Financial Markets & Investing

A derivative is a financial contract whose value is based on the price of an underlying asset like a stock, commodity, or currency.

A futures contract is an agreement to buy or sell an asset at a set price on a specific future date.

An options contract gives the holder the right, but not the obligation, to buy or sell an asset at a set price before a deadline.

An ETF is a basket of securities that trades on a stock exchange like a single stock, often tracking an index.

An index fund is a fund that passively tracks a market index, such as the S&P 500, rather than picking stocks actively.

An IPO is the first sale of a private company's stock to the public, turning it into a publicly traded company.

Market capitalization is the total value of a company's shares, found by multiplying the share price by the number of shares outstanding.

A dividend is a portion of a company's profits paid out to shareholders, usually in cash and on a regular schedule.

A capital gain is the profit from selling an asset for more than you paid for it.

The P/E ratio is a stock's price divided by its earnings per share, showing how much investors pay per dollar of earnings.

A bear market is a prolonged period of falling asset prices, typically a decline of 20% or more from recent highs.

Leverage is using borrowed money to increase the potential return of an investment.

Short selling is borrowing an asset to sell it now, hoping to buy it back later at a lower price and pocket the difference.

Yield to maturity (YTM) is the total annual return an investor earns if a bond is bought at its current price and held until it matures.