Almost every sector or industry has its own language, and the business world is no different.
Not only can the principles of economics and business be difficult to grasp, but over-complicated language, like securities or IPOs, can exacerbate the confusion.
Here’s a cheat sheet to help you understand financial lingo from the news, your friends, or your parents.
An all-encompassing term for financial assets like bonds and stocks, securities are only valuable for what they ensure contractually. They aren’t physically valuable like gold, but instead are worth something because of what they represent.
These are debt securities, which mean they represent loans that have to be repaid. Companies or the government sell bonds to investors, who are told they’ll be paid back the amount of the loans with interest. Especially when they come from the government, bonds are a less risky option than stocks since they’re more likely to be repaid.
Also known as equity securities, each stock represent owning a share of a company. The more stocks of a certain company you own, the more say you have in the company’s operations. Many people profit from stocks by buying them at low cost and selling them when the stock’s market price rises—or, they’ll do the opposite and try to short a stock.
The more stocks of a certain company you own, the more say you have in the company’s operations.
An IPO stands for a company’s Initial Public Offering. Basically, companies can be either public or private. Private companies don’t sell their shares in the stock market, and it’s done like the name suggests, privately.
Their IPO is when they “go public”: their stocks become available for the general public to buy, trade, and sell. Companies that have a lot of hype built up often have investors watching to see if they plan to go public, since the stocks could indicate a big payday.
Assets are financial instruments, like those listed above. Liquidity just refers to how easily assets can be turned into cash. Stocks and bonds are usually liquid, while things like real estate aren’t because you can’t turn houses into cash that quickly.
This is why in bail hearings, people with lots of liquid assets are considered risky: they own lots of financial instruments, which can be easily moved around and turned into cash if they choose to flee the country.
financial literacy, the lazy economist
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