Financial Terms, Explained

Every page on this site assumes a little vocabulary - spread, drawdown, APR, coinsurance - and readers arrive at different points on that curve. This glossary is the reference for the terms our guides and calculators actually use: one plain-English definition, a worked example with real numbers, and links to the pages that put the concept to work.

Entries are written here first, not copied from dictionaries or syndicated, and each one connects back to a tool or guide on this site so the term moves from abstract to applied in one click. If a word matters enough to appear in our comparisons, it has an entry here.

Forex and trading

• Drawdown — The decline from an account's peak to its trough - the number that measures risk actually realised.
• Leverage — Borrowed notional from your broker that lets a small deposit control a large position - in both directions.
• Lot — The standard trade size in forex: 100,000 units of the base currency, with mini and micro variants.
• Margin call — The point where your account can no longer support open positions and the broker closes them for you.
• Pip — The smallest standard price move in a currency pair - the unit almost every forex cost is measured in.
• Risk-reward ratio — The size of a planned win against the size of the planned loss - the ratio that sets break-even win rate.
• Slippage — The difference between the price you asked for and the price you actually got, usually during fast markets.
• Spread — The gap between the bid and the ask price - the simplest trading cost you pay on every position.
• Swap (rollover) — The overnight interest adjustment added to positions held past the daily market close.

Prop firms

• Consistency rule — A prop-firm rule capping how much of your profit one day may contribute, forcing steady performance.
• Evaluation phase — The challenge stage where you trade a simulated account against profit and loss rules before getting funded.
• Profit split — The share of trading profits you keep at a prop firm - usually rising as you scale past evaluation.
• Trailing drawdown — A prop-firm loss limit that rises with your balance instead of staying fixed at the starting number.

Crypto

• Cold storage — Holding crypto keys on a device that never touches the internet - the opposite of keeping coins on an exchange.
• Gas fee — The payment that runs a blockchain transaction - priced by demand, not by the amount you move.
• Impermanent loss — Value lost by providing liquidity to an automated pool versus simply holding the two coins.
• KYC (Know Your Customer) — The identity checks exchanges run before letting you trade, deposit or withdraw.
• Stablecoin — A token engineered to hold a fixed value - usually one US dollar - backed by reserves or algorithm.

Banking

• APR (Annual Percentage Rate) — The yearly cost of borrowing including interest and mandatory fees - the truth-in-lending number.
• APY (Annual Percentage Yield) — The yearly return including compounding - the number to compare across savings, CDs and Treasuries.
• CD ladder — Splitting cash across staggered CDs so matured funds reach the market at regular intervals.
• Compound interest — Interest earned on interest - the mechanism that makes time worth more than amount.
• FDIC insurance — US federal coverage of bank deposits up to $250,000 per depositor, per bank, per ownership category.
• Overdraft protection — A bank's line that covers a purchase when your balance runs out - at a price that is easy to misread.

Credit cards

• Balance transfer fee — The charge for moving debt to another card - usually 3-5% of the amount transferred.
• Credit utilization — Your balance divided by your credit limit - the second-largest ingredient in a credit score.
• Foreign transaction fee — A surcharge - often 1-3% - applied when a purchase is made in another currency.
• Grace period — The window between your statement closing and payment being due, when new purchases can go interest-free.

Loans

• Amortization — The schedule that splits each payment into interest first and principal second until the loan hits zero.
• Debt-to-income ratio (DTI) — Monthly debt payments divided by gross income - the first number lenders use to size a loan.
• HELOC (Home Equity Line of Credit) — A revolving credit line secured by your home's equity - borrow, repay and borrow again during the draw period.
• Origination fee — An upfront charge for underwriting a loan - points on a mortgage, a percentage fee on personal loans.

Insurance

• Coinsurance — Your share of a covered loss after the deductible - an 80/20 split is the familiar shape.
• Deductible — The amount of a claim you pay yourself before the insurance kicks in.
• Term life insurance — Pure life cover for a fixed period - 10, 20 or 30 years - with no savings component.
• Whole life insurance — Permanent life cover with a savings account attached - guaranteed, expensive, and slow.

Investing and retirement

• Dollar-cost averaging (DCA) — Investing a fixed amount on a schedule regardless of price - buying more shares when they are cheap.
• ETF (Exchange-Traded Fund) — A fund that trades like a stock all day - usually holding an index at a low expense ratio.
• Expense ratio — The annual percentage a fund charges to run you - the quiet drag on every dollar you invest.
• Roth IRA — A retirement account funded with after-tax dollars - growth and qualified withdrawals are tax-free.

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