Alpha: A statistical way to evaluate the risk-adjusted momentum of an investment. Alpha incorporates both risk and reward.

Annuity: A form of investment contract sold by life insurance companies, which guarantees a fixed or variable payment to the annuitant at some specified time in the future, usually retirement.

Ask: The lowest price a seller is willing to accept when selling a security (stock).

Asset Allocation (or Allocation Mix): Allocation is the process of deciding which investment option, or combination of investment options, are best aligned with your financial goals, needs and time horizon, followed by the distribution of your assets accordingly. Asset allocation allows you to control your risk-level, potentially maximizing your return.

Back-End Load: A redemption charge commonly incurred when you withdraw from certain mutual funds. We recommend only mutual funds that charge no loads - either on the front end or back end. This gives you the maximum flexibility to switch investments as the fund's performance or market conditions change.

Basis Point: Each percentage point of the yield in bonds equals 100 basis points: one basis point is 1/100 of 1.0% (0.01%).

Bear: An investor who believes the market as a whole or a particular stock will decline. A bear is the opposite of a Bull.

Bear Market: A prolonged period of falling stock prices, typically by 20% or more off the peak price.

Beta: Measures a stock's volatility when compared to the volatility of the market as a whole. Stocks with a beta of more than one are more volatile than the market. Those with a beta of less than one have lower volatility and tend to move at a slower pace than the market.

Bid: The highest price a buyer is willing to accept when purchasing a security.

Blue Chip: A company that has a history of solid earnings, regular and increasing dividends, and an impeccable balance sheet. Examples: Coca-Cola, Berkshire Hathaway & Gillette.

Blue Sky Laws: State securities laws. These laws apply to the registration of sales personnel (registered representatives) and the registration and sale of securities.

Book Value: The value of the company if all liabilities were subtracted from assets and common stock equity. The book value has very little relation to the market value. In industries in the technology sector, this number is almost always miniscule compared to market capitalization.

Broker: A person that buys or sells an investment vehicle for you (securities, bonds, commodities, etc.,) in exchange for a fee, which is called a commission.

Bull: An investor who believes the general market or a particular stock is going to increase in price.

Bull Market: A period of market conditions that are steadily reflecting growth in the economy with climbing stock prices.

Capital Gain: The difference between your sale price and your cost, when you sell an investment for a profit. 

Capital Loss: Many investors also hesitate to sell for the opposite reason - because they are unwilling to accept a capital loss or any other loss for that matter.

Dead-Cat Bounce: A temporary recovery by a market after a prolonged decline (or bear market). In most cases, the recovery is short-lived and the market decline will soon resume.

Derivatives: Products, instruments, or securities which are derived from another security. Many derivatives - such as futures and options - are traded on specialized and regulated exchanges and can be bought freely by investors. There are also hundreds of different kinds of derivatives that are private, one-on-one contracts between two banks or other financial institutions, which are not as closely regulated.

Diversification: A way to help balance the risk of losses by spreading out your assets among various investments such as stocks, bonds and money market funds. A decline in one investment may be offset by a rise in another.

Dividend: A dividend is a portioned distribution of a company's earnings, cash flow or capital to shareholders, in either cash or additional stock. Dividends are declared by the Board of Directors.

Dow Jones Industrial Average: The Dow Jones Industrial Average (or DJIA for short) is by far the most popular and widely used gauge of the U.S. Stock Market. It consists of a price-weighted list of 30 highly-traded Blue Chip companies.

Equity Options: Securities that give the holder the right, but not the obligation, to buy (call) or sell (put) a specific number of shares, at a specific price (see Strike Price), for a specific time period. Typically, one option contract is for 100 shares. The options may be for individual stocks, or they may be tied to stock market indexes such as the S&P 500 or the Nasdaq-100. The advantage of purchasing options is that your risk is strictly limited to the price you pay for them. The disadvantage is that, in order to profit from options, the expected market move must take place before the option expires.

Euro: The new European currency, which was designed with the goal of helping to unite the economies of Western Europe and potentially compete with the U.S. dollar as an international currency. The euro was launched strictly for interbank transactions in January 1999. Starting in January, 2002, it was launched as an actual currency.

Eurodollar: Not to be confused with the new European currency, eurodollars are strictly U.S. dollar time deposits (much like CDs) that are held in overseas banks, mostly in Europe. These deposits are so large and so actively traded that the Chicago Board of Trade has created futures contracts for institutions and investors that want to trade in eurodollars; and these contracts have become one of the most actively traded instruments in the world.

Hedge: is an investment designed to help protect against losses in another investment or position. For example, if you hold a large portfolio of stocks that you fear will lose value in the months ahead, but you cannot sell, you can buy investments designed to go up as stocks decline. Put options or specialized mutual funds provide some of the most common vehicles.

Hedge Funds: have nothing to do with a Hedged fund, in fact the name is an oxymoron.  Hedge Funds are usually reserved for high net worth customers who can afford to loose all of their investment.. These funds generally invest in derivatives and other exotic instruments.

Market Capitalization: A company's market capitalization (or "market cap" as it s frequently called) is calculated by taking the number of outstanding shares of stock multiplied by the current price-per-share.

NASDAQ: A stock exchange where mostly shares of technology companies such as Microsoft and Cisco are traded. An exchange is a place where options, futures, and shares in stocks, bonds, indexes, and commodities are traded. The most famous in the United States is the New York Stock Exchange.

Net Asset Value (NAV): The value of a fund''''s underlying securities. It is calculated at the end of the trading day. For a mutual fund, the net asset value per share usually represents the fund''''s market price, subject to a possible sales or redemption charge.

OTC: Over-the-Counter (OTC) is a market outside an organized exchange in which transactions are conducted through a telephone or computer network connecting dealers such as the NASDAQ.

P/E Ratio: How much money you are paying for $1 of the company''''s earnings. In other words, if a company is reporting a profit of $2 per share, and the stock is selling for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings ($20 per share divided by $2 per share earnings = 10 P/E.)

Spread: The difference between the Ask and the Bid.

Price/Earnings (P/E) Ratio: The P/E ratio represents the relationship between a company''''s stock price and earnings. For example, a P/E of 10 means that the company is selling for ten times its current earnings per share. Also known as "multiple," the ratio is calculated by dividing the current price of the stock by the current earnings per share.

Sleeper: Stock in which there is little investor interest, but which has significant potential to gain in price once its attractions are recognized.

Strike Price: Also known as the exercise price. The price at which the holder (buyer) of an option can purchase (call) or sell (put) the underlying stock.

Stock: Stock is ownership. A business is divided up into shares of stock and parts of the company (the shares) are sold to investors to raise money. For more information, check out the investing lessons.

Time Horizon: The anticipated amount of time you will be investing in order to meet your individual financial goals. Generally speaking, the longer your time horizon, the better situated you are to recover from unfavorable investment decisions.

Volatility: A measure of fluctuation in the market price of a security. A volatile stock or fund has frequent and large price swings. Statistically, the measure most commonly used for volatility is "standard deviation," the amount the price of a stock or mutual fund varies over time.

Yield: There are many uses for this term, so be sure not to confuse them:

(1) Current Yield on Bonds: This is the "coupon rate" - the interest rate stated in the description of the bond, divided by the purchase price. For example, if you are buying a U.S. Treasury 5% bond for a price of 80 (out of a 100 points), the current yield is 5 divided by 80 x 100 = 6.25%.

(2) Yield to Maturity on Bonds: This is a more complicated formula. It considers all aspects including purchase price, redemption, value, time remaining to maturity, etc. You can find it in most bond listings of various financial newspapers.

(3) Yield on Stocks: This is the dividend per share paid by the company in proportion to the current cost of each share. For example, if you buy a stock for an average price of $65, and the stock paid $1.43 in dividends last year, the dividend yield on this stock is 2.2% ($1.43 dividend per share divided by the average price of $65 per share).

(4) Yield on Stocks:  Can also be calculated by dividing the dividend paid over the Par Value of the stock.  For example the Par Value (IPO price) is Rs 10, and if a company pays Rs 2 in dividends it will be treated as 20% dividend.  So be careful when comparing one market’s yield with another''s.