Stock market terms: an overview of the most important financial terms

Bonds are debt securities issued by companies or governments to raise capital. The issuer of the bond receives money from the investor and undertakes to repay the capital at the end of a certain term, usually at a fixed interest rate. 

The bull and the bear symbolize price movements on the stock market – the bull represents rising prices, while the bear represents falling prices. An animal mnemonic helps you memorise the terms – the bull flings the market upwards on its horns, while the bear smashes it down with its paw. In a bull market, prices rise over a longer period of time. A bear market describes the opposite scenario of a period of falling prices, during which investors have little confidence in the market. 

The compound interest effect describes the process by which interest is calculated on previously received interest. Unlike simple interest, which is calculated solely on the original capital, compound interest allows both the capital and the accrued interest to grow exponentially This means that interest is always added to the capital and interest is paid again in the next period.

Die Courtage, auch Handelsentgelt genannt, zählt zu den häufigsten Börsengebühren. Sie fällt als Provision an, wenn Banken, Onlinetradingplattformen oder Börsenmakler:innen Börsengeschäfte durchführen oder vermitteln. Die Courtage hängt in der Regel von der Höhe der Transaktion, der Anlageklasse und dem Börsenplatz ab, an dem der Wertpapierhandel stattfindet.

Cryptocurrencies are digital or virtual currencies that are based on cryptographic technologies and are generally organized on a decentralized basis. They enable direct transactions without intermediaries such as banks. Bitcoin was the first cryptocurrency. There are now thousands of other cryptocurrencies.

Find out more about cryptocurrencies

Diversification is the foundation of a successful investment strategy. It refers to spreading capital as widely as possible across different markets, sectors, currency areas and securities. The aim of diversification is to reduce risk. A diversified portfolio reduces the probability of backing the wrong horse. If an investment does not develop as desired, there is a chance that other investments can make up for it.

Find out more about diversification in the article “Diversification – explained by way of examples”

ETFs (exchange traded funds) are, as the name suggests, traded on the stock exchange. ETFs consist of multiple securities and are usually designed to track the performance of a specific index, such as the Swiss Market Index (SMI). When the index rises, the value of the ETF also rises. When the index falls, the ETF loses value.

The Swiss Financial Services Act (FinSA) essentially comprises regulations on the provision of financial services and of financial instruments. Its purpose is to protect the customers of financial service providers and to create comparable conditions for the provision of financial services by financial service providers. In this way, it helps to strengthen the reputation and competitiveness of Switerland as a financial center.

The link will open in a new window Go to the FinSA at fedlex.admin.ch

In a forward transaction, two contracting parties enter into a mutually binding obligation not to implement a purchase or sale immediately, but only in the future. An example: With foreign exchange forward contracts, the purchase or sale of the traded foreign currency takes place on a particular date. The amount and rate are fixed. 

A hedge fund is a specialized investment fund that aims to achieve high returns with a wide range of investment strategies – independently of whether the markets rise or fall. Hedge funds are often less regulated than traditional investment funds. 

Go to the article “Hedge funds: achieve a return even in declining markets”

An investment fund, or simply a fund, is a collective pot into which multiple investors contribute their money. Depending on the fund, a fund manager invests the money in equities, bonds, precious metals, commodities or other asset classes. As an investor, you therefore own a share of the pot – what are known as fund units. The advantage of a fund is diversification – the fund assets are not invested in a single investment, but in many. 

IPO is the abbreviation for Initial Public Offering – i.e. the first public offering of shares in a company. The process is also referred to as a new issue. IPOs are one of various ways in which companies can raise capital.

Junk bonds originate in companies or countries with poor credit ratings. With the purchase of a junk bond, you are lending money to a company that has a low rating. Because the risk of such investments is high, the corresponding interest payments are also higher than for other bonds. In short, these are bonds with high interest income and high default risk. 

Find out more about the most common types of bonds

A leading index is like a kind of barometer that reflects the performance of securities from different companies. The best-known Swiss index, the SMI, comprises the shares of the 20 most traded and largest companies in the country. The leading index of the Tokyo Stock Exchange, the Nikkei 225, includes the 225 most significant shares in Japan. A leading index always replicates part of a market and shows how it is performing. Indices are very suitable, for example if you want to compare stock market trends in individual countries.

Market capitalization is the current stock market value of a company and is calculated as follows: number of shares x share price = market capitalization. Incidentally, in October 2024, US tech company Apple was the most valuable company in the world in terms of market capitalization at USD 3.4 trillion. 

Money market instruments are short-term debt securities that are traded on the money market. They are used to cover the short-term financing requirements of companies, banks or the state. Money-market instruments typically have a term of less than one year.

The Nasdaq, based in New York, is the largest electronic stock exchange in the USA in terms of the number of listed companies. There are more than 3,000 in total. The Nasdaq (National Association of Securities Dealers Automated Quotations) mainly trades innovative growth stocks from the technology sector, which tend to be speculative due to their high volatility. The exchange was founded in 1971 as a fully electronic trading platform. 

A portfolio or investment portfolio is a combination of different investments. A well-diversified portfolio consists of different types of asset classes such as equities, bonds, real estate, commodities and cash in order to minimize risk and take advantage of opportunities for returns. 

The link will open in a new window Go to our pizza portfolios

A quality share is a share in a company that is characterized by a particularly strong market position, high earning power, a stable dividend policy and a solid balance sheet structure. These shares are often less volatile and are favoured by investors who pursue a long-term, lower-risk investment strategy.

Risk capacity provides information on how much risk an investor can assume financially. Relevant questions when determining this include:

• What level of loss can the investor sustain?
• Does the investor have a security reserve?
• What is the investor’s current situation in terms of income and assets?

Meanwhile, risk appetite provides an indication of an investor’s emotional attitude towards risk and is determined by their answers to questions such as:

• How would the investor cope in the event of sharp price fluctuations?
• What will the investor do when investments increase in value?
• How will the investor react when investments fall in value?
• What level of return would the investor be satisfied with?

Risk capacity and risk appetite are part of the investor profile, based on which the individual investment strategy is determined. 

Securities are tradeable financial instruments that securitize property rights. Typical types of securities are shares (shares in companies), bonds (debt securities), funds (shares in fund assets), derivatives and certificates. They enable investors to invest capital and potentially realize returns. Investing in securities can also involve certain risks. 

Staking is a process in which cryptocurrency holders are rewarded for holding onto their coins for a certain period of time and making them available to validate network transactions. It sounds complicated, but it’s actually simple – you earn passive income with your cryptocurrencies, but you can’t trade them during the defined period.

Undervalued shares are shares whose price is below their intrinsic value. The intrinsic value is calculated on the basis of a company’s financial key figures. This means that undervalued shares can currently be bought at a lower price than their actual value would suggest. Incidentally, value investing is an investment strategy in which investors invest when a company’s share price is presumed to be undervalued. 

As a result, volatility measures the extent of price fluctuations in an investment, indicating how much the price deviates from the average. High volatility means greater deviations from the mean, which is more pronounced for equities than for bonds, for example. This means that volatility also reflects risk – the more volatile an investment, the higher the risk. 

Xetra is the fully electronic trading system of the Frankfurt Stock Exchange that was introduced in 1997. It stands for Exchange Electronic Trading and enables securities to be traded via a digital network.

Yankee bonds are a special type of bond issued by foreign companies or governments in the United States and traded in US dollars. The term is easy to remember – in American colloquial language, the nickname “Yankee” stands for the inhabitants of the US northern states or for Americans in general.