Glossary of financial terms

The ADP National Employment Report, commonly referred to as the ADP Employment Report, is a monthly economic data release that provides insights into the private sector employment situation in the United States. Produced by Automatic Data Processing, Inc. (ADP) in collaboration with the Stanford Digital Economy Lab, this report offers a detailed snapshot of employment trends by analyzing actual transactional payroll data from approximately 460,000 client companies served by ADP. These companies represent a broad cross-section of U.S. industry sectors and regions, making the ADP report a credible and valuable source of information for economists, investors, and policymakers. Read More

Algorithmic trading has become more popular with the use of automated trading systems that, for the first time ever, allow you to set parameters and have computer programs automatically execute coded trades. Algorithmic trading can be used in any market, from stock trading to foreign exchange, making it a worthwhile tool for any professional trader.

Of course, laying the groundwork for algorithmic trading to execute successfully takes a lot of work, and there are many pitfalls to avoid. Keep reading to learn just how algo trading works, various strategies to employ, and whether it's right for your own portfolio management.

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Asset-backed securities (ABS) are finance pools of familiar asset types, such as auto loans, aircraft leases, credit card receivables, mortgages, and business loans. In one way or another, these asset types represent contractual obligations to pay returns to investors. ABS provide a way for institutions to raise funds by converting illiquid assets into liquid securities. Read More

Asset management is a systematic process of developing, operating, maintaining, upgrading, and disposing of assets cost-effectively. It involves the management of tangible and intangible assets to maximize value for individuals and organizations. Tangible assets can include real estate, machinery, and commodities, while intangible assets encompass stocks, bonds, and intellectual property. Read More

In the ongoing battle against climate change, carbon credits have emerged as a crucial tool for reducing global carbon emissions. These credits represent a market-based approach to incentivize the reduction of greenhouse gases (GHGs) and promote sustainability across industries. This article explores what carbon credits are, how they function, and their significance in the broader context of environmental preservation.

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Carbon neutrality refers to attaining net zero carbon dioxide emissions by offsetting carbon emissions through green investments. It's an initiative born from the understanding that it would be impossible to completely end all carbon emissions across the globe, but it is also imperative to reduce carbon emissions to a level wherein the natural world can maintain an atmospheric equilibrium. Read More

Cash flow refers to the movement of money and cash equivalents into and out of a business over a specific period. It encompasses all the cash inflows and outflows associated with a company's operations, investing, and financing activities.

Understanding cash flow is crucial for evaluating a business's financial health and gauging whether it has enough cash to meet its obligations. Public companies will release cash flow statements as one of three main financial statements, along with balance sheets and income statements.

Cash flow analysis helps determine how much cash a company generates and uses, thereby providing insight into its liquidity and operational efficiency.

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A clearing house is an essential part of the financial markets, ensuring that transactions between buyers and sellers are completed smoothly. It is a neutral third party that facilitates the exchange of payments, securities, or derivatives while reducing the risk of default by any member firm. Clearing houses give investors extra security and help maintain trust and confidence in the financial system. By settling multiple transactions and standing between the parties involved, a clearing house plays a crucial role in keeping the markets stable.

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A convertible bond is a fixed-income corporate debt security that yields investment dividends but may be converted into stock of a predetermined number at various points in the life cycle of the bond, at the bondholder's discretion. Read More

The correlation coefficient is a statistical measure of the linear relationship between two variables. In finance, the coefficient measures how strongly and in what direction two data points, such as a financial security and an economic indicator, move with one another. The correlation coefficient expresses the relationship of the two variables on a scale of -1 to 1. Read More

Credit risk is the lender’s possibility of losing money if the borrower fails to meet their financial obligations. This guide will cover everything you need to know about what credit risk is, how to manage and mitigate it and more.

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A credit spread, also known as the spread, is the difference in yield (return) between two debt instruments with the same maturity but different credit ratings. It reflects the additional risk that investors take on when lending to a borrower with a lower credit rating compared to a risk-free benchmark rate, typically a U.S. Treasury bond of the same maturity. Read More

Currency fluctuations refer to the changes in the value of a particular currency compared to another. These fluctuations affect exchange rates are a fundamental aspect of the foreign exchange market and significantly influence global economics, trade, and investment. This article delves into why exchange rates fluctuate, the factors causing these changes, their impact on the economy, and strategies to mitigate currency fluctuation risk.

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Custodian services are usually provided by a large and reputable firm, such as a bank, trust company or similar financial institution empowered to safeguard individual and institutional securities from being lost or stolen.

Cash, stocks, bonds, electronic or physical assets are all forms of securities owned by clients and entrusted to custodians to hold on their behalf. Investment advisers and asset managers frequently use custodian banks in order to protect their clients' holdings, collateral and other assets.

A custodian may also serve the responsibility of managing the assets of the minor child or the incapacitated adult.

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Endowment funds play a crucial role in ensuring the stability and sustainability of many nonprofit organizations, educational institutions, and cultural institutions. In this article, we will delve into the intricacies of endowment funds, exploring what they are, how they work, their various uses, types, and some notable examples.

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Exchange rates represent the value of one currency in relation to another. Their significance within the world of finance lies in their influence in international trade and investments, as well as their role as a marker for economic stability. Fluctuations in exchange rates can impact the cost of imports and exports, affect inflation, and determine the profitability of foreign investments, ultimately shaping economic policies and business strategies.

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Execution in finance refers to the completion of a buy or sell order of a financial asset in securities markets. Executions are carried out by brokers on behalf of traders. Once you put in a request for a trade, the broker works to complete your order as quickly as possible and at the best price available at that moment. Execution does not occur until the trade is confirmed to be completed.

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Financial regulations refer to the laws, rules, and guidelines designed to oversee the operations of financial institutions, markets, and transactions. These regulations are essential for maintaining the stability, integrity, and efficiency of the financial system. They aim to protect consumers, ensure fair competition among financial firms, and mitigate risks that could lead to financial crises. By enforcing compliance with these regulations, authorities can prevent fraudulent practices, promote transparency, and maintain investor confidence in the financial markets. Read More

Fixed income is an asset class favored for their low volatility and stable returns compared to other investments. Fixed income investments provide can return higher yields than standard interest-bearing savings accounts, making the asset class a nice middle ground for investors looking to safely boost income generated from capital.

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The Federal Market Open Committee (FOMC) is a branch of the Federal Reserve System (FRS) responsible for directing monetary policy in the US. The committee has 12 voting members, including seven from the Board of Governors, the Federal Reserve Bank of New York President, and four of the remaining 11 Reserve Bank presidents, who serve rotating. Read More

A fund of funds (FOF) is an investment vehicle that pools money to invest in other funds, providing diversification and risk management for investors. It’s a type of multi-manager investment, where a single fund invests in multiple underlying funds.

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Hedge funds are a cornerstone of modern financial markets, often shrouded in mystery yet wielding significant influence. This article aims to demystify hedge funds by addressing fundamental questions about their nature, operations, management, and strategies. We will explore what hedge funds are, what hedge fund companies do, the roles of hedge fund managers, and how hedge funds compare to private equity. Finally, we'll delve into various hedge fund strategies and the broader hedge fund industry.

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A high-yield or junk bond is a specific type of bond that is accompanied by higher risk in exchange for greater returns. When you buy a bond - any kind of bond - you're essentially giving the issuer (often a government agency or a corporation) a loan, who in turn agrees to pay you back the original value of the loan on a specific date, with periodic interest payments along the way as the incentive for buying the bond in the first place. Read More

Index funds are investment vehicles, available as mutual funds or exchange-traded funds (ETFs), that aim to mirror the performance of a particular market benchmark. Read More

Investment or non-investment grade are terms that play a crucial role in the world of bonds and fixed-income securities. They signify the credit quality of bonds and debt securities, indicating their safety and reliability for investors. Read More

A leveraged loan is a high-risk loan offered to companies with significant existing debt. It offers potentially high returns, but a greater chance of default.  Read More

Liquid assets, also known as cash equivalents, refer to assets that can be quickly converted into cash without significantly impacting their value. They are typically highly liquid and easily tradable in the market. Examples of liquid assets include cash, government bonds, stocks, and certain types of securities that can be held in an investment portfolio.

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Margin trading is the use of borrowed funds, known as margin, to trade a financial asset. The primary goal of margin trading is to increase the potential return on investment by leveraging borrowed capital. This method of trading allows investors to control a larger position than what would be possible with their available capital alone. However, it also involves higher risks, as losses can exceed the initial investment.

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Market makers play a crucial role in the financial markets, providing liquidity and ensuring smooth trading operations. Whether you're an investor, trader, or just curious about financial markets, understanding market makers is essential to know how major financial exchanges operate. This article delves into what market makers are, how they work, and why they are vital for the markets.

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The Michigan Consumer Sentiment Index (MCSI) is a notable metric used to gauge US consumer confidence levels every month. So, what is the MCSI, how is it measured and how can you use the index to inform your trades? Find out below.

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Nonfarm payrolls (NFPs) are one of the most important macroeconomic reports from the world's largest economy, the US. Published monthly by the US Bureau of Labor Statistics, they represent the change of employment in the nonfarming sector in the US economy. Read More

Pension funds work as employer-funded retirement income, which an employer contributes to during the employee's tenure. That money then grows over the employee's career. Once retired, employees often have the ability to acquire the pension as lump sum or receive regular payments throughout the rest of their lives. Read More

A prime broker is a financial institution that offers a bundle of specialized services to hedge funds, large investment managers, and other sophisticated investors. These services include securities lending, leveraged trade execution, and risk management, among others. Prime brokerage services are essential for hedge funds because they enable these funds to engage in complex trading strategies that require significant financial backing and logistical support. Read More

A private bank is a financial institution that offers customized banking services to high-net-worth individuals. The services offered by private bankers are designed to meet the unique needs of wealthy clients, providing them with a comprehensive suite of private banking and, in some cases, wealth management solutions. Read More

Private wealth management is a specialized financial service dedicated to managing the financial needs and assets of high-net-worth individuals (HNWIs) and families. Unlike standard financial management, private wealth management offers a personalized approach, integrating various aspects and practices of financial planning and investment management to ensure the comprehensive growth and preservation of wealth across generations.

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Reconciliation in finance is a critical accounting process that compares two sets of records to ensure they are consistent and accurate. This process of reconciliation involves first verifying financial data, such as transactions, balances, and statements, to ensure that the information presented in financial statements matches the actual financial records maintained by an organization. The primary goal of financial reconciliation is to identify and rectify any discrepancies that may exist, ensuring the integrity and accuracy of financial reporting.

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Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. The result is expressed as a percentage or a ratio, and is a popular metric because of its versatility and simplicity.

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Seed funding refers to any initial capital raised to jumpstart your business idea. There are a number of ways to procure seed funding, the most popular of which is through initial investors. Keep reading to learn everything you need to know about seed money, angel investors, venture capital, and more ahead of founding your own business. Read More

Trade settlement is the final step in the trading process. It’s the transfer of ownership of securities or financial assets from the seller to the buyer after a trade is executed. This article breaks down the key terms and processes involved, as well as regulatory frameworks and industry standards.

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Structured credit is a type of financial instrument that typically involves investments backed by assets. These investments often have a fixed interest rate, referred to as a “coupon rate,” and are grouped into different risk categories to cater to varying investor needs.

Structured credit is becoming more popular among institutional investors who want to change their portfolios because of rising interest rates. By grouping different assets, like mortgages or loans, structured finance vehicles give investors a way to diversify their holdings and attain a steady cash flow.

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In finance, a swap is a derivative contract by which two parties consent to exchange the cash flows or liabilities from two different financial instruments. Swaps usually involve cash flows based on a notional principal amount, like a debt or security instrument, but the underlying can vary widely.

Swaps can be traded over-the-counter (OTC) - meaning they are negotiated and executed directly between two parties vs. being traded on an exchange. This allows for more flexibility and customization in terms of the swap contract, which allow parties to tailor the contract to their specific risk management strategies. These benefits may not be possible with standard exchange-traded derivatives.

Back in 2010, the Dodd-Frank Wall Street Reform Act developed a new type of trading venue for standardized swaps called Swap Execution Facilities, or SEFs for short. An SEF, which is a trading platform, allows many market participants to execute or trade swaps in a transparent, regulated environment - a type of marketplace for trading swaps in the United States.

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US GDP growth is a measure of the change in the gross domestic product (GDP) of the United States. It's often used by economists to determine the health of its economy and at what rate the economy is growing.

Economic reports often include the year over year (YoY) change, referred to as the GDP growth rate, alongside the GDP growth figure to provide more context.

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A wealth manager is a specialized financial advisor who provides comprehensive financial services to affluent clients. Their role extends beyond traditional financial planning and investment advice, encompassing a wide range of services tailored to manage, grow, and protect their clients' wealth. Wealth managers work with high-net-worth individuals, families, and sometimes even small businesses, offering personalized strategies to meet their financial goals and needs.

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A yield curve visually represents the interest rates on bonds with varying maturities, providing insights into market perceptions of risk and economic conditions. The yield curve can also give clues about where the economy might be heading. Read More