If you’re just starting out in the investing world, the complicated jargon can become very confusing. Many people are put off investing altogether when they first come across a number of different terms.
Of course, investing isn’t for everyone. But the confusing terminology shouldn’t be a reason to give up. This blog should help uncover some of the overwhelming technical finance terms to help you understand the industry a lot better.
From what systematic investing means, to the difference between inflation and interest rates, here are all the must-knows when it comes to investment chat.
This is a type of investment plan which uses data and scientific testing to make strategic investment decisions.
This type of strategy can also be called quantitative investing, algorithmic, data-driven or rules-based investing.
Capital gain or loss
The capital gain or loss of an investment describes the difference between the amount you bought the investment for and how much you sold it for.
This is a way to analyse the potential success of a trading strategy. By looking at data from previous strategies, backtesting will analyse a hypothesis to predict whether a strategy model is likely to be successful or not.
A dividend is when a company shares the profits with its investors, this is usually either paid annually, quarterly or just once. These dividend investors can decide to reinvest their profits instead of taking them into their own account.
To open a UK stockbroker account for your investments, you may choose between a cash or margin account. Margin accounts use borrowed money, with the aim of making big returns to pay back the borrowed money and the interest whilst still earning a profit.
If you have shares in something, this represents how you have some ownership in a company. The more shared you have, the more ownership you have. When you purchase shares, you may also get dividends and access to voting for company decisions.
If an organisation distributes bonds, this essentially means that they are borrowing from its investors. To gain something from this, investors are given interest payments as well as the investment back once the bond has finished.
The term equity is another way of referring to stocks. The equity of a company refers to how much of the company is owned and funded by stockholders of the company. So if you buy shares in a business, you have equity and ownership in the business.
Inflation is when the price of goods increases. For inflation to increase, it will depend on the financial economy and the cost of living. When inflation hits, your earnings and buying power are less significant.
Deflation is the opposite of inflation, meaning the economy is declining. During this time though, your purchasing power is higher.
The interest rate refers to how much it costs to borrow money. You can earn interest on your own money when in certain bank accounts or savings accounts. Interest rates for retail borrowers are set by their bank, and the interest rates paid by banks are influenced by the rates set by central banks such as the Bank of England or US Federal Reserve.
The amount you pay will depend on the type of loan you’re getting and how reliable you are with paying back money.
Having stocks in something refers to the general idea of buying an equity investment, this could be in ownership of a business. However, there are various types of stock and can be used to describe the asset as a whole.
A recession refers to when the economy declines over a series of months. This can cause investments to decrease in value and unemployment may rise.
Volatility is what’s used to calculate the change in asset prices. If there is more volatility in a certain market, this means that there is more price movement. When an investment is high in volatility, it’s seen to be riskier as there’s more chance it can decrease in price.
Make your investment
Hopefully running through these investment terms has helped with the understanding of the basics of investing, and you feel ready enough to get going! Of course, there is lots more to it, but it’s a good starting point to understand general terms and investment terminology, such as systematic investing, if you’re just starting out.