Investing glossary: 225 financial terms in plain English

The average closing price over roughly the last 40 weeks. Many investors treat a price above it as a long-term uptrend and below it as a downtrend.

Also called: 200 DMA

Related: Moving average · Golden cross

The main US workplace retirement plan. Contributions are usually taken from pay before tax and employers often match part of them. It is the nearest US equivalent to a UK workplace DC pension.

Related: IRA (Individual Retirement Account) · Workplace pension

Fund units where income is reinvested automatically and reflected in the unit price, rather than paid out. Income units pay it out to you.

Also called: Acc, Income units, Inc

A fund manager choosing investments to try to beat the market. S&P's SPIVA reports show most active funds underperform their benchmark over long periods after fees.

Also called: Active fund, Active investing

Related: Index fund · Alpha Investing isn't stock picking →

The London Stock Exchange's market for smaller, growing companies, with lighter rules than the main market. AIM shares are often more volatile and less liquid.

Also called: AIM

Related: Stamp duty reserve tax (SDRT) · Small-cap

Using computer programs to place orders automatically according to rules. High-frequency trading is an extreme form, holding positions for fractions of a second.

Also called: Algo trading, High-frequency trading, HFT

An order that must be filled for the full quantity or not at all, but, unlike fill or kill, it can wait in the market rather than being cancelled at once.

Related: Fill or kill (FOK)

Return above what would be expected given the risk taken, usually measured against a benchmark. It is the part of performance that comes from skill, if any.

Related: Beta · Active management

Fixing on a reference number, such as the price you paid, and letting it drive decisions that should depend on current facts.

Related: Disposition effect

The most that can be paid into your pensions each tax year with tax relief: £60,000 in 2026/27, including employer contributions. It tapers down to as little as £10,000 for very high earners, and you can carry forward unused allowance from the previous three tax years.

Read the full explanation and FAQs →

Related: Money purchase annual allowance (MPAA) · Carry forward · Pension tax relief

The steady yearly rate that would turn the starting value into the final value: the compound annual growth rate. It smooths out the bumps along the way.

Also called: CAGR, Compound annual growth rate

Related: Total return · Compounding

An insurance product that turns a lump sum, usually from a pension, into a guaranteed income, often for life. Rates depend on interest rates, your age and your health.

Related: Drawdown · Gilt

How your money is split between asset types such as shares, bonds, property and cash. It explains most of the variation in a diversified portfolio's returns over time.

Related: Diversification · Rebalancing

How much uncertainty you are willing to accept. Capacity for loss is different: how much you can afford to lose without harming your plans. Both matter, and they are often confused.

Also called: Risk tolerance, Capacity for loss, Risk appetite

Testing a strategy on historical data to see how it would have performed. Backtests almost always look better than live results because of costs, overfitting and hindsight.

Also called: Backtesting

Related: Overfitting · Look-ahead bias · Survivorship bias

The Bank of England's main interest rate, set by its Monetary Policy Committee eight times a year. It drives savings and mortgage rates. The US equivalent is the Federal Reserve's federal funds rate.

Also called: Base rate, Interest rates, Fed funds rate

Related: Inflation · Quantitative easing (QE)

A fall of 20% or more from a recent high. Bear markets in shares have historically ranged from a few months to several years.

Related: Bull market · Correction · Market regime

Selling investments held outside a tax wrapper and buying them back inside an ISA, so future gains and income are tax-free. The sale can create a capital gain, and you are out of the market briefly unless the broker does both legs together.

Related: ISA (Individual Savings Account) · Capital gains tax (CGT)

The study of how psychology leads investors away from rational decisions. Daniel Kahneman and Richard Thaler both won Nobel prizes for work in the field.

Also called: Behavioral finance

Related: Loss aversion · Disposition effect

The index or yardstick a fund or portfolio is measured against. Choosing the wrong benchmark can make poor performance look acceptable.

Related: Index · Alpha Is my pension performing? →

How much a share tends to move with the market. A beta of 1.5 means it has historically moved about 1.5% for every 1% move in the index.

Related: Alpha · Systematic risk

The gap between the highest price a buyer will pay (the bid) and the lowest price a seller will accept (the ask or offer). It is a hidden cost every time you trade, and it is wider for small, illiquid shares.

Also called: Spread, Bid-offer spread

Related: Liquidity · Market maker

Bands drawn two standard deviations above and below a 20-period moving average. They widen when volatility rises and narrow when it falls.

Related: Moving average · Standard deviation

A loan to a government or company that pays interest (the coupon) and returns the face value at maturity. Bond prices fall when interest rates rise.

Also called: Fixed income

Related: Gilt · Yield · Duration · Credit rating

A company's assets minus its liabilities, as shown in its accounts.

Also called: Shareholders' equity, Net assets

Related: Price-to-book ratio (P/B)

An entry order sent together with a take-profit and a stop-loss, so the exit plan is set the moment you open the trade.

Related: One cancels the other (OCO) · Stop-loss order

How many shares are taking part in a market move, for example the percentage of index members above their 200-day average. Narrow rallies led by a few giants are more fragile.

Also called: Market breadth, Advance-decline line

Markets this week →

Prices rising far above any reasonable value, driven by enthusiasm and borrowed money, before collapsing. Examples include the dot-com bubble of 1999 to 2000.

Also called: Speculative bubble, Mania

Related: Herding

A sustained period of rising prices, often defined as a rise of 20% or more from a low.

Related: Bear market · Market regime

Annual return divided by maximum drawdown. It is popular with hedge funds and trend followers as a measure of return per unit of pain.

Related: Maximum drawdown · Sharpe ratio

A chart showing each period's open, high, low and close as a candle. A filled or red body means the price closed lower than it opened.

Also called: Candlesticks, OHLC

Robert Shiller's cyclically adjusted P/E: price divided by the average of ten years of inflation-adjusted earnings. It is a long-run valuation gauge, not a timing tool.

Also called: Shiller P/E, Cyclically adjusted price-to-earnings

Related: Price-to-earnings ratio (P/E)

Tax on the profit when you sell or give away an asset that has risen in value, outside an ISA or pension. In 2026/27 the first £3,000 of gains is tax-free, and the rates on shares are 18% for basic-rate and 24% for higher and additional-rate taxpayers.

Also called: CGT

Read the full explanation and FAQs →

Related: Bed and ISA · ISA (Individual Savings Account)

Using unused pension annual allowance from the three previous tax years, provided you were a member of a UK registered pension scheme in those years.

Related: Annual allowance

An ISA that holds cash savings, with tax-free interest. Deposits are also covered by the FSCS. A planned £12,000 cap on cash ISA saving from April 2027 was cancelled at the October 2026 Budget, so you can still put the full £20,000 in cash.

Related: ISA (Individual Savings Account) · FSCS (Financial Services Compensation Scheme)

A short period at the end of the day, on the London Stock Exchange from 16:30, when orders are collected and matched at a single closing price. Opening auctions work the same way at the start of the day.

Related: Market on close (MOC)

A raw material traded in bulk, such as oil, gold, copper, wheat or natural gas.

Also called: Commodities

Earning returns on previous returns as well as on the original sum. Over long periods compounding does most of the work, which is also why fees compound against you.

Also called: Compound interest, Compound growth

Read the full explanation and FAQs →

Related: Rule of 72 · Total cost of ownership

Seeking out information that supports what you already believe and ignoring what contradicts it.

Related: Overconfidence

A leveraged derivative that pays the difference between the opening and closing price of an asset, without you owning it. The FCA requires providers to publish the percentage of retail accounts that lose money, which is typically a large majority.

Also called: CFD, CFDs

Related: Spread betting · Leverage

A fall of 10% to 20% from a recent high. Corrections are common, typically more than once every couple of years.

Related: Bear market

How closely two investments move together, from +1 (in step) to -1 (opposite). Correlations tend to rise in crashes, just when diversification is needed most.

Related: Diversification

A grade from an agency such as S&P, Moody's or Fitch on how likely a borrower is to repay. BBB- and above is investment grade; below that is high yield, or junk.

Also called: Investment grade, Junk bond, High yield

Related: Bond

Cash Return On Capital Invested: a method developed at Deutsche Bank in 1996 and now run by DWS that adjusts company accounts so cash returns and valuations can be compared across sectors and countries.

Also called: Cash return on capital invested

Related: Return on capital employed (ROCE) What works in investing →

A digital asset recorded on a blockchain, such as bitcoin or ether. Prices are extremely volatile, most crypto activity is unregulated in the UK, and FSCS protection does not apply.

Also called: Crypto, Bitcoin

The risk that exchange-rate moves change the value of overseas investments in pounds. A rising pound reduces the sterling value of US shares.

Also called: FX risk, Exchange rate risk

Related: Hedging

An order that is cancelled automatically at the end of the trading day if it has not been filled. Most brokers use this as the default.

Related: Good till cancelled (GTC)

A short, sharp rally in a falling market that fades and is followed by further falls. It is only certain in hindsight, which is why trend and momentum rules matter.

Related: Bear market · MACD (moving average convergence divergence)

A company's debt divided by shareholders' equity: a measure of how much it relies on borrowing.

Also called: Gearing ratio, Net debt

Related: Leverage

A pension that promises an income based on your salary and years of service, such as a final salary or career average scheme. The employer carries the investment risk. Transferring out gives up a guaranteed income, and for transfer values over £30,000 regulated advice is required by law.

Also called: Final salary pension, DB pension, Career average pension

Related: Defined contribution (DC) pension · Pension transfer

A pension where the final value depends on what is paid in and how the investments perform. You carry the investment risk. Almost all new UK pensions are DC.

Also called: Money purchase pension, DC pension

Related: Defined benefit (DB) pension

A contract whose value comes from another asset, such as a share, index, currency or commodity. Options, futures, CFDs and spread bets are all derivatives.

Related: Option · Future · Contract for difference (CFD)

A fall in each existing shareholder's percentage ownership when a company issues new shares, for example to raise money or pay staff.

Related: Rights issue · Earnings per share (EPS)

Valuing a business by forecasting its future cash flows and discounting them back to today. Small changes to the assumptions change the answer a lot.

Also called: DCF

Related: Intrinsic value · Free cash flow

When an investment trust's share price is below the value of its underlying assets. A premium is the opposite.

Also called: Premium to NAV, Trust discount

Related: Investment trust · Net asset value (NAV)

The habit of selling winners too early and holding losers too long, to avoid admitting a loss.

Related: Loss aversion · Regret aversion

When price and an indicator such as MACD or RSI move in different directions, for example a new price high without a new indicator high. It can warn that a trend is weakening.

Related: MACD (moving average convergence divergence) · RSI (relative strength index)

Spreading money across investments that do not all move together, so one failure does not sink the portfolio. It reduces company-specific risk but not market risk.

Related: Correlation · Asset allocation · Systematic risk

A share of company profits paid to shareholders, usually in cash. Dividends are never guaranteed and can be cut or suspended.

Related: Dividend yield · Ex-dividend date · Dividend allowance

The first £500 of dividends each year is tax-free outside ISAs and pensions. Above that, in 2026/27, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate).

Also called: Dividend tax

Related: Dividend · ISA (Individual Savings Account)

Earnings divided by dividends. Cover below 1 means the company is paying out more than it earns, which is rarely sustainable.

Also called: Payout ratio

Related: Dividend yield

The yearly dividend as a percentage of the share price. A very high yield can be a warning that the market expects a cut.

Related: Dividend · Dividend cover

Like standard deviation, but counting only returns below a target. It measures the volatility investors actually mind.

Related: Sortino ratio · Standard deviation

Leaving your pension invested and taking income from it as you choose, rather than buying an annuity. It keeps flexibility and growth potential, but the money can run out if returns are poor or you withdraw too much. Not to be confused with a drawdown in performance.

Also called: Flexi-access drawdown, Income drawdown, Pension drawdown

Read the full explanation and FAQs →

Related: Annuity · Sequence-of-returns risk · Maximum drawdown

A measure of how sensitive a bond is to interest rates. A bond with a duration of 10 years would fall about 10% if yields rose by one percentage point.

Related: Bond · Interest rate risk

A company's profit after tax divided by the number of shares.

Also called: EPS

Related: Price-to-earnings ratio (P/E) · Dilution

The weeks after each quarter end when most listed companies report results. In the US it starts with the large banks in mid-January, April, July and October.

Also called: Results season, Reporting season

Earnings before interest, tax, depreciation and amortisation: a rough measure of operating cash profit before financing and accounting choices.

Related: Enterprise value (EV) · EV/EBITDA

A lasting competitive advantage, such as a brand, network effect or low costs, that protects a company's profits from rivals. The term was popularised by Warren Buffett.

Also called: Moat

Market value plus debt minus cash. It is roughly what it would cost to buy the whole business.

Also called: EV

Related: EV/EBITDA · Market capitalisation

Ownership in a company, usually through shares. It can also mean the value of an asset after debt is subtracted.

Also called: Shares, Stocks, Equities

Related: Ordinary share

Enterprise value divided by EBITDA. It compares companies with different levels of debt more fairly than the P/E ratio.

Related: Enterprise value (EV) · EBITDA

A fund listed on a stock exchange that you buy and sell like a share, usually tracking an index. ETFs are often low-cost, and no stamp duty is charged when you buy them.

Also called: ETF, ETFs

Read the full explanation and FAQs →

Related: Index fund · Tracking error · Physical vs synthetic ETF

The date from which a buyer of the share no longer gets the next dividend. The price usually drops by about the dividend amount on that day.

Also called: Ex-date, XD

Related: Dividend

The average loss in the worst cases beyond the value-at-risk level. It captures tail risk better than VaR.

Also called: CVaR, Conditional value at risk

Related: Value at risk (VaR)

Selecting investments by measurable characteristics, such as value, profitability, momentum, size or low volatility, that research has linked to returns across many markets and decades.

Also called: Smart beta, Factors

Related: Value investing · Momentum · Quantitative investing What works in investing →

When extreme market moves happen far more often than a normal bell curve predicts. Market crashes are a fat-tail event.

Also called: Black swan, Tail risk

Related: Value at risk (VaR)

An order that must be filled in full, immediately, or cancelled entirely. No partial fills are allowed. It is used when a trader wants the whole quantity at once or nothing.

Also called: FOK order

Read the full explanation and FAQs →

Related: Immediate or cancel (IOC) · All or none (AON)

An ISA that lets you take money out and put it back in the same tax year without using up more of your allowance. Not every provider offers it.

Related: ISA (Individual Savings Account)

Cash a business generates after paying for its operations and investment in assets. It funds dividends, buybacks and debt repayment.

Also called: FCF, Free cash flow yield

The UK scheme that compensates customers if an authorised firm fails. Cash deposits are covered up to £120,000 per person per banking licence (raised from £85,000 on 1 December 2025); investments held with a failed investment firm are covered up to £85,000. It does not protect you against investments simply falling in value.

Also called: FSCS

An index of the 100 largest companies listed on the London Stock Exchange by market value. Most of their revenue is earned outside the UK.

Also called: Footsie

Related: FTSE 250 · Index

An index of the next 250 largest London-listed companies after the FTSE 100. It is more exposed to the UK economy than the FTSE 100.

Related: FTSE 100

A pooled investment where many investors' money is managed together. In the UK, open-ended funds are usually unit trusts or OEICs.

Also called: Mutual fund, Unit trust, OEIC

Related: Investment trust · Exchange-traded fund (ETF)

A contract to buy or sell an asset at a set price on a future date, traded on an exchange. Futures are leveraged and marked to market daily.

Also called: Futures contract

Related: Derivative · Leverage

The charge a broker adds when converting your pounds to dollars or other currencies to buy overseas shares. It is often 0.5% to 1.5% each way and is easy to overlook.

Also called: Currency conversion fee, Foreign exchange fee

Related: Total cost of ownership

A jump between one closing price and the next opening price with no trading in between, often after results or overnight news. Ordinary stop-losses cannot protect you inside a gap.

Related: Stop-loss order · Guaranteed stop-loss

An ordinary investment account with no tax wrapper and no contribution limit. Dividends, interest and gains may be taxable.

Also called: GIA, Dealing account

Related: ISA (Individual Savings Account) · Capital gains tax (CGT)

A UK government bond. Gains on gilts are free of capital gains tax for individuals, which makes low-coupon gilts popular with higher-rate taxpayers outside an ISA.

Also called: UK government bond, Gilts

Related: Bond · Yield

When a short-term moving average, usually the 50-day, crosses above a long-term one, usually the 200-day. A death cross is the reverse. Both lag the price.

Also called: Death cross

Related: Moving average

An order that stays live until it is filled or you cancel it. Many brokers still expire GTC orders after a set period, often 30 to 90 days.

Also called: GTC order, Good til cancelled

Related: Day order · Good till date (GTD)

An order that stays live until a date you choose, then expires if it has not been filled.

Related: Good till cancelled (GTC)

The total value of goods and services an economy produces. Two consecutive quarters of falling GDP is a common rule-of-thumb definition of recession.

Also called: GDP

Related: Recession

Revenue minus the direct cost of goods sold, as a percentage of revenue. Operating margin also subtracts overheads; net margin subtracts everything.

Also called: Operating margin, Net margin, Profit margin

Buying companies expected to grow revenue and earnings faster than average, even at higher valuations.

Related: Value investing · PEG ratio

A stop-loss, usually offered by spread-betting and CFD providers, that is guaranteed to close the position at your exact level even if the market gaps. You normally pay a premium for it.

Also called: GSLO

Related: Stop-loss order · Spread betting · Contract for difference (CFD)

Taking a position to offset a risk, for example using a currency-hedged fund or buying put options. Hedges cost money and reduce upside as well as downside.

Also called: Hedge

Related: Option · Currency risk

Following the crowd into or out of investments. It fuels bubbles and crashes.

Also called: FOMO, Fear of missing out

Related: Bubble

A statistical model that assumes the market switches between a few unobserved states, such as calm bull and volatile bear, each with its own pattern of returns and volatility. The model estimates the probability of being in each state from the data. A model fitted on all the data knows the future, so for real decisions only the live, causal estimate counts.

Also called: HMM, Hidden Markov model, Hidden Markov Models, Regime-switching model

Read the full explanation and FAQs →

Related: Market regime · Look-ahead bias · Backtest

Holding too much in your own country's market. The UK is only a few per cent of world stock market value.

Related: Diversification

An order that fills whatever quantity it can straight away and cancels the rest. Unlike fill or kill, a partial fill is accepted.

Also called: IOC order

Related: Fill or kill (FOK)

The future volatility built into an option's price. When investors are nervous it rises and options become more expensive.

Related: Option · VIX

An FCA-regulated adviser who can recommend products from across the whole market. Advice is paid for, usually as a percentage of assets or a fixed fee.

Also called: IFA, Financial adviser

Do you need an adviser? →

A basket of securities used to measure a market, such as the FTSE 100, S&P 500 or MSCI World. You cannot buy an index directly, but you can buy a fund that tracks one.

Also called: Stock market index

Related: FTSE 100 · S&P 500 · Index fund

A fund that aims to match an index rather than beat it, with low costs and low turnover.

Also called: Tracker fund, Passive fund, Passive investing

Related: Active management · Tracking error

The rate at which prices rise. In the UK it is measured mainly by the Consumer Prices Index (CPI). Cash loses real value whenever inflation is above the interest you earn.

Also called: CPI, Consumer Prices Index, RPI

Related: Real return · Bank Rate

UK tax on an estate when someone dies, usually 40% above the available nil-rate bands (£325,000, plus up to £175,000 more when a home passes to direct descendants). Gifts, trusts and pension rules all affect it, and the treatment of pensions is changing from April 2027.

Also called: IHT

IHT tax calculator →

The risk that rising interest rates reduce the value of bonds and other investments valued on future cash flows.

Related: Duration · Bond

An estimate of what a business is really worth, based on its cash flows and assets, independent of its current share price.

Related: Margin of safety · Discounted cash flow (DCF)

A listed company that invests in other assets. Its share price can trade at a discount or premium to the value of its holdings, and it can borrow to invest.

Also called: Investment company, Closed-end fund

Related: Discount to NAV · Net asset value (NAV)

When a private company first sells shares to the public and lists on a stock exchange.

Also called: IPO, Flotation, Listing

A US personal retirement account. A traditional IRA gives tax relief on the way in; a Roth IRA is funded from taxed income but withdrawals in retirement are tax-free, which is closer in spirit to a UK ISA.

Also called: IRA, Roth IRA

Related: 401(k) · SIPP (Self-Invested Personal Pension)

A UK tax wrapper: interest, dividends and gains inside it are free of UK income tax and capital gains tax, and you do not need to declare them. The overall allowance is £20,000 a tax year (2026/27) across all your ISAs.

Also called: ISA, Individual Savings Account

Read the full explanation and FAQs →

Related: Stocks and shares ISA · Cash ISA · Lifetime ISA (LISA) · Junior ISA (JISA) · Flexible ISA

A tax-free account for a UK-resident child under 18. Anyone can pay in, up to £9,000 a year (2026/27), and the money belongs to the child, who can take control at 16 and withdraw at 18.

Also called: JISA

Related: ISA (Individual Savings Account)

A company with a large market value. Definitions vary; in the US it usually means over about $10 billion.

Related: Small-cap · Market capitalisation

Using borrowed money or derivatives so that gains and losses are larger than your own capital. Ten times leverage means a 10% move against you wipes out your stake.

Also called: Gearing

Related: Margin · Spread betting · Contract for difference (CFD)

An ISA for people aged 18 to 39 saving for a first home (up to £450,000) or for retirement from age 60. You can pay in up to £4,000 a year, within the overall £20,000, and the government adds a 25% bonus. Withdrawing for any other reason triggers a 25% charge, which can leave you with less than you paid in (20% if you buy a first home over £450,000, from 29 October 2026). It is due to be replaced for new savers by a First Time Buyer ISA from April 2029.

Also called: LISA

Read the full explanation and FAQs →

Related: ISA (Individual Savings Account)

An instruction to buy at or below a set price, or sell at or above it. You control the price but the order may never be filled if the market does not reach your level.

Read the full explanation and FAQs →

Related: Market order · Good till cancelled (GTC)

How easily you can buy or sell something quickly without moving its price. Large company shares and government bonds are very liquid; small companies, property and private assets are not.

Related: Bid-ask spread · Slippage

Owning an investment because you expect it to rise. The opposite of a short position.

Also called: Going long

Related: Short selling

When a backtest accidentally uses information that was not available at the time, such as revised data or a model fitted on the full history. It makes strategies look far better than they could have been.

Also called: Hindsight bias in backtests

Related: Backtest · Hidden Markov model (HMM)

Feeling the pain of a loss roughly twice as strongly as the pleasure of an equal gain, as Kahneman and Tversky found. It drives panic selling and holding losers too long.

Related: Disposition effect · Behavioural finance

The cap on the total tax-free cash you can take from all your pensions in your lifetime, normally £268,275. It replaced the lifetime allowance, which was abolished in April 2024.

Also called: LSA, Lifetime allowance

Related: Tax-free lump sum

A momentum indicator based on the difference between a 12-period and a 26-period exponential moving average, with a 9-period signal line. The direction and slope of the MACD line, and agreement between monthly and weekly charts, often say more than crossovers do.

Also called: MACD

Read the full explanation and FAQs →

Related: Momentum · Moving average · Divergence

Computer models that learn patterns from data rather than following hand-written rules. In investing, the main danger is finding patterns in noise.

Also called: ML, AI in investing, Artificial intelligence

Related: Overfitting · Neural network

The seven giant US technology-led companies that have driven much of the S&P 500's return: Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla. Our Mag6 Watch tracks six of them.

Also called: Mag 7, Mag6

Mag6 Watch →

Money borrowed from a broker to buy investments, or the deposit you must keep to hold a leveraged position. If the value falls you can face a margin call.

Related: Margin call · Leverage

A demand from your broker to add money when a leveraged position has lost value. If you do not, the broker can close your positions, often at the worst moment.

Related: Margin · Leverage

Benjamin Graham's idea of buying well below your estimate of intrinsic value, so that mistakes in the estimate do not ruin the investment.

Related: Intrinsic value · Value investing

A company's total stock market value: the share price multiplied by the number of shares.

Also called: Market cap

Related: Large-cap · Small-cap

A firm that continuously quotes prices to buy and sell a security, earning the spread in return for providing liquidity. On the London Stock Exchange many smaller shares rely on market makers.

Related: Bid-ask spread · Liquidity

An order to trade at the official closing price, usually set in the closing auction. Index funds use the close heavily because index values are calculated from it.

Related: Closing auction

An instruction to buy or sell straight away at the best price currently available. You are certain the trade will happen but not of the exact price, which can move against you in fast or thinly traded markets.

Related: Limit order · Slippage · Bid-ask spread

A broad market environment, such as a low-volatility uptrend or a high-volatility downtrend, in which different strategies tend to work. Identifying the current regime helps decide how much risk to take.

Also called: Regime, Risk-on, Risk-off

Related: Hidden Markov model (HMM) · Bull market · Bear market This week's market regime →

The largest peak-to-trough fall in value over a period. A 50% drawdown needs a 100% gain just to get back to where you started.

Also called: Drawdown, Max drawdown, MDD

Read the full explanation and FAQs →

Related: Recovery time · Calmar ratio

The tendency for prices, valuations or returns to move back towards their long-run average after extremes. It works over some horizons and not others.

Related: Momentum

The tendency for investments that have risen strongly over the past 3 to 12 months to keep rising for a while, and for losers to keep falling. It is one of the most researched return factors.

Also called: Momentum investing, Trend following

Related: Factor investing · MACD (moving average convergence divergence)

A lower £10,000 annual limit on defined contribution pension payments that applies once you have flexibly taken taxable income from a pension, for example through drawdown income or an UFPLS.

Also called: MPAA

Related: Annual allowance · Drawdown

Running thousands of random scenarios to see the range of possible outcomes, for example whether a retirement pot lasts. It is only as good as its assumptions.

Also called: Monte Carlo

The average price over a set number of past periods, recalculated each day to smooth out noise. The exponential moving average (EMA) gives more weight to recent prices than the simple moving average (SMA).

Also called: SMA, EMA, Exponential moving average, Simple moving average

Related: 200-day moving average · Golden cross

An index of the 100 largest non-financial companies on the Nasdaq exchange, heavily weighted towards technology.

Also called: NDX, Nasdaq

Related: S&P 500

The value of everything a fund owns, minus what it owes, usually shown per share or unit.

Also called: NAV

Related: Discount to NAV

A machine-learning model made of layers of connected nodes, loosely inspired by the brain. Large language models such as ChatGPT are neural networks.

Also called: Deep learning, Large language model (LLM)

Related: Machine learning

The monthly US jobs report showing how many jobs were added outside farming. It often moves markets on the first Friday of the month.

Also called: NFP, US jobs report

A pair of orders, typically a take-profit and a stop-loss, where filling one automatically cancels the other.

Also called: OCO order

Related: Bracket order

The yearly cost of running a fund, as a percentage of your investment, taken from the fund rather than billed to you. It excludes trading costs inside the fund.

Also called: OCF, TER, Expense ratio, Total expense ratio

Related: Platform fee · Total cost of ownership What you really pay →

A contract giving the right, but not the obligation, to buy (a call) or sell (a put) an asset at a set price by a set date. Buyers can lose the whole premium; sellers can lose much more.

Also called: Call option, Put option, Options

Related: Implied volatility · Derivative

The standard kind of company share, carrying voting rights and a claim on profits after everyone else is paid. In the US these are called common stock.

Also called: Common stock

Related: Preference share · Dividend

Checking a model on data it was not built on, such as a later period. Walk-forward testing repeats this through time, refitting only on past data.

Also called: Walk-forward analysis, Out of sample

Related: Overfitting

Overrating your own skill or information. Studies of trading accounts link it to trading too often, which lowers returns after costs.

Related: Confirmation bias

Tuning a model so closely to past data that it captures noise rather than a real pattern, so it fails on new data. Out-of-sample testing is the main defence.

Also called: Curve fitting, Data mining

Related: Out-of-sample test · Backtest

The P/E ratio divided by the expected earnings growth rate. Around 1 is often treated as fair value for a growing company, though it relies on forecasts.

Also called: PEG

Related: Price-to-earnings ratio (P/E)

Tax back on money you pay into a pension. In a personal pension, £80 you pay in becomes £100 with basic-rate relief added; higher and additional-rate taxpayers can claim more through their tax return. Relief is limited to 100% of your UK earnings (or £3,600 gross if lower) and to the annual allowance.

Also called: Tax relief on pensions, Relief at source

Related: Annual allowance · Salary sacrifice

Moving pension savings from one scheme to another, for example to combine old workplace pensions into one SIPP. Check first for exit fees, guaranteed annuity rates, protected tax-free cash or other benefits you could lose. Unexpected offers to transfer, especially overseas or into unusual investments, are a common sign of a pension scam.

Also called: Pension consolidation

Related: Defined benefit (DB) pension · SIPP (Self-Invested Personal Pension)

A pension you arrange yourself rather than through an employer. A SIPP is one type; others offer a more limited menu of funds.

Related: SIPP (Self-Invested Personal Pension) · Workplace pension

The interest you can earn tax-free each year outside an ISA: £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and nothing for additional-rate taxpayers.

Also called: PSA

A physical ETF holds the shares in its index; a synthetic ETF uses a swap with a bank to deliver the index return, which adds counterparty risk.

Also called: Synthetic ETF

Related: Exchange-traded fund (ETF)

The charge an investment platform or broker makes for holding your investments, either a percentage of your account or a flat fee. Flat fees are usually cheaper for larger accounts.

Also called: Custody fee, Account fee

Related: Ongoing charges figure (OCF) Broker cost calculator →

Deciding how much to put into each investment. Rules such as a maximum percentage per holding limit the damage any single mistake can do.

Also called: Kelly criterion

Related: Diversification · Stop-loss order

Investing a fixed sum at regular intervals, so you buy more units when prices are low and fewer when they are high. It reduces the risk of putting everything in at a bad moment. In the US it is called dollar-cost averaging.

Also called: Dollar-cost averaging, Drip-feeding

A version of MACD expressed as a percentage of price, so readings can be compared across assets and over long periods regardless of price level.

Also called: PPO

Related: MACD (moving average convergence divergence) · Hidden Markov model (HMM)

A share that pays a fixed dividend and is paid before ordinary shares if the company is wound up, but usually has no vote and limited upside.

Also called: Preferred stock

Related: Ordinary share

The share price divided by the book value (net assets) per share. Low price-to-book is a classic value measure.

Also called: P/B, Price to book

Related: Book value · Value investing

The share price divided by earnings per share. It shows how much investors pay for each pound of profit. A forward P/E uses forecast earnings, a trailing P/E uses the last 12 months.

Also called: P/E, PE ratio, Price earnings ratio, Forward P/E

Read the full explanation and FAQs →

Related: Earnings per share (EPS) · PEG ratio · CAPE ratio Valuation calculator →

An announcement that a company expects profits to be materially below market expectations. Shares often fall sharply and a first warning is frequently followed by more.

Related: Gap

A monthly survey of business conditions. A reading above 50 suggests expansion; below 50, contraction.

Also called: PMI

A central bank creating money to buy bonds, pushing down long-term interest rates. Quantitative tightening (QT) is the reverse.

Also called: QE, Quantitative tightening, QT

Related: Bank Rate

Making investment decisions with rules and data, tested on history, rather than judgement alone. It aims to remove emotion and make the process repeatable.

Also called: Quant, Systematic investing, Quant investing

Related: Factor investing · Backtest

A listed company that owns property and must pay out most of its rental profits as dividends.

Also called: REIT

Related: Investment trust

Return after inflation. A 5% return with 3% inflation is a real return of about 2%.

Also called: Inflation-adjusted return

Related: Inflation

Bringing a portfolio back to its target mix by trimming what has grown and topping up what has shrunk.

Related: Asset allocation

Giving too much weight to recent events and assuming they will continue.

Related: Herding

A significant, broad fall in economic activity. Stock markets often fall before a recession starts and recover before it ends.

Related: Gross domestic product (GDP) · Yield curve

How long an investment takes to regain its previous peak after a drawdown. The Nasdaq took 15 years to regain its March 2000 high.

Also called: Time to recovery, Underwater period

Related: Maximum drawdown

Avoiding decisions for fear of regretting them later, which can freeze investors. Writing down rules in advance helps.

Related: Disposition effect

Operating profit as a percentage of all the capital, debt and equity, used in the business. It shows how well a company turns investment into profit.

Also called: ROCE, ROIC, Return on invested capital

Related: CROCI · Return on equity (ROE)

Profit as a percentage of shareholders' equity. High ROE can signal a strong business, or simply a lot of debt.

Also called: ROE

Related: Return on capital employed (ROCE)

When a listed company raises money by offering existing shareholders new shares, usually at a discount. If you do not take up your rights your stake is diluted.

Related: Dilution

The return on an investment treated as having no default risk, usually short-term government bills. It is the baseline other returns are judged against.

Related: Sharpe ratio

An online service that builds and manages a portfolio, usually of ETFs, based on a questionnaire about your goals and attitude to risk.

Also called: Robo advisor, Digital wealth manager

A momentum indicator from 0 to 100. Above 70 is often called overbought and below 30 oversold, though strong trends can stay overbought for a long time.

Also called: RSI, Relative strength index

Related: Momentum

A shortcut for how long money takes to double: divide 72 by the yearly return. At 8% a year, money doubles in about nine years.

Related: Compounding

Giving up part of your salary in return for your employer paying the same amount into your pension. Both you and the employer save National Insurance. Changes limiting the National Insurance saving have been announced for later years, so check the current rules.

Related: Workplace pension · Pension tax relief

Patterns in returns linked to the calendar, such as particular months or the US presidential cycle. Effects are often small and unreliable on their own.

Also called: Sell in May, Santa rally

Seasonality Lab →

The danger that poor returns early in retirement, while you are withdrawing money, do lasting damage even if average returns are fine later.

Also called: Sequence risk

Related: Drawdown · Maximum drawdown

The date ownership and cash actually change hands after a trade. US shares moved to T+1 (one business day) in May 2024; UK shares currently settle on T+2, with a planned move to T+1 in October 2027.

Also called: T+2, T+1, Trade settlement

When a company uses its cash to buy its own shares, reducing the number in issue. It raises earnings per share but is only good for investors if the price paid is sensible.

Also called: Buyback, Share repurchase

Related: Earnings per share (EPS)

Return above the risk-free rate divided by volatility. Higher means more return for each unit of risk. It treats sharp rises as risk, too.

Related: Sortino ratio · Risk-free rate

Selling a share you have borrowed, hoping to buy it back cheaper later. Losses are theoretically unlimited because a price can keep rising.

Also called: Shorting, Going short

Related: Short squeeze · Long position

A sharp price rise forced by short sellers rushing to buy back shares to limit their losses, which pushes the price higher still.

Related: Short selling

A UK personal pension where you choose the investments yourself. Contributions get tax relief, growth is tax-free, and you can usually access it from age 55, rising to 57 from April 2028.

Also called: SIPP, Self-invested personal pension

Read the full explanation and FAQs →

Related: Pension tax relief · Annual allowance · Drawdown · Tax-free lump sum Is my pension performing? →

The difference between the price you expected and the price you actually got. It comes from fast-moving prices, wide spreads or orders too large for the available liquidity.

Related: Bid-ask spread · Market order

A company with a small market value. Small caps have historically offered higher long-run returns in some studies, with more risk and less liquidity.

Related: Large-cap · Market capitalisation · Factor investing

Like the Sharpe ratio but dividing by downside deviation only, so upside swings are not penalised. Set out by Frank Sortino and Lee Price in 1994.

Read the full explanation and FAQs →

Related: Sharpe ratio · Downside deviation What works in investing →

An index of about 500 large US companies, weighted by market value. It is the most widely used benchmark for the US stock market.

Also called: S&P, SPX

Related: Nasdaq 100 · Magnificent Seven S&P 500 map →

A UK way of betting on price moves in pounds per point. Profits are currently free of UK capital gains tax and stamp duty, but it is highly leveraged and most retail accounts lose money.

Also called: Spread bet

Related: Contract for difference (CFD) · Leverage · Guaranteed stop-loss

A 0.5% tax on buying most UK company shares electronically. It does not apply to ETFs, most funds, gilts or shares on AIM.

Also called: Stamp duty on shares, SDRT

Related: AIM (Alternative Investment Market) · Exchange-traded fund (ETF)

A statistical measure of how widely returns spread around their average. It is the most common measure of volatility.

Related: Volatility · Downside deviation

The UK government pension paid from State Pension age (currently 66, rising to 67 between 2026 and 2028) to people with enough National Insurance qualifying years, usually 35 for the full new State Pension. It rises each year under the triple lock.

Related: Triple lock

How unlikely a result is to have happened by chance. Test enough strategies and some will look significant purely by luck.

Also called: p-value, p-hacking

Related: Overfitting

An ISA that holds investments such as shares, funds, investment trusts, ETFs and bonds rather than cash. It counts towards the same £20,000 annual ISA allowance.

Read the full explanation and FAQs →

Related: ISA (Individual Savings Account) · Cash ISA Compare broker costs →

Dividing each share into several cheaper ones, for example 10 for 1. It changes nothing about the value of the company or your holding.

Also called: Share split

A stop order that becomes a limit order, not a market order, when triggered. It protects you from selling at a much worse price, but if the market falls through your limit the order may not be filled at all.

Related: Stop-loss order · Limit order

An order that becomes a market order to sell once the price falls to a trigger level you choose, to cap a loss. In a sharp gap down the sale can happen well below the trigger.

Also called: Stop order, Stop loss

Read the full explanation and FAQs →

Related: Stop-limit order · Trailing stop · Gap

Price levels where buying (support) or selling (resistance) has repeatedly stopped a move. When broken they often swap roles.

Also called: Support, Resistance

Studying only the funds or companies that still exist, ignoring those that closed or went bust. It flatters average returns.

Related: Backtest

Risk that affects the whole market, such as recessions or interest-rate shocks, and cannot be diversified away. Unsystematic risk is specific to one company and can be.

Also called: Market risk, Unsystematic risk, Specific risk

Related: Beta · Diversification

Usually up to 25% of a pension can be taken tax-free, subject to the lump sum allowance of £268,275 in 2026/27 for most people. The rest is taxed as income when withdrawn.

Also called: Pension commencement lump sum (PCLS), Tax-free cash, 25% tax-free

Read the full explanation and FAQs →

Related: Lump sum allowance (LSA) · Drawdown

Studying price and volume patterns on charts to judge trend and timing, rather than a company's accounts. Fundamental analysis looks at the business itself.

Also called: Fundamental analysis, Charting

Related: Moving average · MACD (moving average convergence divergence)

Every cost of investing combined: fund charges, platform fees, dealing charges, FX fees, spreads and any adviser fee. Small differences compound into large sums over decades.

Also called: Total cost

Related: Ongoing charges figure (OCF) · Platform fee · Compounding What you really pay →

Price change plus income such as dividends, assumed reinvested. Comparing price returns alone understates high-yield investments.

Related: Annualised return (CAGR)

How closely a tracker fund follows its index. Higher tracking error means returns differ more from the index, up or down.

Related: Index fund · Exchange-traded fund (ETF)

A stop-loss that moves up automatically as the price rises, staying a set amount or percentage below the highest price reached. It never moves down, so it locks in part of a gain.

Also called: Trailing stop-loss

Related: Stop-loss order

A US government bond, bill or note. The 10-year Treasury yield is the benchmark interest rate for much of the world.

Also called: US Treasury, T-bill, T-note

Related: Bond · Yield curve

The policy that raises the UK State Pension each April by the highest of earnings growth, CPI inflation or 2.5%.

Related: State Pension · Inflation

Taking a lump sum straight from an untouched pension pot, where usually 25% is tax-free and 75% is taxed as income. It triggers the money purchase annual allowance.

Also called: UFPLS

Related: Tax-free lump sum · Money purchase annual allowance (MPAA)

An estimate of the loss that should only be exceeded with a given probability over a set period, for example a 1-in-100 day. It says nothing about how bad losses are beyond that point.

Also called: VaR, Tail risk

Related: Expected shortfall · Fat tails

Buying shares that look cheap against earnings, assets or cash flow. It has a long record across markets, with long periods of disappointment too.

Related: Growth investing · Factor investing · Margin of safety

The Cboe Volatility Index, calculated from S&P 500 option prices. It shows the volatility the options market expects over the next 30 days and is often called the fear index.

Also called: Fear index, Volatility index

Related: Implied volatility · Volatility

How much and how quickly a price moves up and down, usually measured as the standard deviation of returns. Higher volatility means a wider range of outcomes, not necessarily higher returns.

Related: Standard deviation · VIX · Downside deviation

A US tax form non-US investors complete through their broker. Under the UK-US tax treaty it cuts the US withholding tax on US dividends from 30% to 15%.

Also called: W8BEN

Related: Withholding tax

Tax deducted at source by a foreign country on dividends or interest paid to overseas investors. Rates depend on the country and any tax treaty.

Related: W-8BEN form · Dividend

A pension set up by your employer. Under auto-enrolment, eligible UK employees are enrolled automatically, with a legal minimum of 8% of qualifying earnings, of which the employer pays at least 3%.

Also called: Auto-enrolment, Company pension

Related: Defined contribution (DC) pension · Salary sacrifice

The income from an investment as a percentage of its price. For bonds, yield to maturity also includes the gain or loss as the bond returns to its face value.

Related: Dividend yield · Bond · Yield curve

A chart of bond yields across different maturities. Normally longer bonds yield more; an inverted curve, where short-term yields are higher, has often come before US recessions, though the timing is unreliable.

Also called: Inverted yield curve

Related: Treasury · Recession