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Glossary of Investment Terms

Here are some quick definitions of some common investment terms:

Investment - is a term with several closely related meanings in finance and economics. In theoretical economics, investment means the production of capital goods - goods which are not consumed but instead used in future production. Examples include building a railroad, or a factory, clearing land, or putting oneself through college. In finance, investment means buying assets, for example equity investment or real estate investment. These investments may then provide a future income and increase in value.

Market Liquidity - is a business or economics term that refers to the ability to quickly buy or sell a particular item without causing a significant movement in the price. The term is usually shortened to liquidity.

NASDAQ - originally an acronym for National Association of Securities Dealers Automated Quotations, is a stock market run by the National Association of Securities Dealers. When it began trading on February 8, 1971, it was the world's first electronic stock market. Since 1999, it is the largest American stock exchange with over half the companies traded in the United States listed. NASDAQ is made up of the NASDAQ National Market and the NASDAQ SmallCap Market. The main exchange is located in the United States of America with exchanges in Canada and Japan. They also have associations with exchanges in Hong Kong and Europe.

New York Stock Exchange (NYSE) - is one of the largest stock exchanges in the world. The NYSE is operated by the not-for-profit corporation New York Stock Exchange, Inc, with its main building located at 18 Broad Street, at the corner of Wall Street, in New York City, New York, U.S.A. NYSE is home to some 2,800 companies valued at nearly $15 trillion in global market capitalization.

Personal Finance - is the application of the principles of financial economics to an individual's (or a family's) financial decisions. It asks, "How much money will you need at various points in the future?" and "How do you go about getting that money?".

Risk - is the potential future harm that may arise from some present action. It is often combined or confused with the probability of an event which is seen as undesirable. Usually the probability and some assessment of expected harms must be combined into a believable scenario combining risk, regret and reward probabilities into expected value. There are many informal methods which are used to assess (or to "measure" although it is not usually possible to directly measure) risk, and (for some applications) formal methods such as value at risk.

Speculation - is the buying, holding, and selling of stocks, commodities, collectibles, real estate, or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income - dividends, rent etc. Speculation is one of three market roles in western financial markets, distinct from hedging and arbitrage.

Stock Market - is a market for the trading of publicly held company stocks or shares and associated financial instruments (including stock options, convertibles and stock index futures). Traditionally such markets were open-outcry where trading occurred on the floor of an exchange. These days increasingly the markets are cyber-markets with buying and selling occurring via online real-time matching of orders placed by buyers and sellers.

The Spread - when a securities trader looks at a particular stock quote, he sees a number of informational items. Two of these items are the Bid and Ask price. The numerical difference between these two prices is known as the spread. The bigger the spread, the more inefficient the market for that particular stock, and the more potential for profit. This spread is the mechanism that large Wall Street firms use to make most of their money (as opposed to trade commissions) since the advent of online discount brokerages.

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