Your Stock Market Glossary

Are you confused by all of the nonsensical words finance bros use? We’ve got you covered. Here’s a helpful glossary of terms so you don’t need to have worked on Wall Street for five years to understand what everyone is talking about.

Alternative Investments: A financial asset that isn’t stocks, bonds, or cash. Examples include real estate, private equity, or your mom’s collection of Hummel figurines that are almost certainly haunted.

Arbitrage: Exploiting a price difference of the same asset. It’s like buying avocados at the supermarket for $1 each and selling them at the hipster farmer’s market for double. 

Bildungsroman: Just kidding, but do you remember that from English class? You need to know it. Please google it.

Block trading: A block trade is the sale or purchase of a large number of securities at a preset price. Most block trades far exceed 10,000 shares. Due to the size of block trades, individual investors rarely, if ever, make block trades because it could overwhelm the public stock market. They are usually carried out by hedge funds and institutional investors via investment banks and other intermediaries in private exchanges. Oh, didn’t realize you were still reading!

Broker: Brokers are intermediaries who have the authorization and expertise to buy securities on an investor’s behalf. They offer you guidance, like telling you to maybe not invest in your roommate’s newly invented cryptocurrency, PissCoin. 

Citadel: A finance firm that serves as a market maker – meaning they help investors buy and sell securities, using the pool of shares they own. They’re basically a middle man, with access to highly important information.

Dark pools: Private exchanges for trading securities that are not accessible by the investing public. And they are actually called dark pools. That’s their real name. I guess “Frauditorium” was taken.

Liquidity: How fast shares can be bought and sold without substantially impacting stock price. And baby, we like the stock market like we like our coffee: liquid.

Market makers: Also known as “Wholesalers,” these are firms like Citadel Securities and VIRTU Financial, who help investors buy and sell securities using the pool of shares they own. They’re basically a middle man, with access to highly important information, who is seeing the game one thousand times faster than you –  but don’t worry, they have pinky promised to never abuse their power!  And we trust them, because our memory cuts off at 2009.

Near-Zero Interest Rates: When the Federal Reserve sets its benchmark interest rate at or close to 0%. Serving as a model for commercial banks, these Fed-driven low interest rates encourage low-cost borrowing and provide greater access to cheap credit. You could finally open that “Uber but for Hot Tubs” company you’ve always wanted to!

Off-Exchanges: These are private exchanges that the public investor does not have access to. Being excluded from these is like having to sit at the kids table at Thanksgiving.

Options: These are essentially contracts that give you the right to buy or sell a stock at a certain price by a certain date. It’s basically betting on a stock price going up or down. So if you purchase an option, instead of buying a stock, it means that you are buying the option to buy a stock if it hits a certain price, and this can lead to issues because if your bet fails, you’ve lost all that you’ve invested. Whereas, if you bought actual stocks, regardless of the price, you still own that asset. (We’ve been promised these words do make sense, even if we ourselves do not understand them.)

Payment for Order Flow: When brokerages such as Robinhood route the buy and sell orders of retail investors to big market makers such as Citadel and VIRTU instead of sending it directly to the stock market. This deal helps brokerages make hundreds of millions of dollars every year.

Retail investors: Individual, non-professional investors who are buying assets with their own money.

Securities: Any tradable financial asset — stock share (equities), bonds, investment funds, pensions, etc. 

The Securities and Exchange Commission: Commonly known as the SEC, this is the government agency that oversees securities exchanges, brokers, investment advisors, and mutual funds. They’re in charge of creating fair dealings, ensuring the disclosure of important market information, and to preventing fraud. They’re like the stock police but instead of guns they have calculators.

Swaps: A contract brokered by banks that allow somebody/a financial institution to claim the profits or the losses of a stock without actually owning that stock. 

Treasury Bond: It’s a security issued by the U.S. Treasury that anyone can buy, and it will earn interest until the loan time frame is up. (Ranges from 20-30 years). It’s a safe, low-risk, low-reward way of getting some extra money in the long term. Unless of course the government collapses, then everyone’s screwed, whoops!

Volume: The number of shares on the market. Finally, an easy one!

Zzzzzzz: The sound many of us make when someone tries to explain the intricacies of the stock market to us.