70+ Finance terms and their meaning

Feeling a little confused about some of those financial terms? Here is a quick run-through of their meanings.

If you are new to finance, then many unknown terms can make it difficult to digest financial news or to quickly pick out important information.

This situation might be tough at first but learning them makes things easier because these finance terms make communication more effective.

So, if you are ready to learn, then here are the most important financial terms and what they mean.

Personal Finance Terms

  • Net Income – All of your earnings are called gross income. Then after subtracting your expenses, you have your net income. For instance, say you make $20,000 in sales from your ice-cream business, but you spent $13,000 on supplies and transportation. In this case, $20,000 is your gross income, while $7,000 is your net income (Gross Income – Expenses).
  • Interest – The yield that comes from an investment. It is usually calculated as a percentage of the principal per year. For example, 3% p.a on a $1,000 investment means you will get $30 each year.
  • Compound Interest – The process of continually investing the yield from an investment back into the principal to build up your capital over time.
  • 401(k) – A retirement account that you contribute to and your employer matches the amount in support.
  • Beneficiary – Recipient of a monetary transaction, which can range from a simple bank transfer to life insurance, retirement, and investment accounts.
  • Collateral – An asset that you pledge to borrow money, so the lender has security. Collateral is usually more valuable than the loan and can be sold to repay the loan if you do not pay up.
  • FICO Score – Credit rating of a borrower. It is used by lenders to reach fast approval decisions on loan applications.

Corporate Finance Terms

  • APR (Annual Percentage Rate) – Used in calculating the interest rate on an account. It could be a credit or investment account, but associated fees are not mentioned. This makes it seem more attractive to borrowers.
  • APY (Annual Percentage Yield) – Also used in calculating interest on an account, but it includes compounding returns for the year.
  • Asset Allocation – The splitting up of investments into different asset classes to balance risk. These classes can include bonds, cash, and stocks.
  • Blue Chip – A stock with a good reputation, including good performance, quality, and reliability over the long term.
  • EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization. It is used to measure the profitability of a company’s core business, before considering debt and payment obligations.
  • Equity – An asset may also have liabilities attached to it, such as real estate with a mortgage. Your equity is what is left when you sell the house and pay off the mortgage.
  • Debt Financing – The process of borrowing money to run a business, which you pay back with an interest.

Public Finance Terms

  • Recession – A decline in economic activity in a region.
  • Inflation – An increase in the price of goods and services in an economy.
  • Stagflation – Also called recession-inflation. This is a period of high inflation combined with stagnant economic growth. The result is high unemployment and higher prices.
  • Deflation – The reduction of the price of goods and services in an economy.
  • Legal Tender – Notes or coins that all businesses in a jurisdiction must accept as payment.
  • Fractional Reserve – A banking system that keeps only a portion of deposits for withdrawal. The rest is then lent to borrowers to help boost the economy. The downside, however, is that there won’t be enough money if everyone decided to withdraw their deposits at once.
  • Gold Standard – A monetary system where a country’s currency is linked to the value of gold. Countries can also link their currency to valuable commodities, such as oil or natural gas.
  • GDP (Gross Domestic Product) – The measure of all the economic activity in a given region and time. GDP is usually calculated annually and focuses on the value of finished goods and services.
  • Fiscal policy – The use of government policies and spending to influence economic activity in a region.
  • Monetary Policy – Using the control of money supply to influence economic activity. This process can include printing more money or changing interest rates.

Business & Startups Terms

  • ROI (Return On Investment) – The profit you make from any business venture, in relation to the invested capital. It is usually expressed as a percentage of the principal. So, if you invest $100 and make $50 to have a total of $150, then you made a 50% ROI.
  • Liquidity – The ease of converting an asset into ready cash without affecting its price. Any asset that you can easily sell, such as a bond or the stock of a major company is very liquid. Real estate is less liquid because it can take longer to sell.
  • Income Statement – Financial statement showing a company’s revenues and expenses for a given period. It is also called a profit and loss account and is used to show a company’s performance or financial health.
  • Lien – A legal claim to a property used as collateral to borrow money. The lender maintains this right until the debt is paid.
  • Business Plan – A document that formally states the business goals of a company, how it is trying to achieve those goals, and where it currently stands in the market. Business plans are often used to raise capital from investors, but can also help in the internal operations of the company.
  • Bootstrapping – Process of growing a startup company without outside investment. The founder uses personal savings or contributions from friends and family.
  • IPO (Initial Public Offering) – Official launch of a company’s stocks to the public. An IPO is typically handled by investment banks and is also called an exit because most early investors uses it to cash out.
  • Unicorn – A startup company that is valued at $1 billion or higher. The term comes from the venture capital world.

Trading & Speculation Terms

  • Bear Market – A downward trending market. This means that prices are either falling for the asset or are expected to fall.
  • Bull Market – An upward trending market. Bull markets are either seeing rising prices or there is hope that prices are about to rise.
  • Bid/Ask Price – The bid is the highest price that a broker offers to buy an asset from you, while the ask is the lowest price he will buy an asset from you. As a trader or investor, you buy assets from your broker at ask prices and sell to them at bid prices. The ask of any Ask/Bid pair is always higher than the bid.
  • Bid/Ask Spread – The Ask price is always higher than the Bid price for the same asset and this difference is called the spread. Most brokers earn their profits from the spread, else they can also charge commissions.
  • Broker – The firm that acts as an intermediary between an investor and the securities exchange. They often provide trading or investment software, customer support, and margin accounts.
  • Pip (Price Interest Point) – Used in trading transactions, a Pip represents one-hundredth of one percent, 0.01%, or 0.0001 mathematically. Every asset also has a pip value, which is how much money it is worth per contract.
  • Margin – A collateral that an investor or trader has to deposit in a brokerage account to cover all the risks of dealing with financial instruments. This means the broker offers credit to its account holders to buy financial products if they can deposit some amount of money to cover basic risks.
  • Principal – The initial size of a loan or investment. From it, you can calculate all types of profit or loss metrics.
  • Rally – A sharp and sustained rise in the price of an asset, usually as a result of good economic news.
  • Selloff – A sharp and sustained fall in the price of an asset. It is usually a result of bad economic news.
  • Risk Tolerance – Amount of capital a trader or investor is willing to stake per trade or investment. It’s a double-edged sword because lower risk means limited potential gains, while higher risk comes with higher potential gains.

Capital Markets Terms

  • Mutual Fund – A financial product that invests in different types of assets, including stocks and bonds, with capital sourced from a pool of investors. It is usually a relatively safe investment.
  • Hedge Fund – An institutional investor or investment firm that manages risks by simultaneously buying and selling related assets or securities. The thinking here is that if the firm bought Asset A and it loses its value, the decline of the similar Asset B that the firm sold will reduce the overall risk. Today, the “hedge fund” term mainly refers to investment companies that cater to high-net-worth individuals.
  • Institutional Investor – A company that invests on behalf of clients. An institutional investor can be a hedge fund, a pension fund, a mutual fund, an insurance company, and so on.
  • Capital Gain – The profit realized from selling an asset that has appreciated over time. Such an asset can be a car, a business, shares, and other intangible assets.
  • Bonds – A security that provides a fixed income for the investor and can also be traded on the secondary market. The bond issuer borrows money from the investor over a defined period when the principal must be paid back. Meanwhile, the yield is paid at agreed intervals, usually every few months.
  • Stocks – Fractional ownership of a company. A stock can also be called equity and a unit of stock is a share. Stocks entitle their owner to a proportion of the company’s profits, as well as its assets, but these rights are related to the number of stocks owned.
  • REIT – Acronym for Real Estate Investment Trust. It is an organization that owns and manages real estate such as warehouses, apartment buildings, commercial real estate, shopping centers, and so on.
  • Trust Fund – A trust is a legal instrument that allows a trustee to hold and manage assets for its beneficiary. The fund refers to assets of the trust that belong to the beneficiary.
  • Index – A group (or basket) of financial instruments that reflect the health of a particular market. Most popular indices such as the S&P500 combine data from shares of the most important companies in the United States.
  • S&P500 – The Standard and Poor’s 500 is an index of 500 publicly traded domestic US companies. It is used as a measure of the stock market performance of American companies.
  • NASDAQ – Acronym for National Association of Securities Dealers Automated. A stock exchange for trading shares of 3,000 companies with a focus on high-tech firms.
  • NYSE – The New York Stock Exchange.
  • Stock Exchange – An organized market where traders and investors can buy and sell securities such as stocks, bonds, and commodities.

Stocks & Shares Terms

  • EPS (Earnings Per Share) – This figure tells you how much cash the company will pay you for each share of the stocks that you own. Higher earnings per share are good, as it means the investment is more profitable.
  • P/E Ratio (Price to Earnings Ratio) – A mathematical relationship between the amount you pay for a share and the amount you earn for that share. Lower P/E ratios are better for investors, as it indicates the company might be undervalued. Higher P/E ratios indicate overvalued companies.
  • Penny Stock – Low-value stocks of small companies that typically sell for less than $5 per share.

Accounting Terms

  • Account Payable – Money that a company owes its suppliers or vendors for services or goods it received, but has not yet paid for.
  • Account Receivable – Money that is owed to a company by its clients, for goods or services the company sold or rendered, but has not received payment for.
  • Balance Sheet – The summary of your personal or business financial balances, which makes it easier to get an overview. It includes assets, liabilities, and net worth. As well as detailed breakdowns where necessary.
  • Cash Flow – Amount of money that goes in and out of a business in any given period. It helps monitor the business’ liquidity, which is how much cash is available.
  • Asset – A property that generates income for you, such as patents, trademarks, real estate, distribution rights, and securities you can sell.
  • Liability – Anything that makes you or your company spend money, such as a loan, a mortgage, business expenses, payroll, and accounts payable.
  • Capital – An individual or company’s wealth that can be invested in a business venture. It could be in cash or other asset forms.

Cryptocurrencies Terms

  • Wallet – A system to securely store the access codes of a cryptocurrency. A wallet could be a software platform, a hardware device, or a piece of paper.
  • Escrow – A service that holds payment from one party and only releases it when the other party completes his part of the transaction in a verifiable way.
  • ICO – Initial Coin Offering. The process of funding a crypto venture by selling tokens to the public.
  • DeFi – Decentralized finance. A financial system that does not rely on a central entity to provide services. This method means the bypassing of commercial and central banks, such as is the case with Bitcoin and other cryptos.


We have reached the end of this top 70+ finance terms and their meanings. And as you can see, most of these terms make it easier to communicate once you know what they mean.

Although it might take some time to learn them, doing so gives you a deeper understanding of the financial world. So, it is worth it.

Nnamdi Okeke

Nnamdi Okeke

Nnamdi Okeke is a computer enthusiast who loves to read a wide range of books. He has a preference for Linux over Windows/Mac and has been using
Ubuntu since its early days. You can catch him on twitter via bongotrax

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