Glossary

The effective annual rate of return accounting for compound interest.

**APY**, or Annual Percentage Yield, is the real rate of return earned on an investment or savings product over one year, taking into account the effect of compounding interest. Unlike a simple interest rate, APY reflects what your money actually earns when returns are reinvested repeatedly throughout the year.

Anything that can store or transfer value.

An **asset** is anything that holds economic value and can be owned, exchanged, or used to generate future benefits. Think of assets as containers that store value over time, much like how a battery stores energy for later use.

Returns accumulating on top of principal.

**Compounding** is the process where investment returns generate their own returns over time. Often called the "eighth wonder of the world" by financial experts, compounding is the most powerful force in wealth building. It transforms modest, regular investments into substantial wealth given enough time.

Third-party safeguarding of assets.

**Custody** refers to the secure safekeeping and management of assets on behalf of their owner. A custodian is a financial institution or service provider responsible for holding and protecting these assets, which may include stocks, bonds, precious metals, cash, or cryptocurrencies. Custody services range from simple safekeeping to comprehensive asset servicing including settlement, reporting, and regulatory compliance.

An investment strategy of buying a fixed amount at regular intervals regardless of price.

**DCA (Dollar-Cost Averaging)** is an investment strategy where you invest a fixed amount of money at regular intervals — weekly, monthly, or quarterly — regardless of what the price is doing. Instead of trying to time the market by finding the perfect moment to buy, you invest consistently and let time do the work.

Reducing risk by holding multiple assets.

**Diversification** is the practice of spreading investments across different assets, sectors, and geographies to reduce overall portfolio risk. It is based on the principle that not all investments move in the same direction at the same time. When one holding declines, others may remain stable or increase, smoothing your overall returns.

Decline from a peak value.

A **drawdown** is the decline in an investment's value from its peak (highest point) to its trough (lowest point) before a new peak is reached. It measures how much an investment falls during a losing period and is one of the most important metrics for understanding investment risk.

A market or platform where assets are traded.

An **exchange** is a regulated marketplace where buyers and sellers come together to trade financial assets such as stocks, bonds, commodities, currencies, or cryptocurrencies. Exchanges provide the infrastructure, rules, and oversight necessary for fair, transparent, and efficient trading.

General rise in prices and fall in purchasing power.

**Inflation** is the rate at which the general level of prices for goods and services rises over time, causing the purchasing power of money to decline. When inflation occurs, each unit of currency buys fewer items than it did before. It is one of the most important economic concepts that affects every investor, saver, and consumer.

The cost of capital or borrowing.

An **interest rate** is the percentage charged by a lender to a borrower for the use of money, or conversely, the return paid to a depositor for keeping funds in an account. It represents the "price" of money and is one of the most fundamental concepts in finance, affecting everything from mortgage payments to stock market valuations to government policy decisions.

Know Your Customer identity verification.

**KYC (Know Your Customer)** is a regulatory process that financial institutions and other regulated businesses use to verify the identity of their clients. This identity verification ensures that customers are who they claim to be and helps prevent fraud, money laundering, terrorist financing, and other financial crimes. KYC has become a standard requirement for opening bank accounts, brokerage accounts, cryptocurrency exchanges, and many other financial services.

Order executed only at a specified price.

A **limit order** is a type of trading instruction that directs a broker or exchange to buy or sell an asset only at a specified price or better. Unlike market orders that execute immediately at the current price, limit orders give traders precise control over the price at which their trades occur. This control is essential for managing entry and exit points, especially in volatile markets where prices can change rapidly.

How easily an asset can be converted to cash.

**Liquidity** refers to how quickly and easily an asset can be converted into cash without significantly affecting its market price. It is one of the most fundamental concepts in finance and investing, influencing everything from daily trading decisions to long-term portfolio construction.

Risk of not being able to sell quickly.

**Liquidity risk** is the danger that an investor will not be able to buy or sell an asset quickly enough without substantially affecting its price. This risk can lead to significant losses when you need to exit a position urgently or when market conditions deteriorate unexpectedly.

Market-assessed size of an asset or company.

**Market capitalization**, commonly called **market cap**, is the total market value of a company's outstanding shares or a cryptocurrency's total circulating supply. It represents how the market collectively values an asset and serves as one of the most widely used metrics for comparing the relative size of different investments.

The recurring pattern of expansion, peak, contraction, and trough in financial markets.

A **market cycle** is the recurring sequence of phases that financial markets move through over time: expansion, peak, contraction, and trough. These cycles reflect the collective rise and fall of investor sentiment, economic conditions, corporate profits, and credit availability. Understanding where a market sits in its cycle can help investors make more informed decisions—even though no one can time cycles perfectly.

Order executed immediately at market price.

A **market order** is an instruction to buy or sell an asset immediately at the best available current price. It prioritizes speed of execution over price certainty, making it the simplest and fastest way to enter or exit a position in any market.

The composition of assets held.

A **portfolio** is the complete collection of investments held by an individual or institution. It encompasses all financial assets, from stocks and bonds to real estate and cryptocurrencies, working together as a unified whole. Think of your portfolio as a team where each member (asset) plays a specific role in achieving your financial goals.

Legal rules governing market participation.

**Regulation** refers to the set of rules, laws, and guidelines established by government authorities to oversee and control financial markets, protect investors, and ensure fair and transparent trading practices. These regulations create the framework within which all market participants—from individual investors to large institutions—must operate.

Percentage change in value over a period.

**Return** is the gain or loss on an investment over a specified period, expressed as a percentage of the original investment. It measures how well an investment has performed and is the primary way investors evaluate the success of their investment decisions.

Extra return expected for taking risk.

The **risk premium** is the additional return an investor expects to receive for taking on extra risk compared to a "risk-free" investment. It represents the compensation investors demand for the uncertainty and potential loss associated with riskier assets. Without this extra potential reward, rational investors would simply choose the safest option available.

Difference between bid and ask prices.

The **spread** is the difference between the bid price (what buyers are willing to pay) and the ask price (what sellers are willing to accept) for any tradable asset. This gap represents an implicit transaction cost that all investors pay when entering or exiting positions. Understanding spreads is essential for evaluating the true cost of trading.

Degree of price fluctuation.

**Volatility** measures how much and how quickly the price of an asset changes over time. It represents the degree of variation in trading prices, serving as a key indicator of risk and market uncertainty. High volatility means prices swing dramatically, while low volatility indicates more stable, predictable price movements.