Market Glossary
A–Z

A backwardation exists when the later-dated contracts of the futures term structure have a lower price than the current front contract, that is, the contract that expires next. It is a special state of the futures curve and, in commodity markets, indicates a strong supply shortage that usually leads to rising prices.

The balance sheet shows a company's assets in comparison to its debts. It provides an overview and helps to determine a company's success and to depict its financial situation.

At almost every house bank you have the option of opening a securities account, through which you can then trade securities on the stock exchange. This is done through a broker that is affiliated with your house bank. The names of these brokers are often modeled on the parent bank.

The broker of the Sparkasse, for example, is called S Broker; at Deutsche Bank it is maxblue. The advantage of such a bank broker is that you have all your accounts under one roof. However, compared with independent brokers, they are often much more expensive in terms of fees.

The bid price is the maximum price that a potential buyer is currently willing to pay for a good.

"Blue chips" is the term for stocks of large companies. They are named after the blue chips in the Monte Carlo casino, as they had the highest value.

With a bond, large borrowers take out longer-term loans. Large borrowers are usually the public sector (federal government, states, municipalities), companies and banks. Bonds have precisely defined terms for interest, maturity and repayment obligations and are therefore regarded as a very safe investment option. The best-known bonds are government and corporate bonds.

With a bond with warrants, you buy a bond that carries the additional right to exercise an option. This is intended to create a further incentive to buy the bond.

Book value describes the sum of all assets and debts of a company less depreciation. It therefore roughly corresponds to the company's equity.

A broker is a securities dealer who executes transactions on the stock exchange on behalf of a client. To trade on the stock exchange, private individuals need an account with a broker.

"Candlestick" stands for "candle". This way of displaying price movements was invented in the 18th century by a Japanese rice trader and is today the most widely used chart type among professional traders. While a plain line chart can only ever show the closing price of a given trading period, a candlestick chart clearly shows the opening, closing, low and high price within a specific, previously defined time period. This gives the viewer, at a glance, much more important information than analyzing line charts does.

In economics, capital is classically understood as the stock of production equipment. This can exist both in the form of goods and in financial form. Alongside labor and land, capital is regarded as one of the three essential factors of production. In everyday use, we generally use the term “capital” to describe an existing and available amount of money.

If a company regularly invests more than it earns in funds, insolvency looms. The capital investment ratio indicates how much money a company spends on goods and production facilities and divides this by the cash inflow from operating business. If this figure is regularly and over the long term higher than one, the company is not operating profitably.

Individual years can and are allowed to deviate from this.

The capital market refers to the segment of the exchanges where medium- to long-term funds and liabilities (bonds) are traded.

Capital turnover is the ratio of sales to a company’s total assets. A solid mid-range value relative to the industry is desirable here.

If capital turnover is too high, a company’s plant and equipment may be outdated.

If capital turnover is very low, too many resources are tied up in plant and equipment.

The cash conversion cycle indicates how quickly the capital tied up in inventory is converted back into cash.

You calculate it as follows:

Receivables Collection Period + Inventory Holding Period – Payables Period = Cash Conversion Cycle

A cash conversion cycle that is too high means that too much capital is probably tied up in the sales process.

Cash flow is considered one of the most important criteria in the analysis of companies. The company's cash inflows and outflows are compared in order to be able to make statements about the liquidity of the company. "Cash flow" refers to the flow of capital. It thus measures how much money has flowed into or out of the company within a given period of time.

If you divide the cash inflow from operating activities by revenue, you get the cash flow margin. There are companies that, despite profits, regularly report a negative cash flow.

This key ratio is to be interpreted in a similar way to the net profit margin, but it uses the company's cash flow instead of net profit. It can therefore be considered more precise, but it also fluctuates significantly more. Combining different key ratios can therefore be very helpful.

Compared with the quick ratio (2nd-degree liquidity) and the current ratio (3rd-degree liquidity), the cash ratio is a rather insignificant key ratio. It limits liquidity exclusively to liquid funds such as investments and cash. For the calculation, these are divided by current liabilities. The higher the cash ratio, the more liquid the company. Liabilities can therefore be settled quickly. However, a cash ratio that is too high indicates an inefficient use of the existing capital.

A cash surplus is the cash financial resources that are left over at the end of a given period of time after deducting all costs and expenses.

CFDs are like a bet with the broker. The stake is, in effect, the price difference from the start of the trade. So if your assessment turns out to be right, the broker owes you the price difference as soon as you close the position. If you were wrong, you owe the broker the money. CFDs are not traded on the exchange, but are priced based on exchange-traded securities and contracts such as stocks, futures or indices. For CFDs there are specialized CFD brokers.

A chart is the graphical representation of the price movement of an exchange instrument. Different chart models can set time, price and volume in relation to one another. The probably best-known chart is a line chart, which shows the closing prices of the trading days one after another over time, with these being connected to each other by a line. However, there are considerably more specialized chart types such as the candlestick chart, the Heikin Ashi chart or the Market Profile, to name just a few. With the help of such charts, traders can gain more information from the graphical representation that can be useful to them when trading.

A collateral portfolio is usually set up for ETFs that are structured as synthetically replicating funds. Here, in addition to the investor and the fund issuer, a third party is brought in, the so-called swap partner. This swap partner is usually a large bank. It is allocated the capital collected in the fund and can use it to build a collateral portfolio containing assets that the swap partner may determine itself. In return, the swap partner guarantees investors the payout of the index return to which the ETF is meant to refer. The profit from the collateral portfolio, in turn, is kept by the swap partner itself.

If you reinvest your interest (accumulate it), you in turn receive compound interest on the interest. This effect is immensely important for long-term investing and forms the foundation for building wealth.

One speaks of a contango when the later-dated contracts of the futures term structure have a higher price than the current front contract, that is, the contract that expires next. It is the normal state of the futures curve.

The cost averaging effect is a phenomenon that occurs with long-term investment by means of a fixed savings plan contribution. If, for example, you invest 100 euros in a fund every month, you will buy partly at higher and partly at lower prices. Over time, this results in an average price. In volatile or sideways-moving markets, a better average purchase price can often be achieved this way than with a lump-sum investment.

Traders who operate in the futures markets must, above a certain trading size (which differs for each market), publish weekly which positions they hold. This data is collected by the CFTC (Commodity Futures Trading Commission) and published. This data is then called the COT report or COT data. COT stands for Commitment of Traders.

Certain trading classes and exchange instruments that you can trade through your broker are subject to counterparty risk. In this case, you are usually not trading a real asset that you come to own through the trade. As a result, in the worst case, should your broker go bankrupt during the trade, your money is lost. This is the case, for example, when trading CFDs or certificates. When trading a stock or a physically replicating ETF, on the other hand, you own a real security, which remains in your possession even if brokers or fund issuers become insolvent.

Cryptocurrencies are purely digital currencies that can, however, be exchanged for regular fiat currencies. They are produced through a process called “mining”, which consists of particularly difficult computational tasks that can only be solved by very powerful computers. The goal of cryptocurrencies was the creation of an anonymous, decentralized, digital means of payment.

Current assets, also referred to as short-term assets, represent a company’s circulating assets. They are listed on the assets side of the balance sheet. Current assets are available to the company only for a limited period of up to 12 months. Three categories belong here: cash and cash equivalents, which can include, for example, bank balances or short-term securities; trade receivables from third parties; and inventories, such as raw materials or goods already produced.

“Liability” is an accounting term. It refers to all obligations entered into toward third parties. These can be, for example, suppliers or service providers. The services used from these third parties are understood as purchases on credit. They therefore do not have to be paid immediately; instead, the company is granted a payment term. Current liabilities are liabilities whose payment term is less than one year.

The current ratio is a popular key ratio with which you can determine how quickly a company can settle its short-term debts. You divide the current assets (cash, receivables, inventories) by the current liabilities. If the number is below 1, this indicates liquidity problems in the company. A current ratio of over 1.7 suggests that the company is not using its financial resources effectively, which often results in low returns.

The DAX is the most important German stock index. It contains the 30 German companies with the highest market capitalization on the Börse Frankfurt and is calculated in real time.

In day trading, positions are opened and closed again within a single trading day. Accordingly, this holding period makes it a short-term form of exchange trading. Many different trading products are suitable for day trading, but futures have become established among most day traders.

Dealer hedging is the offsetting of risk from an options dealer’s positions. As the underlying price moves, the options’ delta can change; the dealer may adjust an offsetting position in the underlying or a related instrument. The direction and size of those trades depend on the dealer’s overall net position. A single options trade therefore cannot predict a certain price path.

A company can raise debt capital by taking out loans or, alternatively, by issuing bonds. For this capital, the company has to pay a fixed interest rate to its creditors. In contrast to equity, which the company can increase by issuing stocks and which is permanently available to the company, debt capital must be repaid to the capital providers after a fixed period.

The debt-to-equity ratio is also referred to as gearing and is the most important key ratio for measuring a company's financial stability. It describes the balance-sheet ratio of debt capital to equity.

The higher the debt-to-equity ratio, the more dependent the company is on debt capital. This is cheaper for the company and thus more efficient. In contrast to equity, however, it must be repaid in full to the capital providers, which increases the risk for the company.

The debt-to-equity ratio should always be compared within the same industry, since on average it can differ greatly from sector to sector. High gearing increases business risk; gearing that is too low points to inefficiency and usually goes hand in hand with low profitability.

Delta is an options metric (one of the Greeks): It indicates how much the price of an option changes when the underlying moves by one dollar. A delta of 0.5 means: The option moves half as much as the underlying. Market makers use delta to hedge their options positions neutrally (delta hedging).

A demo account can be opened with almost any broker and with almost every trading platform as well. It is a free play-money account with which you can try out strategies without risking real money.

Derivatives are tradable products that refer to another tradable product. They include futures and options. So you trade, for example, an option ON a stock. The option is thus a derivative on that stock.

Under differential taxation, it is not the revenue from the sale of a good that is taxed, but only the difference between the purchase price and the selling price. Currently, for example, silver coins in Germany fall under differential taxation, which is a big advantage especially for private buyers. While the coins were still subject to the full 19% VAT until the beginning of the 2010s, end customers can now buy them virtually tax-free. The seller then only has to remit the value-added tax on their profit.

Discount brokers are brokers that come with very low fees. They were founded to give the general public access to the Stock Exchange. They usually finance themselves through the spread when selling your orders to market makers.

The term diversification refers to the spreading, or allocation of assets across different investment types, industries or economic regions. A well-diversified portfolio provides more security in your securities account.

The dividend is the payout of company profits to shareholders. If you own stocks (including in the form of funds), you receive money at regular intervals from the companies of which you own a proportional share. The amount of the dividend is determined at the company's annual general meeting. Some companies forgo paying out dividends.

The Dow Jones Industrial Average Index contains the stocks of the 30 most significant companies listed on the New York Stock Exchange. Like the DAX or the ATX, it is calculated in real time. 

The drawdown phase is the losing phase. A price sometimes moves in your direction and sometimes it does not. When, after a certain period of gains, the price corrects and moves against you, this is called a drawdown phase. It is considered over when your profit reaches a new high. 

The dynamic debt ratio calculates how long a company would need to repay its total debt using its current cash flow. A value between 2-5 years is generally considered desirable, but it can vary. As with most valuation ratios, the value should be compared within the same industry.

"EBITDA" is the abbreviation for "Earnings before interest, taxes, depreciation and amortization", in other words "profit before interest, taxes, depreciation of property, plant and equipment and amortization of intangible assets". In addition to EBIT, EBITDA therefore also does not subtract depreciation and amortization from operating profit.

The efficient-market hypothesis examines how available information is incorporated into market prices. Different information sets lead to different, testable claims. It proves neither that nobody can outperform a market nor that active strategies reliably win.

Emerging markets, in other words the markets of emerging economies, is the term for the economic region of the emerging countries. There is no binding list of emerging countries; their number varies between 10 and 55 depending on the list.

As a rule, however, China, Taiwan, Korea, India, Ireland, South Africa, Brazil, Russia, Thailand and Mexico are counted among the emerging markets. 

Equity is also referred to as the net assets of a company. It results from the difference between assets and debt. By issuing stocks, a company can sell shares in its equity to investors, the shareholders, and thereby, when needed, raise new capital to operate with. Equity is available to the company permanently. The counterpart to this is the raising of debt capital by taking out loans or issuing bonds.

The equity ratio indicates how high the share of equity in total assets is. It accordingly has a very similar informative value to the debt-to-equity ratio, but is to be read the other way around.

The higher the equity ratio, the less dependent a company is on debt capital. This increases the company's financial stability. However, since debt capital is cheaper, the equity ratio should not be too high, because otherwise this indicates inefficient capital management and comes at the expense of profitability.

ETC is the abbreviation for "Exchange Traded Commodity". It is an asset class that is very similar to the well-known ETF. You can buy and sell an ETC just like a stock or an ETF through your broker account. The price of the ETC is likewise determined by supply and demand. However, it is not a classic fund, but rather a debt security, similar to a bond. The exception here are precious metal ETCs, which physically buy the respective metal. ETCs are used to give you, as a private investor, a straightforward and uncomplicated way to invest in commodities. Caution: A long-term investment in all commodities except precious metals does not make sense for various reasons! You can find out the reasons in our blog post "Should I invest in commodities for the long term?". Furthermore, as a buyer of an ETC you are subject to issuer risk!

An ETF – Exchange Traded Fund – is an exchange-traded index fund that replicates the performance of the underlying index almost identically. For every conceivable index in the world there is now a large number of available ETFs from various providers. Just like with an actively managed fund, the fund capital is used to buy stocks or bonds in exactly the proportion in which the respective index contains them. 

If the index now rises 5% in price, the price of the ETF rises in line with it by about 5%.  The probably best-known ETFs are the S&P 500 and MSCI World.

For one, the ETF has the advantage that all funds bring with them: diversification. Through a straightforward investment in a fund, you buy a large number of assets at the same time, benefit from their average performance and thereby reduce the overall risk. While as an active stock investor in a well-diversified portfolio you will probably hold between 10 and 20 different stocks, a fund invests in dozens, hundreds or even thousands of different assets.

The second advantage of ETFs is the automated replication of the returns of indices.

ETN is the abbreviation for "Exchange Traded Note". It is an asset class that is very similar to the well-known ETF. You can buy and sell an ETN just like a stock or an ETF through your broker account. The price of the ETN is likewise determined by supply and demand. However, it is not a classic fund, but rather a debt security that resembles a bond. ETNs are used to give you, as a private investor, a straightforward and uncomplicated way to invest in money market products such as currency exchange rates, indices, cryptocurrencies or volatility indices. Caution: Since this is a relatively young asset class, ETNs are usually still very illiquid. Furthermore, as a buyer of an ETN you are subject to issuer risk.

"EV" is the abbreviation for "Enterprise Value". It is a valuation ratio for valuing stock corporations. In contrast to equity multiples, such as the price-to-earnings ratio, which relate the return exclusively to the company's equity, EV, as an entity multiple, also includes debt capital. The enterprise value states the value of a company taking its debt into account.

EV/EBIT is a valuation ratio for valuing stock corporations. It relates the EV, that is, the enterprise value, to EBIT, profit before interest and taxes. EV/EBIT is one of the few ratios with which it is meaningfully possible to compare companies across industries.

"Exchange instrument" is another term for a trading class that can be traded on the stock exchange or through a broker. Exchange instruments can be, for example, securities such as stocks, bonds or funds, but derivative contracts such as futures and options are also exchange instruments.

All currencies recognized and backed by official governments are referred to as fiat currencies. "Fiat" is originally a Latin word and means "Let it be done!" or "Let it come to be!". The euro, the US dollar, the Swiss franc, etc. are fiat currencies. Cryptocurrencies such as Bitcoin are not included.

A Fibonacci retracement divides a selected price move between a high and low into percentage pullback levels. Common levels include 23.6%, 38.2% and 61.8%; 50% is an added halfway mark, not a ratio from the sequence. The levels identify possible areas to observe, but neither a probable reversal nor a trading signal on their own.

This key ratio divides a company's average total assets by its average equity over the course of a fiscal year. The higher this ratio rises, the higher the risk for investors, since more debt capital had to be taken on.

A low value, however, indicates inefficient capital management, which often comes at the expense of profitability. The value should always be considered within the same industry.

Fixed charge coverage is the company's interest coverage including lease payments. The higher the interest coverage or, alternatively, the interest coverage ratio, the more readily a company can pay accruing interest out of its operating profit.

Fixed charge coverage is the more meaningful key ratio for companies with a very high share of leasing.

FOBO stands for “Fear of Better Options” – the fear that a better opportunity might come along any moment. In trading, it leads to constant hesitation: Instead of trading a good setup, you wait for the supposedly perfect one – and thereby miss good trades.

FOMO stands for “Fear of Missing Out” – the fear of missing a move or an opportunity. It tempts you to chase a price move and to enter a trade hastily, without a plan – usually at the worst possible time, when the move has already run far.

The footprint chart is a way of displaying exchange data that shows the buys and sells executed in a financial product in absolute numbers. It is used primarily in day trading, but can also be used for trading approaches designed for the medium term.

Forex stands for “Foreign Exchange”; it refers to interbank trading. On the Forex markets, currencies are traded.

A basic example would be: I take euros and use them to buy US dollars, or the other way around. Trading does not take place via the stock exchange, but directly between banks and brokers. The price of the currency pair is accordingly quoted by the respective financial institution.

In the late 2010s, a veritable wave of new, modern brokers arrived on the market. Companies such as Robinhood, Scalable Capital, Trade Republic and smartbroker offer business and access models that are very user-friendly, especially for private traders and investors. They also offer extremely low-cost fee models, which has made access to the stock exchange significantly easier for private traders.

Fundamental analysis is one of the most important tools when searching for investments in individual stocks. In a fundamental analysis, you use balance sheet key ratios to calculate whether the current price is overvalued or undervalued. It is therefore a method for valuing and forecasting stock prices.

The economic environment is also taken into account, that is, the entire industry in which the company operates. In our second course, we show a method for the fundamental analysis of stocks that works well in practice.

A fund pools the investment capital of investors in order to invest it in securities or other assets. Thanks to the increased purchasing power, investment strategies can be implemented that an individual investor could not have carried out alone. The fund can be actively managed or passively managed.

A future is a standardized forward contract that obligates the trading partners to a transaction in the future. Accordingly, futures also have an expiration date. Futures belong to the group of derivatives, and many products can be traded with them. These of course include stocks, indices and also commodities.

A simplified example: A coffee farmer sells a coffee future on the exchange. Starbucks buys a coffee future. Because of this future, it is already determined how much Starbucks has to pay this coffee farmer when the future expires and the goods finally have to be delivered, even if that is not until a year from now.

A future always has a limited lifespan. At some point it expires, classically at the time when the traded commodity is delivered. For every future, different contract months with different expiration dates are available. These are traded in parallel to one another and have different prices. If the prices of the different futures months are plotted one after another, starting with the contract that expires next, the result is the futures curve, also called the term structure curve. It is also referred to as "forward curves" or "term structure."

On a futures exchange, futures, that is, exchange-traded forward contracts, can be traded. The world’s largest futures exchange is the Chicago-based CME Group, which is made up of the subsidiary exchanges CME, CBOT, NYMEX and COMEX. In second place comes the European EUREX.

When the closing price of a chart candle and the opening price of the next candle differ, a price gap arises between them. This price gap is called a gap and receives a great deal of attention, especially on daily candles.

The gold-silver ratio refers to the ratio of the gold price to the silver price. It answers the question of how many ounces of silver you would have to pay to acquire one ounce of gold. The ratio is measured historically and can be displayed in chart form. In the past, it has indeed happened that silver has fetched a higher price than gold.

All assets of a company, for example machinery, furniture or office equipment, are subject to a loss of value over time. Gross fixed assets reflect the as-new value of all of a company's assets, without factoring in this loss of value in the form of depreciation. The counterpart is net fixed assets, which reflects the value of all of the company's assets less depreciation.

Gross profit is the raw profit of a company before all costs, interest, depreciation and taxes.

If you divide a company's profit before taxes by its production and sales costs, you get the gross profit margin. It shows whether a company makes a profit despite its expenses. The value should always be compared and assessed within the same industry.

Hedging is the purchase (or sale) of trading instruments to protect an existing position. If you hold Apple stock, for example, and expect a price correction, you can use options or futures to protect the position and offset any potential loss.

When you buy a stock, for example, you also say that you now “hold” a stock in your securities account. The holding period therefore expresses the length of time a security or other trading instrument remains in the owner’s securities account.

Your “house bank” is the bank where you keep your private and/or business checking account. For larger assets, it makes sense to spread the capital that is not invested across several banks and accounts, in order to reduce the risk should the house bank become insolvent.

In simplified terms, your human capital is your knowledge, your know-how and your abilities. Our courses therefore increase your human capital in the area of financial education.

When the monthly inflation rate is 50% or higher, as was the case in Germany 100 years ago, this is generally referred to as hyperinflation. However, there is no universally accepted definition.

An index represents the average price movement of several previously defined securities. The various securities contained in an index can be weighted to different degrees and thus exert different levels of influence on the price movement of the index.

“Indices” is the plural of “index”. An index represents the average price movement of several previously defined securities. The various securities contained in an index can be weighted to different degrees and thus exert different levels of influence on the price movement of the index.

Inflation refers to the rise in the general price level. Money retains its original nominal value, but becomes worth less in the course of an inflation. Inflation usually originates from rising real wages. These lead to increased demand for goods, which in turn leads to a general increase in prices. A moderate annual inflation rate is absolutely normal and, from the economy’s perspective, even desirable. In Germany it is usually between 0.5 and 2% per year. Over the course of history, however, crises have caused various hyperinflations, which led to exorbitantly high price increases.

The initial margin is the amount of money that must be in your broker account before you are allowed to open a particular trade at all. Depending on the broker, this required security margin will be set at different levels. Make sure to always keep significantly more capital in your account than the initial margin requires. At many brokers, it is set far too low.

Interest coverage shows a company's ability to repay its debts including interest. The lower the interest coverage, the more difficulty the company has paying its interest.

Interest coverage ratio is an alternative term for interest coverage.

The inventory holding period describes the number of days a company’s inventory needs to be sold out completely. When valuing the company, we would ideally like to see a value within the industry standard here.

An investment, as opposed to a liability, is the placement of capital in various assets. These can be, for example, stocks, real estate, precious metals or even works of art.

The goal is to protect one’s own assets and to increase them by generating an annual return.

"Issuer" is another term for "issuing party". In the financial world, the term is used above all for the issuers of certain asset classes and funds. A bank, for example, can itself be the issuer of securities or certificates, but it can also resell the securities issued by other, external issuers. You should be careful if you want to invest in an asset class that exposes you to what is known as issuer risk. This means that in the event of the issuer's insolvency, in the worst case you can lose your money.

An issuing bank is a financial institution that takes care of bringing companies to the stock exchange or "publishing" new securities.

“IVR” is short for “Implied Volatility Rank”. It is therefore the percentage value of implied volatility relative to a certain measurement period. This is one year by default. The current value of implied volatility is set in relation to its one-year low and high. The higher the IVR, the more the market is currently fluctuating. Higher IVRs lead to higher option prices, since the range of fluctuation of the market naturally has a major influence on the risk for option sellers.

“Leveraging” refers to the financial use of leverage.

A limit order is used to buy at a lower price than the current price or, alternatively, to sell at a higher price than the current price. If, for example, you are willing to buy a stock at a price of €90 whose current price is €100, you can submit a limit order at €90 to your broker, and the broker will then automatically fill the stock at €90 as soon as the price reaches this level.

In certain extreme situations, the futures exchanges can suspend trading in a commodity indefinitely. If, for example, important news causes a far above-average price movement up or down, trading is paused after a certain price range until the situation has calmed down again.

For each market, price movements of different sizes are predefined that a market may make per day before no further trading is possible. Such a price movement is referred to as limit up or limit down.

See Cash Ratio

See Quick Ratio

See Current Ratio

“Liability” is a term that comes from accounting. It refers to all obligations entered into toward third parties. These can be, for example, suppliers or service providers. The services used from these third parties are understood as purchases on credit. They therefore do not have to be paid immediately; instead, the company is granted a payment term. Long-term liabilities are liabilities whose payment term is more than one year. These include, among others, issued bonds, loans, and also mortgages.

You enter a long trade when you expect markets to rise, that is, when you buy. The goal is to sell again later at a higher price.

The opposite is a short trade.

Loss aversion describes the fact that losses weigh more heavily psychologically than gains of the same size. In trading, this effect tempts people to let losing trades run too long – in the hope of recovery – and to realize profits too early. Anyone who knows the effect can counter it with clear rules and a defined risk.

The lot is the trading unit in forex trading — it indicates how many units of the base currency a position covers.

A standard lot corresponds to 100,000 units, a mini lot to 10,000, and a micro lot to 1,000. In forex, lot size is what the number of contracts is for futures: the dial through which the risk of a trade can be set. It is derived from account size, risk percentage, and stop distance — not the other way around from a desired size.

To be able to open a trade, your account must be covered with sufficient liquidity. Different brokers require different amounts of capital here. Interactive Brokers, for example, allows you to trade with four times your available trading capital. If you have an open trade and it runs strongly against you, your account value may fall below the liquidity threshold needed to keep the trade open. In this case, you receive the so-called margin call from the broker. This is essentially a request to fund your account with new capital so that your trade is not forcibly liquidated by the broker. You should never enter trades in which you run the risk of receiving such a margin call. It should always be avoided.

Market capitalization represents the market value of all freely available stocks of a company. For a healthy company, market capitalization should trade above the pure book value of the stock corporation. After all, investors assume future growth and should therefore be willing to pay more for a company than its pure intrinsic value. Market capitalization is calculated by multiplying the number of issued stocks by their current market price.

Market liquidity describes how easily an instrument can be traded without one order moving its price sharply. It depends partly on available bids and offers and can decline quickly during market stress. It is different from a company’s balance-sheet liquidity.

Market makers (also dealers) are institutional market participants that provide liquidity to the exchanges: They step in as buyer or seller when no counterparty can be found immediately. Their business is trading the spread — not speculating on price direction. Their hedging transactions (dealer hedging) influence the prices of the underlying assets.

Besides the limit order and the stop order, the market order is the most important way to buy or sell an exchange instrument through your broker. Let’s assume you would like to buy a stock. With a limit order, you tell the broker that you would like to buy at a specific price that is cheaper than the current one. With a stop order, you tell it that you would like to buy at a specific, more expensive price. With the market order, you want to buy immediately and at the next best available price. You don’t mind if it is a few cents higher than the current price. What matters to you is getting into the market immediately and receiving the stock.

The market price is generally the most recently traded price of a trading class, such as a stock. It changes depending on supply and demand continuously over the course of the day. When the stock markets close at the end of a trading day, the price of the trading class that was traded last before the close is called its "closing price". If the historical closing prices of the exchange-traded security are lined up next to each other and connected with a line, the result is the price chart.

The Market Profile is a method of displaying a market price. A selected time span, usually 30 minutes, is not represented by the usual candles but by a letter that moves up and down just like the candle. With each new half hour, the next letter is displayed in the next row.

The Market Profile can be “unfolded”, which gives a view that resembles classic candlestick charts. However, it can also be “folded”, so that all letters are viewed stacked on top of one another. This allows a trader to define interesting trading zones.

In contrast to the Volume Profile, which measures the volume per price, the Market Profile looks at how much time the price has spent at a price level.

Momentum refers to the observation that prices keep a direction, once taken, for some time. What performs strongly relative to the overall market tends to keep performing strongly. Momentum strategies therefore deliberately bet on strength instead of betting on cheap, falling securities, and exit when the move loses force.

A “mortgage” refers to a lien on a piece of real estate. Imagine you want to take out a loan from a bank. The bank will make this loan available to you, especially for larger sums, only if you can present certain collateral. By taking out a mortgage on a property that you own, you pledge it to the bank. You may continue to live in the property or rent it out, but from that point on it effectively belongs to the bank. In return, the bank agrees to grant you the loan you want, possibly, depending on the size of the mortgage, at a more favorable interest rate.

The MSCI World is the best-known index of the New York-based fund issuer MSCI. It represents the economic area of the Western world. The index contains more than 1,600 companies from countries such as the USA, England, France, but also Germany. ETFs on the MSCI World are among the most popular investment options. Note: at over 60%, US companies are heavily overweighted in the index.

All assets of a company, for example machinery, furniture or office equipment, are subject to a loss of value over time. Net fixed assets reflect the current value of all of a company's fixed assets, taking their loss of value into account through depreciation. By contrast, gross fixed assets reflect the value of all of the company's fixed assets at their value when new.

Net income is a company’s net profit at the end of the fiscal year. In accounting, it results from the profit and loss statement as the difference between revenues and expenses.

To calculate the net profit margin, you divide net profit by revenue. Compared with companies in similar industries, this ratio should not be too low. The net profit margin is also referred to as the net margin.

A high value points to an exceptionally strong market position or market power of the company. The fact that it can retain a large share of its revenue as profit shows that there is little pricing pressure.

Net return, or net margin, is another term for the net profit margin.

The operating profit margin is operating profit (EBIT) divided by revenue. Operating profit is calculated as gross profit minus selling, administrative and overhead costs. It is profit before interest and taxes.

The operating profit margin makes it possible to compare the profitability of companies within the same industry but across countries, since the respective tax rate is not included in the calculation.

Options can be regarded as an insurance transaction on a financial product. The buyer of an option pays a premium for the right to buy or sell a stock or a future at a fixed price and within a fixed period of time.

The buyer can exercise this right but does not have to. Options are standardized futures contracts and are traded on specialized options exchanges. As the seller of an option, the maximum profit is capped at the premium received. However, as the insurer, the seller has the statistical advantage on their side.

0DTE options are option contracts that expire on the trading day. Their prices can change very rapidly before expiry. Buying and selling carry different risks; uncovered short positions can lose more than the premium received.

In the order book of a stock exchange, all orders are stored and displayed. Accordingly, you can see live in the order book all market buy orders and market sell orders as well as the limit orders placed in the market.

It is very well suited for the precise entry and execution of trades. Most charting programs can display the order book, provided you have a suitable real-time data feed.

Order flow refers to the buying and selling of an exchange instrument as it happens in real time. In practice, this can be observed in the so-called order book, the order tape or the footprint chart. Professional day traders are able to detect changes in order flow and use them to their advantage in trading.

OTC trading refers to any transactions that are not traded on the stock exchange and are accordingly not regulated by it. “OTC” stands for “over the counter”, that is, literally over a shop counter.

The prices for such a transaction are quoted directly by the respective bank or broker. Trading forex or CFDs, for example, is OTC business.

Overfitting describes the mistake of adapting a trading strategy to past data until it looks excellent in a backtest, while only capturing the random coincidences of exactly this data. In real markets, an overfitted strategy usually fails because it has learned the noise of the past instead of a robust market logic. The more parameters are optimized, the greater the risk.

Overhead costs are the costs of a company that are allocated only indirectly, by means of an allocation key, and not directly to individual cost objects. Overhead costs include material overhead, manufacturing overhead, administrative overhead and sales overhead.

Overtrading is a problem that many beginner traders in particular struggle with. When a new trading system is learned, you suddenly see entry opportunities everywhere that can lead to possible trades. Instead of selectively trading only the best and most promising opportunities, you jump enthusiastically into every trading opportunity, however small. This usually leads to extremely poor results, which is why it makes so much sense, especially at the beginning, to keep a well-structured trading journal in which every single trade is listed and commented on.

When you buy any trading product, such as a stock, bond or future, on the stock exchange, you open what is called a trade. As long as you keep this trade open, that is, do not sell your trading product again, the value of your account is subject to constant fluctuations, since the price of your trading product changes continuously. If its price rises, you make paper gains. That means you are in profit with your trade, but this profit is unrealized, since you still own the trading product and its value can change. If its price falls, you have to accept paper losses, because in the meantime you own less money than at the start of your investment. Only by selling the trading class does the paper gain or paper loss become a realized profit or loss, which can no longer change, since you have now closed the trade.

The par value (or nominal value) is the value shown on legal tender or securities. It does not necessarily correspond to the value that buyers would be willing to pay for the security based on supply and demand. The original par value of a stock is usually well below the price at which it is traded on the stock exchange.

The payables period describes the average number of days a company needs to settle its invoices (delivery costs, etc.). Ideally, it should be higher than the receivables collection period, but not higher than the industry standard.

A high payables period is evidence of a certain market power of the company, since suppliers allow it to take its time paying for the goods, so that the company effectively has an interest-free loan at its disposal.

With a payables period that is too high, however, one has to ask why the company does not settle its liabilities more promptly.

A pip is the smallest common price change of a currency pair in forex trading. For most pairs, that is the fourth decimal place.

If EUR/USD rises from 1.0850 to 1.0851, that is one pip. For pairs involving the Japanese yen, by contrast, the pip is at the second decimal place. What a pip is worth in money depends on the position size: with a standard lot of 100,000 units, it is roughly 10 US dollars. In forex, the pip plays the same role as the tick does for futures — it is the unit in which you measure your stop distance.

The portfolio is the collective term for all assets owned by a client, a company or an investment fund.

Position trading means holding trading positions for weeks or months based on a longer-term market thesis. A longer horizon may change the monitoring routine, but gaps, volatility and losses remain possible. It is not automatically the same as long-term investing.

Precious metals are defined as metals that remain chemically stable over the long term when exposed to environmental influences such as air and water. They are therefore corrosion-resistant. For millennia, precious metals have been used worldwide for trade, as currency, but also for the production of jewelry and in industry. They are also considered the oldest asset class in the world and to this day can be found in almost every well-diversified investment portfolio. The five best-known precious metals, which have also established themselves as value investments, are gold, silver, platinum, copper and palladium.

The pre-tax margin is the profit before taxes and interest, also referred to as EBIT, divided by revenue. It has a similar informational value to the net profit margin, which usually receives significantly more attention.

However, since interest and taxes have not yet been deducted from profit in the pre-tax margin, this ratio can also be used to review a company's profitability across countries, without factoring in tax effects. But since these are, after all, unavoidable costs, in normal analysis of a company the net profit margin should preferably be used as the valuation key ratio.

The price-to-book ratio, or P/B for short, calculates how many times the book value (equity minus liabilities, divided by the number of stocks) per stock is contained in the price of the stock.

As a general rule: The lower the P/B, the “cheaper” the stock is relative to the company’s actual net worth.

The P/B is an important figure in the fundamental analysis of a company. Note that a low P/B often points to internal company problems and rarely represents a good buying opportunity for the stock!

A company’s profit is the result of its revenue minus its costs. A distinction is made between different types of profit, depending on which costs are deducted from revenue. For gross profit, you subtract only the costs of purchasing goods and materials. Net profit, or net income, additionally factors in all other expenses such as personnel expenses, depreciation and taxes.

In prop trading, you do not trade with your own money but with the capital of a provider — a so-called prop firm. The term comes from “proprietary trading”, the trading of a firm on its own account.

Usually, you first prove your trading ability in an evaluation phase and then receive an account whose profits are shared between you and the provider. What matters are the rules of the respective provider: a maximum total loss (max drawdown) and often, in addition, a daily loss limit. The max drawdown is the amount that is actually available to you — not the figure with which the account is advertised. Not to be confused with debt capital in the balance-sheet sense: there, it is about a company's loans and bonds.

A put option belongs to the trading class of options. It entitles the buyer, within a certain period or at a certain point in time, to sell to the seller a so-called underlying (this can be a stock or a future) at a previously determined price. The opposite of the put is the call. If a put option is not exercised, it expires worthless.

A fund is a pool of money. Several investors combine their capital to realize investment projects that they could not have carried out on their own. In a real estate fund, this money is used to invest in real estate collectively. The fund can be the direct owner of the real estate, with the rental income being distributed as profits to the fund shareholders.

It can, however, also hold stocks of companies, such as real estate brokerages, that operate in the real estate industry, in order to benefit passively from rising real estate prices. Mixed funds that hold both real estate and stocks are also widespread.

Real estate securities are securities with which you can buy a proportionate share of real estate or invest in stock corporations whose business model is based on the management of and trading in real estate. Real estate securities include, for example, REITs. As a rule, you have no influence on the decision of which real estate is bought with your money.

The receivables collection period describes the average number of days customers need to pay their invoices. The smaller this number, the faster the company's customers pay, which is positive for its valuation. It would be advantageous if the receivables collection period is shorter than the payables period.

When gross domestic product falls in two consecutive quarters, an economy is in a recession. During this phase, the economic output of the respective country shrinks.

REIT stands for “Real Estate Investment Trust”. A REIT is an exchange-traded real estate fund. In contrast to a real estate stock corporation, this fund is a direct owner of the properties.

Through a REIT, you can thus invest directly in real estate and benefit from the income of the fund from renting, leasing or selling the properties. As an investor, you have no influence on the company's operating business.

Return is the profit, in percent, that a financial product generates over a certain period. What factors it is composed of depends on the financial product. In exchange trading, returns usually arise from dividends, interest payments and price gains.

We calculate return on capital by dividing profit before taxes and interest, that is, EBIT, by total capital. Total capital in turn consists of short- and long-term liabilities, preferred capital, and equity.

This key ratio can be used to measure a company’s profitability.

This key ratio relates operating profit to invested capital. Operating profit is profit before interest and taxes, also called EBIT. In the calculation, however, it is treated as if interest were not deductible and had to be taxed. This gives us a return ratio that is independent of the capital structure, which is very well suited for measuring a company's profitability. It includes both equity and debt capital providers.

Return on equity divides net profit, that is, profit after taxes, interest and depreciation, by the equity employed. It is one of the most common key ratios for shareholders and assesses the profitability of the company. As an investor, you naturally want the highest possible return to be generated on your invested capital. Return on equity should be compared within the same industry.

To calculate the return on total capital, you divide net profit by average total assets. It measures how efficiently the capital was employed in a company within a given period and thus allows conclusions to be drawn about its profitability.

In contrast to the better-known key ratio, return on equity, it describes the return on the capital of both debt capital and equity providers.

A revenge trade is an attempt to immediately “win back” a previous loss. Instead of trading according to plan, you act out of anger or frustration – usually with increased risk and without a valid setup. Revenge trading is among the most common causes of large, avoidable losses.

The risk/reward ratio is calculated from the possible profit and possible loss of a trade. If, for example, you could win $100 with a position but only lose $50, the reward-to-risk ratio is 2:1.

A future always has a limited lifespan. At some point it expires, classically at the time when the traded goods are delivered. For every future, different contract months with different expiration dates are available. These are traded in parallel and have different prices. If you want to trade a future beyond its expiration date, it must be rolled. This means that the current contract is sold and the next contract is bought. Since this futures contract now has a different price, a roll gain or roll loss can arise. In options trading as well, contracts have to be rolled from time to time and depending on the strategy, since these also expire at some point.

Scalping is a very short-term trading approach in which positions are often held for only seconds or minutes. Frequent orders and small price moves make execution, fees and concentration especially important. A short holding period does not automatically limit losses.

A security is a property right that certifies the holder's claims to interest or profit participation. The best-known securities are stocks, bonds and funds.

Your securities account is what is called a “Depot” in German. You hold it with your broker (or with your house bank, if you also trade securities there).

A shareholder can be either a natural person or a legal entity that holds a stake in a company. In a GbR, that is, a Gesellschaft bürgerlichen Rechts (a partnership under civil law), these are, for example, the partners of the firm. In a stock corporation, AG for short, the stockholders are the shareholders of the company.

If you want to profit from falling prices of a stock or another trading class, you can sell it on the exchange without owning it beforehand. This creates a negative position in the broker account. You then own, for example, -1 stock. In the case of a stock, it must first be borrowed from another owner for a fee. The goal is to buy the security back later at a price as low as possible and thereby close out the negative position.

A trader will open a short trade when expecting falling markets. The trader will short-sell the financial product, that is, sell it without owning it, in order to “buy it back” later at, ideally, a lower price. That is how the negative position is then closed out.

The opposite is the long trade, in which rising prices are assumed.

Slippage is the difference between the expected execution price of an order and the price at which it is actually filled. It can occur, for example, during fast price moves or when liquidity is limited. Fees are a separate trading cost.

The following futures markets are grouped together as soft commodities: cocoa, cotton, orange juice, coffee, sugar, and lumber. They are also affectionately known as the breakfast futures.

The S&P 500 is the benchmark index of the USA. It contains the 500 largest companies of the US economy by market capitalization. The S&P 500 can also be described as the fever thermometer of the global economy.

Speculation is buying or selling an asset because you expect its price to change. The expectation may rest on analysis, but its outcome remains uncertain. The thesis, capital committed and response to a possible loss matter.

The spot price is the price of a commodity that is generally regarded as valid for that commodity outside of stock exchange trading and at which it is traded directly between two parties.

For every trading class or trading instrument you can trade with your broker, three prices are available: the last price, the bid price and the ask price. The last price shows the price of the most recently traded transaction in the respective market. This is also the price that real-time chart software displays to you as the price. The bid price and the ask price play a role in direct trading. The bid price is the highest price a potential buyer is currently willing to pay for the trading instrument. The ask price, on the other hand, is the lowest price a potential seller is currently willing to accept for the trading instrument. The price difference between the bid price and the ask price is called the spread.

The stock exchange is a market on which prices are formed and made available for securities or goods. They are traded there on the principle of supply and demand.

A stock is a security that represents a stake in the share capital of a stock corporation and grants its holder economic and participation rights. The stock price is determined by supply and demand on the exchange.

Alongside the limit order and the market order, the stop order is the most important way to buy or sell an exchange instrument through your broker. Suppose you would like to buy a stock. With a limit order, you tell your broker that you would like to buy at a specific price that is lower than the current one. With a market order, you want to buy immediately at the next best available price. With the stop order, you tell the broker that you would like to buy at a specific price that is higher than the current one. Suppose the stock price has just dropped from $100 to $90 and you want to wait until it has climbed back to $100 before you buy. You do not have to watch the chart the whole time, but can instead just submit a stop order to your broker at $100. Once the price is reached, the broker will convert it into a market order and buy immediately for you at the next best available price.

You can also use a stop order to protect existing positions automatically. Suppose you have now bought the stock for $100. You are of course expecting rising prices. But should the stock fall in price against your expectation, you want to sell it again no later than when it reaches $85. You now submit a stop sell order at $85, and once this lower price is reached, the broker will automatically sell your stock for you.

The strike price is the price to which an option trade refers. The buyer of an option acquires from the seller the right to sell a stock or a future to the seller at a previously agreed price, the strike price, or to be allowed to buy the stock or the future from the seller at the strike price.

Support and resistance are price areas where a move has repeatedly stopped or reversed in the past. A support lies below the current price, a resistance above it.

At a support, a falling price meets enough buying interest to slow the move; at a resistance, it is the other way around. In practice they are rarely exact lines, more like zones. They matter for risk management because a stop belongs behind such a zone and not in the middle of it. If a zone is clearly broken, it often reverses its role: A broken support becomes a resistance.

There are ETFs that track so-called sustainability indices. These in turn include only companies that operate sustainably according to certain parameters. What this means in detail varies widely.

As a general rule, we recommend taking a look at the factsheet of the sustainable ETF to check whether the companies included (or countries included) suit you as an investor. Please note: sustainable does not automatically mean ethically unobjectionable.

Swing trading assumes medium- to long-term "swings," that is, price movements, which traders try to trade profitably. Positions are held over a period of days to weeks, sometimes even months.

A tick is the smallest possible change that the price of a future can make. It is not necessarily the smallest digit after the decimal point either.

The E-mini future on the S&P 500 index with the ticker symbol ES, for example, has a tick size of 0.25. That means it always moves in steps of 0.25. In this case, 4 ticks would be 1 point.

Time value is the part of the option price that lies above the intrinsic value — it pays for the time the option still has until expiration.

The price of an option consists of two components: the intrinsic value, that is, what the option would be worth if exercised immediately, and the time value. An option whose strike price is still far from the current price has no intrinsic value at all — its price then consists entirely of time value.

Two factors drive it: the remaining time to expiration and the expected range of fluctuation (implied volatility). Both increase the probability that the option will still end up in the money by expiration — and it is precisely this probability that is being paid for.

As the expiration date approaches, time value melts away, and at an accelerating pace; on the expiration day it is zero. For option buyers, this time value decay is a constant headwind; for sellers, it is the source of income.

The goal of an ETF, that is, a passively managed index fund, is to replicate an underlying index as closely as possible. Due to various factors, however, it will never achieve exactly the same performance as the underlying index. The difference between the index return and the ETF return is called the tracking error. This tracking error should always be as small as possible.

The German term “Handelsklasse” (trading class) originally comes from agriculture and fishing. It described certain quality characteristics of products. In financial terminology, a trading class is a product or trading instrument that can be traded via the stock exchange or a broker. These can be, for example, stocks or other securities, but also forward contracts such as futures and options.

The VIX derives the market’s expected volatility over the next 30 days from prices of options on the S&P 500. The index indicates the expected magnitude of potential price moves, not their direction. On its own, it is not a buy or sell signal.

Volatility describes how much the price of a market or security fluctuates over a given period. It measures the size of price moves, not their direction. Volatility measured from past prices and implied volatility derived from option prices are different measures.

The volume profile is an indicator that shows traders in their charting software how many transactions have taken place at a given price level. In other words: What volume was traded per tick?

On the chart, the volume profile looks like a mountain tipped on its side. The volume profile is one of the most important tools for professional traders. Unlike the market profile, which measures how much time price has spent at a price level, the volume profile measures the volume that was traded at that price.

Withholding tax is a tax that is withheld directly at the source — where the income arises, before it reaches you.

For investors, it is relevant above all for foreign dividends: If a US company pays out a dividend, the tax authority there withholds its share, and only the remainder ends up in your securities account. How high this share is depends on the company's country of domicile. Double taxation treaties regulate which part of it is credited against German tax and which part you can reclaim from the foreign tax authority — depending on the country, either a straightforward process or a noticeable effort.

The principle also applies in Germany: The German flat-rate tax on capital income (Abgeltungsteuer) is a withholding tax, because your bank remits it directly to the tax office without you having to act yourself.

Tax matters are always an individual case. This entry explains the term and does not replace tax advice.

To calculate working capital, you subtract current liabilities from current assets. If this figure is very low, liabilities may even be higher than assets.

That initially sounds dangerous, but it is of relatively little relevance, since this figure fluctuates extremely strongly and says little about the company's general solvency.

"XTF" is the abbreviation for the "Exchange Traded Fund" segment of Deutsche Börse AG. It is thus the trading segment of the Frankfurt Stock Exchange in which, via Xetra, exchange-listed index funds (ETFs) and actively managed funds are traded.

"YTD" is the abbreviation for "Year To Date." In German, it could be translated as "Jahresverlauf" ("course of the year"). If you want to download, for example, an account statement labeled "YTD" from your bank or your broker, it will show the account development from January 1 of the current year up to the current date.