also share in the remaining proceeds alongside common shares.
• Non-Participating Preferred — Preferred shares that receive either their liquidation preference or their share of proceeds as if converted to common, whichever is greater, but not both.
• Protective Provisions — Terms requiring the consent of specified investors before a company takes certain actions, such as raising money, selling the company or changing share rights.
• Board Composition — The allocation of board seats among founders, investors and independent directors.
• Drag-Along Right — A term allowing a specified majority of shareholders to require all others to join a sale of the company on the same terms.
• Tag-Along Right — A term allowing minority shareholders to join a sale by majority holders on the same terms.
• Full Ratchet — An anti-dilution provision that resets an investor's conversion price to the lowest price of any later round, regardless of how many shares are issued.
• Weighted Average Anti-Dilution — An anti-dilution provision that lowers an investor's conversion price by an amount reflecting both the lower price and how many new shares were issued.
• Investor Update — A periodic report from a company to its investors covering key figures, progress, problems and requests for help.
• Cash Runway — The number of months a company can operate before running out of cash, calculated as cash divided by monthly net burn.
• Net Burn Rate — The amount by which a company's cash falls each month, equal to cash spent minus cash received.
• Default Alive — Describes a company that, on its current trajectory of revenue and costs, would reach profitability before running out of cash without raising more money.
• Value-Add — Help an investor provides to a company beyond capital, such as introductions, expertise, recruiting support or references.
• Double Opt-In Introduction — An introduction made only after both people have agreed they want to be connected.
• Board Observer — A person allowed to attend board meetings and usually receive board materials, without voting rights or the legal duties of a director.
• Independent Director — A board member who is neither a founder, an employee nor a representative of an investor.
• Fiduciary Duty — A legal obligation to act in the interests of another party - for a company director, generally the company and its shareholders as a whole.
• Conflict of Interest — A situation in which a person's personal or other professional interests could influence their duty to act in another party's interests.
• Directors' and Officers' Insurance — Insurance that covers certain legal costs and claims made against a company's directors and officers in connection with their roles.
• Duty to Creditors — The obligation, recognised in many jurisdictions, for directors of a company approaching insolvency to give significant weight to creditors' interests.
• Signalling Risk — The risk that an existing investor declining to invest in a company's new round is interpreted by others as a negative sign about the company.
• Averaging Down — Investing more in a position after its price has fallen, lowering the average cost per share.
• Trade Sale — The sale of a private company to another company or to a financial buyer such as a private equity fund.
• Initial Public Offering (IPO) — The first sale of a company's shares to the public, after which the shares trade on a stock exchange.
• Wind-Down — The orderly closure of a company, selling its assets and distributing any proceeds to creditors and shareholders in order of priority.
• Distribution Waterfall — The order in which sale proceeds are paid out: typically debt, transaction costs, preferences and then remaining shareholders.
• Escrow Holdback — A portion of a sale price held back by the buyer or an agent for a set period to cover possible claims under the sale agreement.
• Fee Step-Down — A reduction in a fund's management fee rate or base after its investment period ends.
• Preferred Return — A minimum return that LPs must receive, often expressed as an annual rate such as 8%, before the manager earns carried interest.
• Catch-Up Clause — A term allowing the fund manager to receive most or all distributions after LPs reach their preferred return, until the manager has its full carry share of profits.
• European (Whole-Fund) Waterfall — A distribution structure where LPs receive all contributed capital and any preferred return across the whole fund before the manager receives carried interest.
• American (Deal-by-Deal) Waterfall — A distribution structure where the manager can receive carried interest on individual profitable deals as they exit, before the whole fund has returned LPs' capital.
• Clawback — A provision requiring a fund manager to return carried interest that exceeds what the fund's final overall performance justifies.
• Syndicate — A group of investors pooling money to invest in a single company alongside a lead investor, typically through a special purpose vehicle.
• Special Purpose Vehicle (SPV) — A legal entity created to hold a specific investment on behalf of a group of investors.
• GP Commitment — The amount of their own money a fund's managers invest in the fund alongside LPs.
• Net Revenue Retention (NRR) — Revenue from a group of existing customers now, divided by revenue from the same customers a year earlier, including upgrades and subtracting cancellations and downgrades.
• Rule of 40 — A benchmark for software companies adding revenue growth rate and profit margin, with a combined score of 40 or more often seen as healthy.
• Gross Merchandise Value (GMV) — The total value of transactions made through a marketplace, before the platform's share is taken.
• Take Rate — The share of transaction value a marketplace or payments business keeps as revenue.
• Inference Cost — The computing cost of running an AI model to respond to user requests.
• Technical Risk — The risk that a technology will not work as intended, cannot be produced at scale, or takes much longer to develop than planned.
• Capital Intensity — The amount of capital a business needs to invest, in equipment, inventory or projects, to generate revenue and grow.
• Moat — A durable competitive advantage that protects a business from rivals.
• Clinical Trial Phases — The sequential stages of testing a drug candidate in humans, typically Phase I, II and III, before regulatory review for approval.
• Reimbursement — Payment for a healthcare product or service by an insurer, government programme or health system.
• Binary Outcome — An outcome that tends toward one of two extremes, such as a large success or near-total loss, with little in between.
• Bill of Materials — The list and total cost of parts, components and assembly needed to produce one unit of a physical product.
• Customer Lifetime Value (LTV) — The total gross profit a business expects to earn from a customer over the whole relationship.
• Revenue-Based Financing — Funding repaid as a fixed share of a company's revenue until a set multiple of the advance has been paid.
• Side Letter — A separate agreement between a company and an individual investor granting rights that are not in the main investment documents.
• Most Favoured Nation (MFN) — A clause entitling an investor to any better terms granted to comparable investors within a defined scope.
• Confidentiality — The obligation not to disclose or use information learned in one relationship for another purpose.
• Recycling — A fund's ability to reinvest returned capital rather than distributing it, usually capped at a stated percentage of commitments.
• No-Fault Divorce — A provision allowing a supermajority of limited partners to end a fund's investment period without alleging wrongdoing by the manager.
• LP Advisory Committee — A committee of limited partner representatives consulted on conflicts of interest, valuation policies and fund extensions.
• Fund of Funds — A fund that invests in other funds rather than directly in companies.
• Angel investor — An individual who invests their own money directly into early-stage private companies, usually in exchange for equity or a convertible instrument.
• General partner (GP) — The manager of a private fund structured as a limited partnership, responsible for investment decisions and usually paid through fees and carried interest.
• Limited partner (LP) — An investor in a private fund structured as a limited partnership, who commits capital, has limited liability and generally has little control over investment decisions.
• Institutional investor — An organisation that invests large pools of money on behalf of others or for a long-lived purpose, such as a pension fund, endowment, insurer or sovereign wealth fund.
• Family office — An organisation that manages the investments and often the wider financial affairs of one wealthy family or a small group of families.
• Corporate venture capital (CVC) — Investment by an established company, usually through a dedicated unit, into external startups for strategic and financial reasons.
• Strategic investor — An investor, usually a company, whose motives for investing include business benefits such as technology access, distribution or future acquisition, not only financial return.
• Right of first refusal (ROFR) — A contractual right to match an offer before the asset or shares are sold to a third party.
• Startup — A young company designed to grow very quickly by searching for a repeatable, scalable business model under significant uncertainty.
• Unit economics — The revenue and costs associated with a single unit of a business, such as one customer or one order, used to judge whether each unit is profitable.
• Contribution margin — Revenue from a unit minus all the variable costs of producing and delivering it, available to cover fixed costs and profit.
• Network effect — The property of a product becoming more valuable to each user as more people use it.
• Switching costs — The money, time, effort or risk a customer faces when moving from one product or supplier to another.
• Economies of scale — Cost advantages that arise as output grows, lowering the cost of each unit produced or delivered.
• Competitive advantage — Something that allows a company to win customers or earn profits that competitors find hard to match.
• Venture capital method — A valuation approach that estimates a company's exit value, divides by the return multiple an investor requires and adjusts for expected dilution to find the price that can be paid today.
• Target return multiple — The multiple of invested capital an investor aims to receive from an individual investment, set high enough to compensate for investments that fail.
• Retention ratio — In the venture capital method, the share of an investor's current ownership expected to remain after dilution from future funding rounds.
• Scorecard method — A pre-revenue valuation approach that adjusts the typical pre-money valuation of comparable local deals using weighted comparisons of the company on factors such as team, market and product.
• Berkus method — A pre-revenue valuation approach that assigns up to a fixed amount for each of five risk-reducing elements: sound idea, prototype, management team, strategic relationships and product rollout.
• Risk factor summation method — A valuation approach that adjusts a benchmark valuation up or down in fixed steps according to ratings of twelve categories of risk.
• Serviceable addressable market (SAM) — The portion of a total market that a company's product and business model can realistically serve.
• Win rate — The share of sales opportunities a company closes successfully over a period.
• Willingness to pay — The highest price a customer would accept for a product before choosing an alternative or going without.
• Sales pipeline — The set of potential deals a company is pursuing, usually organised by stage from first contact to signed contract.
• Weighted pipeline — The value of a sales pipeline after multiplying each deal or stage by its probability of closing.
• Bookings — The value of contracts signed with customers in a period, whether or not the product has been delivered or revenue recognised yet.
• Deferred revenue — Cash or invoiced amounts received for products or services not yet delivered, recorded as a liability until earned.
• Gross burn rate — The total cash a company spends in a period, usually a month, before counting any cash received from customers.
• Related-party transaction — A transaction between a company and people or entities connected to its insiders, such as founders, directors, their relatives or businesses they control.
• Scalability — The ability of a system or business to handle much greater volume without a proportional rise in cost or a loss of reliability.
• Technical debt — The accumulated future cost of shortcuts and outdated decisions in a product's code and systems, paid as extra time and risk when making changes.
• Personal data — Information relating to an identified or identifiable individual, such as names, contact details, identifiers or health information, often protected by data protection laws.
• Penetration test — An authorised, simulated attack on a system carried out to find security weaknesses before real attackers do.
• Intellectual property assignment — A written agreement transferring ownership of intellectual property, such as code or designs, from its creator to a company.
• Open-source licence — The terms under which open-source software may be used, modified and distributed, ranging from permissive licences to copyleft licences with sharing obligations.
• Good standing — The status of a company that is up to date with its required filings and fees at the official company registry.
• Subsidiary — A company that is controlled by another company, usually through ownership of more than half of its shares.
• Vesting cliff — An initial period in a vesting schedule during which no shares or options vest, after which a first portion vests at once.
• Leaver provisions — Terms setting out what happens to a departing founder's or employee's shares, often distinguishing good leavers from bad leavers.
• Trademark — A legally protected sign, such as a name or logo, identifying the source of goods or services.
• Patent — A legal right granting its owner exclusive use of an invention for a limited period in the territories where it is granted.
• Exclusivity clause — A contract term preventing one party from working with competitors, in certain markets, or with other suppliers or customers.
• Limitation of liability — A contract term capping the damages one party can be required to pay the other.
• Worker misclassification — Treating a worker as an independent contractor when, under the relevant law, their working relationship makes them an employee or worker.
• Contingent liability — A potential obligation that depends on the outcome of a future event, such as a lawsuit or regulatory decision.
• Share register — The company's official legal record of who holds its shares and how many.
• Background check — Verification of facts about a person, such as identity, education, employment, directorships, court records or sanctions, from independent sources.
• Founder agreement — A written agreement between a company's founders setting out ownership, roles, vesting, decision-making and what happens if a founder leaves.
• Back-channel reference — A reference conversation with someone who knows a person but was not suggested by them.
• Secondary sale — A sale of existing shares by a current holder, such as a founder or early investor, to a new buyer, with the money going to the seller rather than the company.
• Lead investor — The investor who organises a funding round, typically negotiating the terms, coordinating diligence and often taking a board seat.
• Expert network — A set of people with specialist knowledge - operators, engineers, clinicians, lawyers - whom an investor can consult to check claims during diligence.
• Fund returner — A single portfolio company whose exit proceeds alone equal or exceed the total size of the fund that invested in it.
• Pari passu — Ranking equally. Pari passu preferred share classes are paid their preferences at the same time, sharing proportionally if proceeds are insufficient.