Finance Glossary
400 terms — plain-language definitions cross-linked to the lessons that put them to work.
A
Advance Tax
Paying income tax in instalments through the year.
Advance-Decline Line
A breadth gauge of advancing vs declining stocks.
ADX (Average Directional Index)
Measures how strong a trend is, not its direction.
Alpha
Return above what the market (or risk) would explain.
American Option
An option exercisable any time before expiry.
Amortisation
Paying off a loan through scheduled EMIs over time.
Anchoring Bias
Over-relying on the first number you saw.
Annuity
A product that pays a guaranteed regular income.
Asset Allocation
How you split money across equity, debt, gold and other assets.
Asset Class
A group of investments with similar behaviour.
Asset Turnover Ratio
How much revenue each rupee of assets generates.
Assets Under Management (AUM)
The total money a fund or manager oversees.
Atal Pension Yojana (APY)
A government scheme for a guaranteed small pension.
ATR (Average True Range)
A single number for how far a stock typically moves.
B
Backtesting
Testing a trading strategy on historical data.
Backwardation
When futures prices are below the spot price.
Balance of Payments (BoP)
A record of all economic transactions with the world.
Balance Sheet
A snapshot of what a company owns and owes.
Base Effect
How the prior year’s level distorts a growth rate.
Bear Put Spread
A defined-risk bearish options strategy.
Behavioral Finance
The study of how psychology drives investing mistakes.
Beta
How much a stock moves relative to the market.
Bid-Ask Spread
The gap between the highest buy price and lowest sell price.
Block Deal
A large pre-negotiated trade in a special window.
Blue-Chip Stock
A large, financially sound, well-known company.
Bollinger Bands
Volatility bands that widen and narrow around a moving average.
Bond
A loan to a government or company that pays fixed interest.
Bond Yield
The effective return on a bond at its current price.
Bonus Issue
Free additional shares given to existing shareholders.
Book Value
A company’s net worth on its balance sheet.
Breakout
When price decisively pushes through a support or resistance level.
Broker
An intermediary licensed to execute your trades.
BSE (Bombay Stock Exchange)
Asia’s oldest stock exchange, home of the Sensex.
Budget
A plan for how you’ll spend and save your income.
Bulk Deal
A large trade exceeding 0.5% of a company’s shares.
Bull & Bear Market
Sustained rising (bull) or falling (bear) market phases.
Bull Call Spread
A defined-risk bullish options strategy.
Business Cycle
The economy’s rhythm of expansion and contraction.
C
CAGR
Compound Annual Growth Rate — the smoothed yearly return.
Calendar Spread
Selling a near-dated option and buying a longer-dated one.
Call Option
The right to buy the underlying at a set price — a bullish bet.
Calmar Ratio
Return divided by maximum drawdown.
Candlestick
A chart bar showing a period’s open, high, low and close.
Capital Expenditure (Capex)
Spending on long-term assets like plants and equipment.
Capital Gain
Profit from selling an asset above its purchase price.
Capital Gains Tax
Tax on the profit from selling an asset.
Cash Flow Statement
Tracks actual cash moving in and out of a business.
Cash-Secured Put
Selling a put while holding cash to buy the stock.
Chaikin Money Flow (CMF)
Measures buying vs selling pressure over a period.
Chart Pattern
A recognisable price formation hinting at the next move.
CIBIL Score
India’s most-used credit score (300–900).
Circuit Breaker
An automatic trading halt when prices move too far.
Cointegration
When two prices move together over the long run.
Commodity
A raw material (gold, oil, copper) traded on exchanges.
Commodity Channel Index (CCI)
Measures price deviation from its average.
Compound Interest
Earning returns on your returns — growth that accelerates over time.
Conditional VaR (CVaR)
The average loss in the worst-case tail beyond VaR.
Confirmation Bias
Seeking only information that agrees with what you already believe.
Consolidation
A pause where price trades sideways in a range.
Contango
When futures prices are higher than the spot price.
Contrarian Investing
Going against the crowd’s prevailing sentiment.
Core Inflation
Inflation excluding volatile food and fuel prices.
Corporate Action
A company event that affects its shares.
Correlation
How closely two assets move together.
Covered Call
Selling a call on stock you own to earn income.
CPI (Consumer Price Index)
The main gauge of retail inflation.
Credit Score (CIBIL)
A number summarising how reliably you repay debt.
Cross-Validation
Testing a model on data it wasn’t trained on.
CRR (Cash Reserve Ratio)
The share of deposits banks must keep with the RBI.
Crude Oil
The energy commodity that moves economies — and India imports most of it.
Current Account Deficit (CAD)
When a country imports more than it exports.
Current Ratio
Short-term assets versus short-term liabilities.
Cyclical Stock
A stock whose fortunes track the economic cycle.
D
Death Cross
A bearish signal when a short MA crosses below a long MA.
Debt Fund
A mutual fund that invests in bonds and fixed income.
Debt Trap
A cycle of borrowing to repay existing debt.
Debt-to-Equity Ratio
How much a company borrows versus owners’ capital.
Debt-to-GDP Ratio
Government debt measured against the size of the economy.
Defensive Stock
A stock with stable demand through downturns.
Deflation
A sustained fall in the general price level.
Delivery Trading
Buying shares to hold in your demat beyond the day.
Delta
How much an option moves per ₹1 move in the underlying.
Demat Account
An electronic account that holds your shares.
Derivative
A contract whose value is derived from an underlying asset.
Digital Gold
Buying small amounts of gold online, stored for you.
Dilution
A drop in ownership when new shares are issued.
Discounted Cash Flow (DCF)
Valuing a business by its future cash, discounted to today.
Disposition Effect
Selling winners too early and holding losers too long.
Divergence
When price and a momentum indicator disagree — an early warning.
Diversification
Spreading money across assets that don’t move together to cut risk.
Dividend
A cash payout of company profits to shareholders.
Dividend Payout Ratio
Share of profit paid out as dividends.
Dividend Yield
Annual dividend as a percentage of the share price.
Doji
A candle with almost no body — indecision.
Donchian Channel
Bands at the highest high and lowest low over N periods.
Double Top / Double Bottom
A twin-peak (or twin-trough) reversal pattern.
Dovish
A central-bank stance favouring lower interest rates.
Downside Deviation
Volatility of only the negative returns.
Dunning-Kruger Effect
Beginners overrate their own skill.
E
EBITDA
Earnings before interest, tax, depreciation, amortisation.
Economic Moat
A durable advantage that protects a company’s profits.
Edge
A repeatable, structural reason your trades win over time.
ELSS (Tax-Saving Fund)
An equity mutual fund with a tax break and 3-year lock-in.
Emergency Fund
Accessible cash set aside for unexpected expenses.
EMI (Equated Monthly Instalment)
The fixed monthly payment that repays a loan.
Engulfing Pattern
A reversal where one candle swallows the prior one.
Enterprise Value (EV)
A company’s total value — market cap plus net debt.
EPF (Employees’ Provident Fund)
A retirement scheme funded from your salary, with employer match.
EPS (Earnings Per Share)
A company’s profit divided by its number of shares.
Equity
Ownership value — what’s left after debts are subtracted from assets.
Equity Curve
A graph of a strategy’s account value over time.
Equity Risk Premium
The extra return expected from stocks over safe bonds.
Estate Planning
Arranging how your wealth passes on after death.
ETF (Exchange-Traded Fund)
An index fund that trades on the exchange like a stock.
European Option
An option exercisable only at expiry.
Evening Star
A three-candle bearish reversal pattern.
Ex-Dividend Date
The cutoff to buy a stock and still get its dividend.
Exit Load
A fee for redeeming a mutual fund too soon.
Expectancy
The average profit or loss you can expect per trade.
Expense Ratio
The annual fee a fund charges, as a % of your money.
Exponential Moving Average (EMA)
A moving average that weights recent prices more.
F
Face Value
The nominal accounting value printed on a share.
Factor Investing
Tilting a portfolio toward traits that have historically paid.
Falling Wedge
A narrowing downward pattern, usually bullish.
False Breakout
A breakout that quickly reverses back into the range.
Fear & Greed
The two emotions that move markets and ruin accounts.
Fibonacci Retracement
Levels (38.2%, 50%, 61.8%) that estimate how far a pullback may go.
FII & DII Flows
Foreign and domestic institutional money moving the market.
FIRE (Financial Independence, Retire Early)
Building enough wealth to make work optional, often early.
Fiscal Deficit
When government spending exceeds its revenue.
Fiscal Policy
Government use of spending and taxes to steer the economy.
Fixed Deposit (FD)
A bank deposit locked for a fixed term at a fixed rate.
Folio Number
Your unique account number with a mutual fund.
FOMO (Fear of Missing Out)
Chasing a rally for fear of being left behind.
Foreign Direct Investment (FDI)
Long-term foreign investment in a country’s businesses.
Forex (Foreign Exchange)
The market where currencies are traded, always in pairs.
Forex Reserves
A country’s holdings of foreign currency and gold.
Free Cash Flow
Cash left after running and reinvesting in the business.
Fund Manager
The professional who runs a mutual fund’s portfolio.
Fundamental Analysis
Valuing a company from its business and financials.
Futures Contract
A binding agreement to buy or sell at a set price on a future date.
G
Gambler’s Fallacy
Believing past random outcomes change future odds.
Gamma
How fast an option’s delta changes with price.
Gap
A jump between one bar’s close and the next bar’s open.
GDP (Gross Domestic Product)
The total value of goods and services an economy produces.
Goal-Based Investing
Investing tied to specific life goals and timelines.
Gold (as an Investment)
The ancient store of value and crisis hedge.
Gold ETF
An exchange-traded fund that tracks gold prices.
Golden Cross
A bullish signal when a short MA crosses above a long MA.
Good Debt vs Bad Debt
Debt that builds wealth vs debt that funds consumption.
Goodwill
The premium paid above net assets in an acquisition.
Government Security (G-Sec)
A bond issued by the central or state government.
Growth Investing
Buying fast-growing companies for future earnings.
GTT Order
A standing order that stays active until triggered.
H
Hammer (Candlestick)
A bullish reversal candle with a long lower wick.
Hawkish
A central-bank stance favouring higher interest rates.
Head and Shoulders
A three-peak topping pattern signalling reversal.
Headline Inflation
The total inflation rate, including food and fuel.
Health & Education Cess
A 4% levy added on top of your income tax.
Health Insurance
Cover that pays your medical and hospital bills.
Hedging
Taking an offsetting position to reduce risk.
Heikin-Ashi
Averaged candles that smooth out price noise.
Herding & FOMO
Following the crowd — most dangerous at the extremes.
Hindsight Bias
Believing past events were obvious all along.
Home Loan
A long-term secured loan to buy property.
Hybrid Fund
A fund mixing equity and debt in one portfolio.
I
Ichimoku Cloud
A multi-line system showing trend, support and momentum.
Illusion of Control
Overestimating your influence over random outcomes.
Implied Volatility (IV)
The market’s forecast of future movement, baked into option prices.
In the Money (ITM)
An option with intrinsic value if exercised now.
In-Sample
The data a model was built and fitted on.
Income Investing
Investing for regular cash flow over growth.
Income Statement
A record of revenue, costs and profit over a period.
Income Tax Slab
Income ranges taxed at progressively higher rates.
Index
A basket of stocks tracked together to represent a market.
Index Fund
A fund that simply tracks a market index at very low cost.
Indexation
Adjusting an asset’s cost for inflation to cut tax.
India VIX
The market’s expected volatility over the next 30 days.
Inflation
The steady rise in prices that erodes money’s purchasing power.
Information Coefficient (IC)
How well a signal’s predictions match actual returns.
Information Ratio
Excess return per unit of active risk.
Intangible Assets
Non-physical assets like brands, patents and software.
Interest Rate
The price of money — what borrowing costs and saving earns.
Intraday Trading
Buying and selling within the same trading day.
Intrinsic Value
What an asset is really worth, based on its fundamentals.
Inverted Yield Curve
When short-term yields exceed long-term yields.
IPO (Initial Public Offering)
When a private company first sells shares to the public.
Iron Condor
A range-bound options strategy with defined risk.
ISIN
A globally unique 12-character security identifier.
J
K
L
Large-Cap
The biggest, most established listed companies.
Leverage
Controlling a large position with a small amount of money.
Limit Order
An order to trade only at a specified price or better.
Liquid Fund
A low-risk debt fund for parking cash short-term.
Liquidity
How easily an asset can be bought or sold without moving its price.
Long-Term Capital Gains (LTCG)
Tax category for assets held beyond a threshold period.
Look-Ahead Bias
Using information that wasn’t available at the time.
Loss Aversion
A loss hurts about twice as much as an equal gain feels good.
Lot Size
The fixed quantity per derivatives contract.
M
MACD
A momentum indicator built from the gap between two moving averages.
Margin
The deposit required to hold a leveraged position.
Margin of Safety
Buying well below your estimate of value to allow for being wrong.
Mark to Market (MTM)
Daily revaluation of positions to current prices.
Market Bubble
Prices detached wildly from value by mania, before a crash.
Market Capitalisation
A company’s total market value: share price × number of shares.
Market Cycle
The repeating phases of accumulation, markup, distribution and decline.
Market Neutral
A portfolio with offsetting long and short exposure.
Market Order
An order to buy or sell immediately at the best available price.
Max Pain
The expiry price where most options expire worthless.
Maximum Drawdown
The worst peak-to-trough fall in a portfolio.
MCLR
The benchmark below which banks can’t lend.
Mean Reversion
The tendency of prices to return to an average.
Mental Accounting
Treating money differently based on its source.
Mid-Cap
Medium-sized companies between large- and small-caps.
Momentum Factor
Buying recent winners and avoiding recent losers.
Monetary Policy
How a central bank manages interest rates and money supply.
Money Flow Index (MFI)
A volume-weighted RSI of buying vs selling pressure.
Moneyness (ITM/ATM/OTM)
Where an option’s strike sits relative to the current price.
Monte Carlo Simulation
Reshuffling trades thousands of times to see the range of outcomes.
Morning Star
A three-candle bullish reversal pattern.
Moving Average
A line that smooths price into its underlying trend.
Multibagger
A stock that returns several times your investment.
Mutual Fund
A pooled investment managed for many investors at once.
N
Naked Option
Selling an option without a hedge or covering position.
Narrative Fallacy
Inventing tidy stories to explain random events.
NAV (Net Asset Value)
The per-unit price of a mutual fund.
Net Profit Margin
Final profit as a percentage of revenue.
Net Worth
Everything you own minus everything you owe.
NFO (New Fund Offer)
The launch of a new mutual fund scheme.
Nominal GDP
Economic output at current prices, unadjusted for inflation.
Nominee
The person who receives your assets if you die.
NPS (National Pension System)
Low-cost, market-linked retirement saving with an extra tax break.
NSE (National Stock Exchange)
India’s largest stock exchange by volume.
O
Omega Ratio
The ratio of gains to losses above/below a threshold.
On-Balance Volume (OBV)
A running volume tally that confirms price moves.
Open Interest
The number of derivative contracts still outstanding.
Open Market Operations (OMO)
A central bank buying/selling bonds to manage liquidity.
Operating Margin
Operating profit as a percentage of revenue.
Option
The right, not the obligation, to buy or sell at a set price.
Option Chain
A table of all option strikes and their prices.
Option Greeks
Numbers measuring how an option’s price reacts to each factor.
Option Premium
The price paid to buy an option.
Order Book
The live list of buy and sell orders for a stock.
Out of the Money (OTM)
An option with no intrinsic value yet.
Out-of-Sample Testing
Testing a strategy on data it was never built on.
Overbought
A condition suggesting price has risen too far, too fast.
Overconfidence Bias
Overestimating your own skill and knowledge.
Overfitting (Curve-Fitting)
Tailoring a strategy so closely to the past it fails on the future.
Oversold
A condition suggesting price has fallen too far, too fast.
P
P/B Ratio (Price-to-Book)
Share price relative to book value per share.
P/E Ratio
Price-to-earnings — how many rupees you pay per rupee of profit.
Pairs Trading
Trading the spread between two related assets.
Parabolic SAR
A dotted stop-and-reverse trend indicator.
Patience (Investing)
Waiting for the right setup — and for compounding to work.
PEG Ratio
The P/E ratio adjusted for earnings growth.
Penny Stock
A very low-priced, highly speculative stock.
Personal Loan
An unsecured loan at a high interest rate.
Physical Settlement
Settling a derivative by delivering the actual shares.
Pivot Point
Calculated intraday support/resistance levels.
Pledged Shares
Promoter shares used as collateral for loans.
Portfolio Heat
The total risk live across all your open positions at once.
Position Sizing
Deciding how much to bet on each trade or holding.
PPF (Public Provident Fund)
A 15-year, tax-free, government-guaranteed savings scheme.
Present Bias
Overvaluing immediate rewards over future ones.
Primary Market
Where new securities are first sold by the issuer.
Professional Tax
A small state-level tax on salaried income.
Profit Factor
Gross profit divided by gross loss across all trades.
Promoter Holding
The stake owned by a company’s founders/controllers.
Prospect Theory
People feel losses more strongly than equal gains.
Protective Put
Buying a put to insure a stock holding against a fall.
Purchasing Power Parity (PPP)
Comparing economies by what money actually buys.
Put Option
The right to sell the underlying at a set price — a bearish bet.
Put-Call Ratio (PCR)
Put volume (or OI) divided by call volume.
Q
R
Real GDP
Economic output adjusted for inflation.
Rebalancing
Restoring your target asset mix by trimming winners, topping up laggards.
Recency Bias
Overweighting recent events when forecasting.
Recession
A significant, broad decline in economic activity.
Record Date
The date a company checks who owns its shares.
Recurring Deposit (RD)
Fixed monthly bank deposits at a fixed rate.
Regret Aversion
Avoiding decisions for fear of future regret.
REIT
A trust that lets you own income-producing real estate via the market.
Relative Strength
How a stock performs versus the market or peers.
Renko Chart
A price chart of fixed “bricks” that ignores time.
Repo Rate
The rate at which the RBI lends to banks.
Retained Earnings
Profits kept in the business rather than paid out.
Retirement Corpus
The total savings needed to fund your retirement.
Return on Capital Employed (ROCE)
Profitability on all capital — equity plus debt.
Return on Equity (ROE)
Profit generated per rupee of shareholders’ equity.
Revenge Trading
Trading impulsively to recover a recent loss.
Reverse Mortgage
Borrowing against your home for retirement income.
Reverse Repo Rate
The rate the RBI pays banks to park funds with it.
Rho
An option’s sensitivity to interest-rate changes.
Rights Issue
Offering existing shareholders new shares at a discount.
Rising Wedge
A narrowing upward pattern, usually bearish.
Risk Capacity
How much risk your finances can actually bear.
Risk of Ruin
The probability of losing so much you can’t continue.
Risk Parity
Allocating so each asset contributes equal risk.
Risk Tolerance
How much volatility you can emotionally stomach.
Risk-to-Reward Ratio
How much you stand to gain versus lose on a trade.
Rollover
Moving a position from an expiring contract to the next.
RoMaD / Calmar Ratio
Annual return divided by maximum drawdown.
RSI (Relative Strength Index)
A 0–100 momentum gauge of overbought/oversold conditions.
Rupee Depreciation
A fall in the rupee’s value against other currencies.
Rupee-Cost Averaging
Buying steadily over time to average out your purchase price.
S
Safe Haven
An asset money flees to in times of fear.
Safe Withdrawal Rate (4% Rule)
How much you can withdraw yearly in retirement without running out.
Savings Rate
The share of your income you save and invest.
Seasonality
Recurring calendar patterns in returns.
SEBI
India’s securities-market regulator.
Secondary Market
Where existing securities trade between investors.
Section 24 (Home Loan Interest)
A deduction for interest paid on a home loan.
Section 80C
A tax deduction of up to ₹1.5 lakh for set investments.
Section 80D
A tax deduction for health-insurance premiums.
Self-Attribution Bias
Crediting wins to skill, blaming losses on bad luck.
Settlement Cycle (T+1)
How long after a trade ownership and cash settle.
Share Buyback
A company repurchasing its own shares.
Shareholding Pattern
How a company’s ownership is split across groups.
Sharpe Ratio
Return per unit of risk — the standard risk-adjusted measure.
Short Selling
Selling borrowed shares hoping to buy them back cheaper.
Short-Term Capital Gains (STCG)
Tax category for assets sold within the threshold period.
Simple Moving Average (SMA)
The plain average of price over N periods.
SIP (Systematic Investment Plan)
Investing a fixed amount at regular intervals, automatically.
Skewness
The asymmetry of a return distribution.
Slippage
The gap between expected and actual trade price.
SLR (Statutory Liquidity Ratio)
Deposits banks must hold in safe liquid assets.
Small-Cap
Smaller companies with high growth potential and high risk.
Smart Beta
Rules-based indexing tilted toward return factors.
Sortino Ratio
Return per unit of downside risk only.
Sovereign Gold Bond (SGB)
Government bonds that track the price of gold.
Square Off
Closing an open position by taking the opposite trade.
Stagflation
High inflation paired with stagnant growth.
Standard Deduction
A flat deduction salaried taxpayers get automatically.
Standard Deviation
A measure of how spread out returns are.
Statistical Arbitrage
Exploiting short-term statistical mispricings at scale.
Stochastic Oscillator
A momentum gauge of close versus recent range.
Stock (Share)
A unit of ownership in a company.
Stock Exchange
A regulated marketplace where shares are bought and sold.
Stock Split
Dividing each share into more, lower-priced shares.
Stop-Loss
A pre-set exit that caps your loss if a trade goes wrong.
Straddle
Buying a call and put at the same strike to trade volatility.
Strangle
A cheaper volatility bet using out-of-the-money options.
Strike Price
The fixed price at which an option can be exercised.
Sum Assured
The guaranteed payout amount on an insurance policy.
Sunk-Cost Fallacy
Sticking with something because of what you’ve already invested.
Supertrend
A trend-following indicator built on ATR.
Support & Resistance
Price zones where buying (support) or selling (resistance) tends to dominate.
Surcharge (Income Tax)
An extra tax on high incomes, levied on the tax itself.
Survivorship Bias
Studying only the winners that survived.
Synthetic Position
Mimicking one instrument using a combination of others.
Systematic Transfer Plan (STP)
Moving a lump sum into equity in fixed instalments.
T
Tail Risk
The risk of rare, extreme events (black swans).
Take-Home Pay
Salary that actually reaches your bank account.
Tax Deduction
An amount subtracted from income before tax.
Tax Harvesting
Booking gains or losses to reduce your tax.
TDS (Tax Deducted at Source)
Tax withheld by the payer before you’re paid.
Technical Analysis
Studying price and volume to forecast moves.
Term Insurance
Pure, cheap life cover that pays out only if you die in the term.
The 1% Rule
Never risk more than ~1% of capital on a single trade.
Theta (Time Decay)
How much an option loses in value each day from time passing.
Ticker Symbol
A short code that uniquely identifies a listed stock.
Time Value (Options)
The part of an option price beyond intrinsic value.
Total Return
Price change plus dividends, the full gain.
Tracking Error
How far a fund strays from its benchmark.
Trading Account
The account used to place buy and sell orders.
Trading Discipline
Following your plan even when emotions push back.
Transaction Cost
The total cost of executing a trade.
Treasury Bill (T-Bill)
A short-term government borrowing instrument.
Trend
The prevailing direction of price: up, down or sideways.
Treynor Ratio
Excess return per unit of market (systematic) risk.
U
V
Valuation
Estimating what an asset is worth.
Value at Risk (VaR)
The maximum likely loss over a period at a confidence level.
Value Factor
Systematically buying cheap stocks.
Value Investing
Buying solid businesses for less than they’re worth.
Value Trap
A cheap-looking stock that stays cheap for good reason.
Variance
The square of standard deviation — dispersion of returns.
Vega
How much an option’s price changes when volatility changes.
Vertical Spread
Buying and selling options of the same expiry, different strikes.
Volatility
The size of price swings — not their direction.
Volume
The number of shares or contracts traded in a period.
Volume Profile
A histogram of volume traded at each price level.
Voluntary Provident Fund (VPF)
Extra EPF contributions beyond the mandatory amount.
VWAP
Average price weighted by volume through the day.
W
Walk-Forward Analysis
Repeatedly optimising on the past and testing on the next slice.
Weekly Expiry
Options that expire every week, not just monthly.
Whipsaw
Rapid reversals that trigger losing trades both ways.
Williams %R
A momentum oscillator for overbought/oversold.
Win Rate
The percentage of trades that are profitable.
Working Capital
Short-term assets minus short-term liabilities.
WPI (Wholesale Price Index)
Inflation measured at the wholesale level.