7 Most Important Finance Terms You Need To Know Before Jumping Into It

"It's never too late to learn anything".

 They’re words or terms that are frequently used in business. Many of them you possibly already use or often hear. But do you know the actual meaning of them all?

7 Most Important Finance Terms You Need To Know about when you want to jump into finance.

1. Capital :

It refers to the total resources that a business has on its disposal, it can be Human, Financial and other different properties that contribute to its overall value into how much it can do. 

               A company needs a lot of resources so that it can grow. Often that comes from within their company, but sometimes the company has to look outside of itself to get the investment in the form of thing like; Debt and Equity.

2. Debt :

A debt is the amount of money taken from someone that needs to be re-payed usually with interest. So, debt can come in the form of bank loans, and bonds & each one has different features such as;

    

                The order in which they are re-paid - Seniority, what rights the lender has to the asset of the borrower - Lender's Rights aka security, weather the interest is Fixed or Variable and which legal provisions are included to protect the lender - Lender's Protection aka covenants.

3. Equity

It represents a stake or share in a company that is what you are entitled to when everyone is paid out (after all debts are re-payed) because lender are paid before share holders.

                Equity is sort of a risky game as it depends upon how well a company can do, which can make you money with high interest or you can lose that money.

4. Primary Issuance (IPO):

When a company offers shares directly to investors. the best example for this is an (Initial public offering) or even directly to bank. Primary Market tend to be more volatile than Secondary Market as everyone is actively trying to establish the value.

5. Secondary Issuance (Stock Market);

In this people buy and sell the shares on the market or over the market through broker trader. In this the vast majority of trading happens between the trading and not through the company itself.

6. Mutual Funds:

This is probably the term we've all heard of. Mutual Fund is managed by a  professional money manager who's job is put that investment into a diversified portfolio based on the goals and the strategies of that fund.

               Now, Mutual Funds allow investors to invest in diversified portfolios that might otherwise be difficult with the small amount of capital and it allows you to benefit from the advice of a professional.

7. Exchange Traded Fund (ETF):

An ETF is a investment that typically tracks a Stock or Bond Index or a value of a particular Commodity. 

               Buying and selling is as same as Stocks but they have become popular due to their high daily liquidity and low costs.

8. Volatility :

It measures how much a stock or other security has fluctuated in terms of value overtime.

High Volatility ---- Less easy to predict in future ----- Considered a risky option.

                 And as we know trading is all about risk and return. As it is a risky option but it can give considerable return, but can also be a bigger loss.

If I have left some points do let me know in the comments.