Earnings Per Share (EPS)
Earnings per share is the portion of a company's net profit that belongs to each ordinary share. It converts total profit into a per-share figure so that results can be compared with the share price and across periods.
Investment & trading encyclopedia
Understand investment products, market mechanics, indicators and research terminology. Each entry includes an explanation, example, cautions and related learning.
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Equity
Equity is the residual ownership value of a business or asset after liabilities are subtracted. In markets, the word is also used for the asset class of company shares, as in equity markets or equity funds.
Exchange Rate
An exchange rate is the price of one currency expressed in another currency. It is set by supply and demand under a floating regime, or managed within limits by policy under a peg or band.
Exchange-Traded Fund (ETF)
An exchange-traded fund is an investment fund whose units are listed and traded on a stock exchange throughout the trading day, usually tracking an index, a sector or a basket of assets. It combines a pooled portfolio with the ability to buy and sell like a share.
Expense Ratio
The expense ratio is a fund's annual operating costs, such as management, administration and custody fees, expressed as a percentage of its average net assets. It is deducted from the fund's assets, so it lowers returns without appearing as a separate bill.
Expiration (Expiry)
Expiration is the date and time at which an option or futures contract ends, after which the holder's rights and obligations lapse or are settled. A European-style option can be exercised only at expiration, while an American-style option can be exercised at any time up to that deadline.
Face Value (Par Value)
Face value, also called par value, is the amount a bond issuer promises to repay at maturity and the base on which the coupon is calculated. It is fixed by the bond's terms and does not change when the market price moves.
Forex (Foreign Exchange)
Forex is the global market where one currency is exchanged for another. It has no single central exchange: banks, brokers, companies, funds and central banks trade through dealer networks and electronic platforms.
Free Float
Free float is the portion of a company's shares that is available for ordinary investors to trade, after excluding stakes held by controlling shareholders, governments, insiders and other strategic holders. It is usually expressed as a percentage of shares outstanding.
Futures
A futures contract is a standardized, exchange-traded agreement to buy or sell a specified quantity of an asset at a set price on a future date, or to settle the difference in cash. Positions are marked to market daily and backed by margin.
Gamma
Gamma is the option Greek that measures how much an option's delta changes for a one-unit move in the underlying price. It is the rate of change of delta, and it describes how quickly an option's exposure to the underlying shifts.
Implied Volatility (IV)
Implied volatility (IV) is the annualized volatility of the underlying asset that, when entered into an option pricing model, reproduces the option's current market price. It reflects how the market is pricing future movement, not a measured past quantity.
Index
An index is a calculated measure of the combined performance of a defined group of securities or other assets, such as a market, sector or asset class. It is a number rather than an investment, and it is built to a published rulebook.
Index Weighting
Index weighting is the rule that sets how much each constituent contributes to an index's return. Common schemes include market-capitalization (often free-float-adjusted) weighting, equal weighting, price weighting and factor- or fundamental-based weighting.
Leverage
Leverage is the use of borrowed money or derivative contracts to hold market exposure larger than the capital you put up, which magnifies both gains and losses relative to that capital.
Limit Order
A limit order instructs a broker to buy at or below, or sell at or above, a specified price. It controls the worst price you will accept but does not guarantee that the order will be filled.
Liquidity
Liquidity is how easily an asset can be bought or sold quickly, in the desired size, without moving its price much. A liquid market has many active buyers and sellers, narrow spreads and deep order books.
Look-Ahead Bias
Look-ahead bias occurs when a backtest uses information that would not have been available at the simulated decision time, such as a price, report or revision published later. It inflates results because the test knows something the real decision-maker could not.
Margin
Margin is the collateral a trader must deposit with a broker or clearing house to open and maintain a leveraged position, such as a futures contract, a margin loan or a short sale. It is a performance deposit against potential losses, not a fee and not the maximum amount that can be lost.
Market Capitalization
Market capitalization is the total market value of a company's issued shares, found by multiplying the share price by the number of shares outstanding. It measures the size of a company's equity as priced by the market, not its assets or revenue.
Market Order
A market order instructs a broker to buy or sell immediately at the best prices currently available. It prioritizes speed of execution over price certainty, so the execution price is not confirmed in advance.
Moving Average
A moving average is the average price over the most recent N periods, recalculated as each new period arrives so that the line smooths short-term noise. The simple moving average (SMA) weights every period equally, while the exponential moving average (EMA) weights recent prices more heavily.
Moving Average Convergence Divergence (MACD)
MACD is a trend and momentum indicator, created by Gerald Appel, that subtracts a longer exponential moving average from a shorter one and compares the result with its own smoothed signal line. Its default form uses 12-, 26- and 9-period settings.
Mutual Fund
A mutual fund pools money from many investors to buy a diversified portfolio of securities run by a professional manager, with each investor owning units in proportion to the amount invested. Depending on the jurisdiction, such funds may be set up as unit trusts or investment companies.