Welcome to the EC² Invest Dictionary!
This resource is designed to break down complex terms into simple, easy-to-understand explanations. Whether you're a beginner exploring Hong Kong stocks, US markets, or crypto, these definitions will help you build confidence and make informed decisions without feeling overwhelmed. We've included real-world examples to show how each term applies in practice. Terms are listed alphabetically for easy navigation.
A
Amortization
The gradual repayment of a debt through regular installments over time, covering both principal and interest.
Example:
A $10,000 loan over 5 years might have $2,000 amortized annually.
Annual General Meeting (AGM)
An AGM is a yearly meeting where shareholders discuss a company's performance, vote on decisions, and elect directors. It's your chance to influence the company you own.
Example:
Tencent holds an AGM to approve dividends for its shareholders.
Arbitrage
Arbitrage is buying an asset in one market and selling it in another for a profit due to price differences. It's like spotting a bargain and reselling it instantly.
Example:
Buying a stock for $100 in Hong Kong and selling it for $105 in the US.
Ask Price
The ask price is the lowest price a seller is willing to accept for a stock or asset. It's the "asking" cost you see when buying.
Example:
If the ask price for a stock is $50, that's what you'd pay to buy it.
B
Balance Sheet
A balance sheet is a financial snapshot of a company's assets, liabilities, and equity at a specific time. It shows what the company owns and owes.
Example:
A company with $1 million in assets and $400,000 in liabilities has $600,000 in equity.
Beta
Beta measures a stock's volatility compared to the market (e.g., Beta of 1 means it moves with the market). It helps gauge risk.
Example:
A stock with a Beta of 1.5 is 50% more volatile than the market.
Bid Price
The bid price is the highest price a buyer is willing to pay for a stock or asset. It's the "offer" you see when selling.
Example:
If the bid price is $49, that's what you'd get selling a stock.
Blue Chip Stock
A blue chip stock is a share in a large, well-established, financially stable company with a history of reliable performance.
Example:
HSBC is a blue chip stock in Hong Kong, known for steady dividends.
Book Value
Book value is the net value of a company's assets minus liabilities, as recorded in its books. It's what the company is worth on paper.
Example:
A company with $5 million in assets and $2 million in debts has a $3 million book value.
Broker
A broker is a person or firm that executes your buy/sell orders for stocks or other assets, often for a fee. They're your market middleman.
Example:
Using a broker like Interactive Brokers to trade US stocks.
C
Call Option
A call option is a contract giving you the right to buy a stock at a set price before a deadline, betting on its rise.
Example:
Buying a call option for Tesla at $200, expecting it to hit $250.
Capital Expenditure (CapEx)
CapEx is money a company spends to buy or improve long-term assets like equipment or buildings. It's an investment in growth.
Example:
A factory spending $1 million on new machinery has high CapEx.
Cash Flow
Cash flow is the movement of money in and out of a business, showing its liquidity and ability to pay bills.
Example:
A company earning $500,000 but spending $400,000 has positive cash flow.
Collateral
Collateral is an asset (e.g., house or car) pledged to secure a loan, which the lender can take if you don't repay.
Example:
Using your home as collateral for a business loan.
Commodities
Commodities are basic goods like gold, oil, or wheat traded on markets, often as a hedge against inflation.
Example:
Investing in gold when stock markets are shaky.
Common Stock
Common stock represents ownership in a company, giving you voting rights and potential dividends.
Example:
Owning common stock in Alibaba lets you vote at AGMs.
Credit Rating
A credit rating is a score assessing a borrower's ability to repay debt, assigned by agencies like Moody's.
Example:
A company with AAA rating has excellent creditworthiness.
Cryptocurrency
Cryptocurrency is digital money (e.g., Bitcoin) using blockchain technology, not controlled by any central bank.
Example:
Buying Bitcoin as a speculative investment.
D
Debt-to-Equity Ratio
Debt-to-equity ratio compares a company's total debt to its equity, showing how much it relies on borrowing.
Example:
A ratio of 2:1 means $2 debt for every $1 of equity.
Deflation
Deflation is a general drop in prices, increasing money's value but potentially slowing economic growth.
Example:
Japan's deflation in the 1990s led to stagnant markets.
Depreciation
Depreciation is the gradual loss of value of an asset over time, reflected in accounting. It's like your car losing value yearly.
Example:
A $10,000 machine depreciates by $2,000 annually over 5 years.
Derivatives
Derivatives are financial contracts (e.g., options, futures) whose value depends on an underlying asset like stocks or commodities.
Example:
A futures contract betting on oil prices next year.
Discount Rate
The discount rate is the interest rate used to calculate the present value of future cash flows, often set by central banks.
Example:
The US Federal Reserve's rate affects loan costs.
Dividend Yield
Dividend yield is the annual dividend per share divided by the stock price, showing return as a percentage.
Example:
A $2 dividend on a $50 stock gives a 4% yield.
Dow Jones Industrial Average
The Dow Jones is a stock index tracking 30 major US companies, reflecting market trends.
Example:
A rising Dow often signals US economic optimism.
E
Earnings Report
An earnings report is a quarterly or annual update of a company's financial performance, including profits and revenue.
Example:
Apple's Q3 report might show $90 billion in revenue.
Equity
Equity is the value of ownership in a company or asset after subtracting liabilities. It's your stake.
Example:
If a house is worth $300,000 with a $200,000 mortgage, equity is $100,000.
Exchange
An exchange is a marketplace (e.g., HKEX, NYSE) where stocks, bonds, and other assets are bought and sold.
Example:
Trading Tencent shares on the Hong Kong Exchange.
Expense Ratio
Expense ratio is the annual fee a fund charges investors, expressed as a percentage of assets, covering management costs.
Example:
A 0.5% expense ratio on a $10,000 investment costs $50 yearly.
F
Financial Statement
A financial statement (income statement, balance sheet, cash flow) summarizes a company's financial health.
Example:
Reviewing Tesla's income statement to check profitability.
Fixed Income
Fixed income refers to investments like bonds that pay regular, predictable returns.
Example:
A 10-year bond paying 3% interest annually.
Float
Float is the number of a company's shares available for public trading, excluding insider-held shares.
Example:
A company with 1 million shares, but 200,000 insider-held, has a 800,000-share float.
Foreign Exchange (Forex)
Forex is the global market for trading currencies (e.g., USD to HKD), driven by exchange rate changes.
Example:
Exchanging $1,000 USD for HKD 7,800.
Fundamental Analysis
Fundamental analysis evaluates a company's financial health (e.g., earnings, debt) to determine stock value.
Example:
Analyzing HSBC's revenue to decide if it's a good buy.
Futures Contract
A futures contract is an agreement to buy or sell an asset at a set price on a future date.
Example:
A farmer locks in corn prices for next harvest.
H
Hedge
A hedge is an investment to reduce risk from another asset's price movement.
Example:
Buying gold to offset stock market losses.
I
Income Statement
An income statement shows a company's revenue, expenses, and profit over a period.
Example:
A company earning $1 million but spending $800,000 has $200,000 profit.
Inflation
Inflation is the general rise in prices, reducing money's purchasing power over time.
Example:
If inflation is 3%, $100 buys less next year.
Initial Margin
Initial margin is the upfront cash or collateral required to open a leveraged position (e.g., in trading).
Example:
A broker requires 50% initial margin to borrow for a stock purchase.
Insider Trading
Insider trading is buying or selling stock based on non-public, material information, which is illegal.
Example:
A CEO selling shares before a bad earnings report (if unreported).
Interest Rate
Interest rate is the cost of borrowing money or the return on savings, set by banks or central authorities.
Example:
A 5% rate on a $10,000 loan means $500 interest yearly.
Intrinsic Value
Intrinsic value is the true worth of an asset based on fundamental analysis, often compared to its market price.
Example:
If a stock's intrinsic value is $80 but trades at $60, it may be undervalued.
L
Leverage
Leverage is using borrowed money to amplify investment returns (or losses).
Example:
Borrowing $5,000 to invest $10,000 in stocks.
Liquidity
Liquidity is how quickly an asset can be converted to cash without losing value.
Example:
Cash is highly liquid; real estate is not.
Long Position
A long position is buying a stock or asset expecting its price to rise so you can sell later for profit.
Example:
Buying Tesla stock at $200, hoping it hits $250.
M
Margin Call
A margin call is a demand from a broker to add funds or sell assets when a leveraged account's value drops too low.
Example:
If your stock falls 30%, a broker may call for more cash.
Market Order
A market order is an instruction to buy or sell a stock immediately at the current market price.
Example:
Buying 100 shares of HSBC at the current $40 price.
Market Risk
Market risk is the chance of losses due to overall market movements, affecting all investments.
Example:
A global recession causing all stocks to drop.
Money Market
The money market is where short-term, low-risk debt (e.g., Treasury bills) is traded.
Example:
Investing in a 3-month US Treasury bill.
Mutual Fund
A mutual fund pools money from investors to buy a diversified portfolio managed by professionals.
Example:
A mutual fund investing in 50 HK stocks.
N
Net Asset Value (NAV)
NAV is the per-share value of a fund's assets minus liabilities, calculated daily.
Example:
A $100 million fund with 10 million shares has a $10 NAV.
O
Open-End Fund
An open-end fund issues and redeems shares based on demand, adjusting its size.
Example:
A mutual fund growing as more investors join.
Options
Options are contracts giving the right, but not obligation, to buy (call) or sell (put) an asset at a set price.
Example:
A put option to sell Bitcoin if its price drops.
Over-the-Counter (OTC)
OTC refers to trading securities directly between parties, not on a formal exchange.
Example:
Buying a small company's stock via a broker, not HKEX.
P
Par Value
Par value is the face value of a bond or stock as stated when issued, often nominal.
Example:
A bond with a $1,000 par value pays interest based on that amount.
Passive Investing
Passive investing tracks an index (e.g., S&P 500) with low fees, avoiding active stock picking.
Example:
Buying an ETF to mirror the Hang Seng Index.
Preferred Stock
Preferred stock offers fixed dividends and priority over common stock in payouts but usually no voting rights.
Example:
Preferred shares of a bank paying 5% annually.
Price-to-Book (P/B) Ratio
P/B ratio compares a company's market value to its book value, assessing if it's overvalued.
Example:
A P/B of 2 means market value is twice the book value.
Private Equity
Private equity is investment in private companies not listed on public exchanges.
Example:
A firm buying a 20% stake in a startup.
Put Option
A put option is a contract giving the right to sell a stock at a set price, betting on a price drop.
Example:
A put on Apple at $150 if you expect it to fall.
R
Real Estate Investment Trust (REIT)
A REIT is a company owning income-generating real estate, traded like a stock, offering dividends.
Example:
A Hong Kong REIT owning office buildings.
Recession
A recession is a prolonged economic downturn with declining GDP, often lasting months.
Example:
The 2008 financial crisis was a global recession.
Redemption
Redemption is cashing in mutual fund shares or bonds at their current value.
Example:
Selling your fund shares for $5,000 based on NAV.
Reinvestment
Reinvestment is using dividends or interest to buy more shares, compounding your returns.
Example:
Reinvesting $100 dividends to buy more stock.
Retail Investor
A retail investor is an individual investing personal money, not a professional or institution.
Example:
You buying $500 of Tencent stock.
Revenue
Revenue is the total income a company earns from sales before expenses.
Example:
A retailer earning $1 million from clothing sales.
Risk-Adjusted Return
Risk-adjusted return measures investment performance relative to its risk, using metrics like Sharpe ratio.
Example:
A 10% return with low risk beats 12% with high risk.
S
Sector
A sector is a group of companies in the same industry (e.g., tech, healthcare).
Example:
Investing in the Hong Kong tech sector like Meituan.
Securities
Securities are financial instruments like stocks, bonds, or options representing ownership or debt.
Example:
Owning shares of a US tech company.
Short Position
A short position is borrowing and selling a stock expecting its price to fall, then buying it back cheaper.
Example:
Shorting a stock at $100, buying back at $80 for profit.
Short Selling
Short selling is selling borrowed shares to profit from a price drop, with an obligation to return them.
Example:
Borrowing and selling Tesla stock, repurchasing after a decline.
Spread
Spread is the difference between the bid and ask price of a stock, reflecting market liquidity.
Example:
A $50 bid and $51 ask price means a $1 spread.
Stock Split
A stock split increases the number of shares while lowering the price per share, keeping value intact.
Example:
A 2-for-1 split turns 100 shares at $100 into 200 at $50.
Stop-Loss Order
A stop-loss order automatically sells a stock when it hits a set price to limit losses.
Example:
Setting a stop-loss at $90 for a $100 stock.
Swap
A swap is an agreement to exchange cash flows or assets, often to manage interest rate risk.
Example:
Swapping fixed for variable interest payments on a loan.
T
Technical Analysis
Technical analysis uses past price and volume data to predict future stock movements.
Example:
Using charts to spot a trend in Bitcoin prices.
Ticker Symbol
A ticker symbol is a unique code (e.g., AAPL for Apple) identifying a stock on an exchange.
Example:
Trading 0700.HK for Tencent on HKEX.
Time Horizon
Time horizon is the length of time you plan to hold an investment.
Example:
A 10-year horizon for retirement savings.
Total Return
Total return is the gain or loss from an investment, including dividends and price changes.
Example:
A stock rising from $100 to $110 with $2 dividends has a 12% total return.
Treasury Bill (T-Bill)
A T-Bill is a short-term US government debt security with no interest, sold at a discount.
Example:
Buying a $1,000 T-Bill for $980, redeemed at $1,000 in 3 months.
Trend
A trend is the general direction of a stock's price (upward, downward, or sideways) over time.
Example:
A rising trend in tech stocks during a bull market.
U
Underwriter
An underwriter is a financial firm (e.g., bank) that helps a company issue stocks or bonds, taking on risk.
Example:
Goldman Sachs underwriting an IPO.
V
Value Investing
Value investing is buying undervalued stocks based on fundamentals, expecting them to rise.
Example:
Buying a stock with a low P/E ratio like Warren Buffett does.
Volatility Index (VIX)
The VIX measures market volatility, often called the "fear index," based on S&P 500 options.
Example:
A high VIX during a crash signals investor panic.
Volume
Volume is the number of shares traded in a stock over a period, indicating activity.
Example:
1 million shares of Alibaba traded daily show high interest.
W
Warrant
A warrant is a security giving the right to buy a company's stock at a set price before expiration.
Example:
A warrant to buy Tencent at $50 in 2 years.
Working Capital
Working capital is current assets minus current liabilities, showing a company's short-term financial health.
Example:
$500,000 assets minus $200,000 liabilities equals $300,000 working capital.
Y
Yield Curve
A yield curve plots interest rates of bonds with different maturities, indicating economic expectations.
Example:
An inverted yield curve often predicts a recession.
Z
Zero-Coupon Bond
A type of bond issued at a discount to its face value, with no periodic interest payments, and redeemed at full face value upon maturity.
Example:
Purchasing a zero-coupon bond with a face value of $1,000 for $980, and receiving $1,000 at maturity.