Investor Dictionary

Investment

Committing money or other assets in the expectation of a future benefit. The outcome depends on the particular asset, terms and time involved; the expected return may not materialise.

Investor

A person or organisation that provides capital in exchange for an expected return or ownership interest. Investors need to understand both the rights they acquire and the loss they can bear.

Capital

Resources available for business or investment. These may include equity and borrowed funds; their origin affects costs, risk and repayment obligations.

Asset

Property or a right expected to generate an economic benefit. An apartment, a share and a receivable are all assets, but each has different liquidity and valuation characteristics.

Equity and liabilities

The sources of financing assets shown on a balance sheet, including both equity and liabilities. The Slovak accounting term “pasíva” is therefore not synonymous with debt, although debt forms part of it.

Principal

The underlying amount of a debt or deposit on which interest may be calculated under the agreement. Repayment of principal returns capital; it is not itself an investment profit.

Portfolio

The collection of investments held by an investor. Its overall risk, allocation and access to funds should be assessed, rather than just the appeal of each holding individually.

Investment objective

The specific purpose the capital is intended to serve. This could be regular income or funding a home; it determines the time horizon and acceptable risk.

Investment horizon

The period for which an investor plans to keep funds invested. It is not automatically the same as a product’s maturity and does not guarantee a profit within that period.

Investment strategy

The rules for selecting, allocating and managing investments over time. A sound strategy also sets out how to respond to changing circumstances, not just what to buy today.

Security

A legally defined instrument carrying financial or other rights. It may exist as a physical certificate or a book entry; its name alone does not determine its safety.

Issuer

The entity that issues a security. For a bond, it is the debtor under the terms of issue; it is therefore necessary to examine the specific legal entity, not just the group’s brand.

Issue

A set of securities issued with specified terms. One company may have several issues with different maturities, interest rates and security arrangements.

ISIN

International Securities Identification Number

The international identification code of a security. It enables an instrument to be identified unambiguously, but assignment of a code does not certify investment quality or the issuer’s ability to repay.

Book-entry security

A security recorded in the relevant register rather than represented by a physical certificate. Ownership and transfers are evidenced under the rules governing that register.

Certificated security

A security embodied in a physical document containing the legally required particulars. The transfer and exercise of rights depend on its type and form.

Share

A security representing an ownership interest in a joint-stock company. It may carry voting rights and rights to profits and liquidation proceeds; shareholders have no general right to repayment of their investment on a specified date.

Bond

A debt security under which the issuer undertakes to meet the obligations set out in its terms. The investor is a creditor and bears the risk of non-payment and potential changes in market price.

Corporate bond

A bond issued by a business to raise finance. Repayment depends on the specific issuer and contractual terms, not on the use of the label “corporate”.

Government bond

A debt instrument issued by a government. Interest rate, inflation, currency and credit risks also exist here; their extent varies by country, currency and maturity.

Covered bond

A specifically regulated bank bond backed by a cover pool of assets and statutory protection for holders. It is not a generic name for every corporate bond secured by a pledge.

Secured bond

A bond supported by specific security, such as a pledge or guarantee. Its validity, ranking, value and enforceability must be examined; security does not eliminate the possibility of loss.

Unsecured bond

A bond without specific security over particular assets or another agreed security mechanism. The investor relies on the issuer’s general ability to meet its obligations.

Subordinated bond

A bond whose claims are satisfied only after certain other creditors in specified circumstances. A higher offered interest rate may reflect this weaker position.

Coupon

The interest payment on a bond under its terms of issue; the term also refers to the coupon rate. An 8% coupon on face value does not automatically mean an 8% return on the price paid by the investor.

Accrued interest (AÚV)

The portion of a coupon accrued from the start of the relevant interest period to a specified date. When a bond is sold between coupon payments, it generally allocates interest between buyer and seller; the calculation depends on the convention used.

Bill of exchange or promissory note

A formal security containing an unconditional order or promise to pay a specified amount. Its requirements and enforcement are governed by specific legislation; the instrument itself does not guarantee that the debtor has assets.

Promissory note

An instrument containing the maker’s unconditional promise to pay. The maker is directly liable under the note; validity depends on statutory requirements and the applicable rules.

Bill of exchange

An instrument containing the drawer’s unconditional order to another person to pay. Acceptance by the drawee is important in establishing the drawee’s liability under the bill.

Incomplete bill or note

An instrument deliberately issued incomplete with the intention that it will be completed later. The completion agreement and its conditions are crucial; signing requires particular care.

Aval

A guarantee of payment of a bill or note, in whole or in part. It is a specific obligation under the law governing these instruments, whose legal effects differ from those of an ordinary guarantee.

Endorsement

A statement on a bill, note or attached allonge used to transfer rights in the relevant instruments. Its precise effects depend on the type of endorsement and statutory rules.

Receivable

A creditor’s right to demand performance from a debtor. A receivable recorded in the accounts may not be fully recoverable, so its maturity, any disputes and the debtor’s credit quality must be examined.

Bank deposit

Money deposited with a bank, giving the depositor a claim against it. Not every product sold by a bank is a deposit; a fund or bond, for example, is subject to a different regime.

Term deposit

A bank deposit agreed for a specified period at a specified interest rate. Early withdrawal may be restricted or penalised; automatic renewal terms should be checked.

Savings account

A bank account intended for setting money aside, earning interest under the current terms. Access is usually greater than with a term deposit, but the rate may vary or be conditional.

Deposit protection

A statutory compensation system for protected deposits that have become unavailable. The standard limit is generally €100,000 per depositor at one bank; exceptions, eligibility rules and the applicable national scheme apply.

Loan

Funds provided subject to an obligation to repay under an agreement, usually with interest. The actual burden also includes fees, drawdown conditions and the repayment schedule.

Credit facility limit

The maximum agreed amount of financing that may be drawn if the conditions are met. An approved limit is neither an account balance nor automatically cash available immediately.

Annuity repayment

A regular payment comprising both interest and principal, remaining constant when the conditions are unchanged. Over time, the interest component usually falls and the principal component increases.

Mutual fund

A form of collective investment in which investors hold fund units. Performance depends on the fund’s assets, valuation rules, liquidity and all associated costs.

Fund unit

A security representing an investor’s share in a mutual fund’s assets. Its value depends on the relevant unit class and the value of assets after liabilities.

ETF

Exchange-Traded Fund

A fund whose units or shares trade on an exchange. It may track an index or be actively managed; the abbreviation alone does not imply low risk or low costs.

Index

A measure of the performance of a selected group of assets under a defined methodology. An index itself cannot be invested in directly; instruments seeking to track it are used.

S&P 500

An index of large US companies selected according to its provider’s methodology. The price version excludes dividends, while the total-return version includes them; exchange rates also matter to a euro-based investor.

Benchmark

A reference measure used to assess an investment or investment manager. It should appropriately match the strategy, currency, risk and treatment of dividends and fees.

Passive investing

An approach that seeks to track a chosen market or index rather than regularly select winners. It does not remove market risk, and performance may differ from the index.

Total return

The change in investment value together with income received over a period. Comparisons should specify the currency, fees and whether distributions were reinvested.

Nominal return

A return before adjustment for inflation. A positive nominal result may still coincide with a loss of purchasing power if prices rise faster.

Real return

A return adjusted for inflation. The more precise calculation is (1 + nominal return) / (1 + inflation) − 1; simple subtraction is only an approximation.

Return p.a.

A return or rate expressed per year, from the Latin per annum. The label alone does not explain compounding, payment timing, fees or whether the figure is an assumption or a contractual commitment.

Simple interest

Interest calculated only on the original principal, without adding interest to the base for subsequent interest calculations. With an unchanged principal and rate, interest grows linearly over time.

Compound interest

Interest calculated with credited returns becoming part of the new principal. In practice, it depends on the ability to reinvest, frequency, costs and the returns actually achieved.

CAGR

Compound Annual Growth Rate

The compound average annual growth rate between an initial and final value. It is not an arithmetic average and, without adjustments, does not adequately describe a portfolio with ongoing contributions and withdrawals.

Primary market

The venue or process for the initial placement of new securities. In a new issue, the issuer generally receives the capital, unlike a subsequent sale between investors.

Secondary market

Trading in instruments already issued, between investors. A stock exchange listing does not itself guarantee active demand or the ability to sell immediately.

Stock exchange

A market organiser with admission and trading rules. Exchange trading makes the process more standardised but does not eliminate issuer risk or market losses.

OTC market

Trading outside an organised exchange, directly or through intermediaries. Price transparency and counterparty availability can vary significantly by instrument.

Broker

An intermediary executing or arranging investment transactions within the scope of its authorisation. Check its licence, fees, asset custody arrangements and the legal entity with which you enter into a contract.

Bid

The price a buyer is willing to pay. An investor selling immediately generally trades against the buying side of the market, rather than at the price displayed as the last trade.

Ask

The price at which a seller is willing to sell. For an immediate purchase, it is generally more relevant than the last traded price alone.

Trading margin

Collateral or own funds required for a leveraged position. This is different from a company’s profit margin; a loss may relate to the entire exposure, not just the collateral posted.

Revenue

Sales of goods, products or services recognised under accounting rules. Revenue is not the same as cash received or profit after deducting expenses.

Expense

Consumption or reduction of economic benefits recognised in the accounts. An expense and a cash outflow may arise in different periods, for example with depreciation or inventory purchases.

Profit

The difference between income and expenses over a period at a specified level of calculation. A profitable company may lack cash if customers pay late or inventories increase.

Cash flow

Cash inflows and outflows over a period. The statement separates operating, investing and financing activities, helping explain where money came from and where it went.

Operating cash flow

Cash generated by a company’s core operations. It differs from both profit and loan financing and should be read alongside changes in working capital.

Free cash flow

Cash remaining after defined operating and investment requirements. Several variants exist, so a comparison must state whether it refers to cash flow to the firm or to shareholders.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization

Earnings before interest, taxes, depreciation and amortisation under the definition used. It is not cash: it does not deduct, for example, asset replacement expenditure or all changes in working capital.

Profit margin

A specified measure of profit as a proportion of revenue. A €20 profit on €100 of sales gives a 20% margin; the profit measure used must always be identified.

Markup

The difference between the selling and purchase price, expressed relative to the purchase price. Buying at €80 and selling at €100 produces a 25% markup, although the margin is 20%.

Direct property investment

Acquiring ownership of a property. The investor deals with operation, maintenance, legal status and sale; these are different rights from those acquired by buying a developer’s bond.

Property development project

The process of preparing, obtaining permits for, building and commercially using a property. Risk changes with the stage; land without a permit and a completed, leased building are not comparable.

SPV

Special Purpose Vehicle

A company established for a particular purpose or project. It helps separate operations, but risk isolation depends on the actual contracts, guarantees and relationships within the group.

Due diligence

A systematic examination of the financial, legal, technical and other circumstances of a transaction. Its scope should match the risk; a presentation or valuation alone is no substitute.

Title deed / land register extract

An extract from the land register containing information on a property, its owners and registered rights or encumbrances. Check that it is current and review related documents, rather than relying on an old copy.

Encumbrance

A right or restriction affecting a property, such as a security interest or easement. Different encumbrances have different effects on use, sale and a creditor’s recovery.

Easement

A right restricting a property owner for the benefit of another person or property. It may involve a right of way or use; its significance depends on the precise terms.

Inflation

An increase in the general price level measured using a selected basket of consumer goods and services. Personal experience may differ from the average because households have different spending patterns.

Disinflation

A slowdown in the rate of inflation. Prices may still rise, just more slowly; this is different from a fall in the price level.

Deflation

A decline in the general price level. It may increase borrowers’ real debt burden and accompany weaker demand, although causes and consequences depend on the circumstances.

GDP

Gross Domestic Product

The value of final goods and services produced in an economy over a period, measured under national accounting rules. GDP growth is not the same as stock market growth or rising income for every household.

Monetary policy

Central bank measures that influence monetary and financing conditions. Interest rate changes operate through several channels and with a delay, rather than affecting every product mechanically in the same way.

Fiscal policy

Government decisions on public revenue, expenditure and borrowing. They affect the economy and investments, but the specific impact depends on how they are financed and on the economic environment.

Derivative

An instrument whose value derives from an underlying asset or variable. It may be used for hedging or speculation, and its risks depend on the structure of the contract.

KID

Key Information Document

A document containing key information for the relevant retail investment products. It explains their nature, risks, scenarios and costs in a standardised format; not every security is required to have one.

Investment Guarantee Fund

A compensation scheme for client assets that have become unavailable in circumstances defined by law at participating institutions. Subject to the conditions, it provides protection up to €50,000; it does not cover ordinary market losses or automatically cover an issuer’s insolvency.

Net worth

The difference between the value of assets owned and all liabilities. It is not the amount available in a bank account: even someone with a valuable property may lack cash.

Disposable income

Income remaining after taxes and compulsory contributions, available for consumption or saving. When planning an investment, everyday expenses and repayments must also be deducted.

Savings rate

The share of income set aside by a person or household. Saving €300 from a net income of €2,000 gives a savings rate of 15%.

Household budget

A plan of income and expenditure over a specified period. It helps separate money for everyday living, reserves and long-term goals, so that investments do not replace readily available emergency cash.

Financial plan

A concrete course of action linking goals, income, liabilities, reserves and investments. It changes as family or employment circumstances change; it is not a fixed list of products.

Liquid reserve

Money available at short notice without a significant loss of value. It is intended for unexpected expenses, so access should not depend on selling a volatile investment.

Regular investment income

Cash payments such as coupons, dividends or rent. It is necessary to distinguish genuine returns from payments that also include a return of the investor’s own capital.

Yield curve

The relationship between yields on comparable debt instruments and their maturities. A meaningful comparison requires the same currency and similar credit quality.

Inverted yield curve

A situation in which short-term yields exceed long-term yields. It may reflect expectations of falling interest rates or a weaker economy; it is not a precise timetable for a future recession.

Credit spread

The additional yield above a reference rate that the market requires for credit and other risks. A higher spread is not a free bonus but often compensation for greater uncertainty.

Basis point

One hundredth of a percentage point. A rate change from 4% to 4.25% is 25 basis points, not a 25% increase.

Percentage point

A unit expressing the difference between two percentages. Increasing a rate from 4% to 5% is a rise of one percentage point, but a relative increase of 25%.

Modified duration

An approximate measure of a bond price’s sensitivity to a small change in yield. A value of five means that a one-percentage-point rise in yield produces an approximately 5% price fall, under simplified assumptions.

Convexity

A measure of the curvature of the relationship between a bond’s price and yield. It complements duration, which estimates larger price changes only approximately.

Value investing

Selecting assets whose price appears low relative to their estimated value. Low valuation ratios may signal an opportunity, but also a serious business problem.

Growth investing

Selecting companies expected to grow revenue or earnings. High expectations are often already reflected in the price, so even a good company can produce a poor result if bought too expensively.

Dividend investing

A strategy focused on dividend-paying companies. The sustainability of distributions and total return should be assessed, rather than simply the highest dividend percentage.

Dividend yield

The annual dividend per share divided by the share price. A high figure may also result from a sharp price fall and does not mean future dividends will be maintained.

Payout ratio

The proportion of earnings or a selected cash flow measure paid to shareholders as dividends. When comparing figures, check which measure was used in the calculation.

Earnings per share (EPS)

The portion of profit attributable to one share under the accounting methodology. Earnings per share may be basic or diluted; the number of shares affects the result.

Price-to-book ratio (P/B)

A share’s market price relative to the book value of equity per share. Price-to-book is interpreted differently for a bank and for a technology company with intangible assets.

Systematic risk

Risk shared by the broader market, such as the effects of a recession. Spreading an investment across many shares generally does not eliminate it, although it reduces individual company risk.

Specific risk

Risk relating to a particular issuer, project or sector. Diversification may reduce it if the investments are not exposed to the same sources of difficulty.

Liquidity risk

The possibility that an asset cannot be sold in time at a reasonable price. A future maturity date does not itself make money available today.

Concentration risk

Risk arising from excessive exposure to a single issuer, sector or source of income. Several products from the same group may not provide genuine diversification.

Counterparty risk

The risk that the other party to a transaction fails to meet its obligation. It arises, for example, in derivatives, securities lending and off-exchange contractual arrangements.

Operational risk

The risk of loss caused by failures of processes, people or systems, or by external events. Examples include payment errors, system outages and fraud.

Political risk

The risk of changes driven by political decisions, such as restrictions on capital transfers. Its significance depends on the country, sector and legal structure of the investment.

Trading volume

The quantity of securities traded or value of transactions over a specified period. High volume may indicate activity but does not itself show whether the price is attractive.

Market depth

The quantity of available buy and sell orders at different prices. Limited depth may cause a larger trade to move the price more substantially.

Order book

A list of outstanding buy and sell orders in a market. Displayed orders may change quickly and may not represent all available liquidity.

Market maker

A participant that provides buy and sell quotes under specified conditions. It supports liquidity, but its presence does not guarantee an unchanged spread or price.

Slippage

The difference between a trade’s expected and actual execution price. It occurs particularly during rapid price movements, low liquidity or large orders.

Stop-limit order

An order that creates a limit order once a trigger price is reached. It controls the price limit but may not execute at all during a sharp market move.

Order validity

The time or condition for which an order remains active. A day order behaves differently from an order that remains in force until cancelled.

Break-even point

The level of sales or production at which revenue equals costs. It helps determine the level of activity a business needs to stop making a loss.

Fixed costs

Costs that do not vary directly with sales volume within a certain range of activity. Office rent may remain unchanged even when revenue falls.

Variable costs

Costs that change with production or sales volume. When planning margins, distinguish the cost of an additional unit from the company’s total costs.

Contribution margin

The difference between revenue and variable costs. It contributes towards covering fixed costs and generating profit; it is not the same as net profit margin.

Operating leverage

The sensitivity of operating profit to changes in revenue for a given proportion of fixed costs. High leverage can amplify both profits during growth and losses during a downturn.

Interest coverage

The ratio of a selected earnings measure to interest expense. It indicates the capacity to cover interest but does not itself assess repayment of the entire principal.

Debt service

Principal and interest payments due in a given period. When assessing a project, these are compared with cash flows actually available to meet them.

Income-producing property

Property held primarily to generate income from letting or other use. Its value depends on income, costs, the building’s condition and market conditions.

Vacancy

The proportion of space or time for which a property does not generate the expected rent. Rental economics should also account for periods between tenants.

Effective rent

Rent adjusted for concessions and other agreed incentives. It may be lower than the rate shown on the first page of the lease.

WAULT

Weighted average unexpired lease term: the weighted average remaining term of leases. Longer leases may improve predictability, but tenant credit quality and termination rights must also be assessed.

REIT

A real estate investment trust, a specific form of property company under the relevant legal regime. It provides indirect exposure to property; specific rules and taxation vary between countries.

Land-use plan

A document defining permitted land use and development. Owning land does not itself guarantee that the intended project may be built on it.

Building permit

A commonly used term for a decision or authorisation allowing construction. The precise regime depends on the applicable rules and specific proceedings; investors should check that it is legally effective and review its conditions.

Call option

The right to buy an underlying asset at an agreed price under the option’s terms. The buyer pays a premium; the outcome also depends on time to expiry and volatility.

Put option

The right to sell an underlying asset at an agreed price. It may provide protection against a fall in value, but that protection has a cost and a time limit.

Strike price

The price at which an option may be exercised. It differs from both the option premium paid and the underlying asset’s current market price.

Option premium

The price paid to acquire an option. Key influences include the underlying price, strike price, time remaining, expected volatility and interest rate conditions.

Expiry

The date or time when a contract or right ends under its terms. For derivatives, it is necessary to understand whether cash settlement, delivery or expiry without value follows.

Underlying asset

The asset or measure from which a derivative’s value is derived. It may be a share, index, currency, interest rate or commodity.

Option delta

The approximate sensitivity of an option’s price to a small change in the underlying price. It changes over time and with market conditions and should not be confused with a guaranteed return ratio.

KYC

Know your customer: identifying a client and verifying their identity. Financial institutions use it to obtain the necessary information about the client and purpose of the relationship; it is not an assessment of investment returns.

AML

Anti-money laundering measures to prevent the laundering of proceeds of crime. They include client verification, monitoring unusual transactions and other obligations under the applicable rules.

Ultimate beneficial owner

The natural person who ultimately controls an entity or benefits from its activities under the applicable rules. This need not be the same person as the managing director listed as a contact.

Politically exposed person (PEP)

A person holding a prominent public function, or another person within the relevant statutory category. This status calls for enhanced due diligence, not an automatic suspicion of unlawful conduct.

Appropriateness assessment

An assessment of a client’s knowledge and experience for certain investment services. It is narrower than a suitability assessment and does not itself establish whether an investment meets all of the client’s financial goals.

Investment advice

Providing a personal recommendation concerning financial instruments under the relevant legal regime. A general article or calculator does not automatically constitute a personal investment recommendation.

Portfolio management

Managing investments under an individual client mandate within the relevant legal regime. The scope of authority, risk limits and remuneration should be clearly agreed.