Financial Terms

Fund Types


The English full name of ETF is Exchange Traded Fund. ETF is an open-end equity fund that tracks market indices and is free to trade on exchanges. The ETF can be understood as a special form of fund. The fund company buys the constituent stocks that make up an index, and buys them according to their composition ratio in the index, merges them together to form a fund, and then divides them into many small ones. When the fund unit is sold, it becomes an ETF fund that can be traded freely. Investors buying an ETF is equivalent to buying a portfolio that includes all the constituents of the index.

Equity Fund

Most of the securities investment funds are equity funds. These funds use stocks as the main investment subject, and sometimes invest a small amount in convertible corporate bonds, warrants or other financial products according to the professional judgment of the fund manager. For open-end equity funds, fund managers will invest some of their funds in highly liquid financial instruments to prepare for fund redemption. In addition, foreign countries can operate through financing, in order to achieve the goal of substantial capital growth in the long market, but if the market judgment is wrong, the fund will also have a larger decline.

High-yield Bond Fund

The high-yield bond fund mainly invests in non-investment grade bonds, and its investment risk comes from the interest rate risk and credit risk generated by the investment target.

Monetary Fund

Money fund invests in money market instruments such as treasury bills, negotiable certificates of deposit, and short-term notes. It is a fund product with high principle, security and liquidity, which is easy to use and enjoys a higher interest rate than the bank's current deposit.

The operation of money market funds and their investment scope are concentrated on short-term bonds with a duration of less than one year, and the risk of price changes is low.

Balanced Fund

The purpose of the balanced fund investment is to balance long-term capital growth and stable income, that is, the investment target is a hybrid portfolio of stocks and bonds. In general, stock investment accounts for at least 50% ∼ 60% of balanced fund, the rest is bonds, and the bond ratio is usually not less than 25%. It is a mixture of equity fund and bond fund.

Index Fund

The index fund determines the composition and proportion of individual stocks in the fund's portfolio based on the stock component and weight of the selected index.

Index funds use the proportion of stocks in the stock index as the criteria for stock selection, which makes the fund's return rate consistent with the stock price index of the market. The fund's return and the trend of the market are parallel or overlapping, which makes the index fund will be the best investment targets for fund investors who are highly sensitive to the market.

Regional Fund

Regional fund invests in financial products in specific regions as investment targets, which can diversify the political and economic systemic risks of investing in a single country or region.

Bond Fund

Bond fund is a kind of securities investment fund with bonds as the main investment target. In addition to bonds, they can also invest in financial bonds, bond repurchases, deposits, short-term notes, etc. Most of them are issued in the form of open-end funds, and do not allocate income to legally save taxes.

Global Fund

The investment scope of the funds is spread all over the world, and the areas with more developed global financial markets are the investment targets. The risks are relatively low and scattered.

Special Situations Fund

Special situations fund invests mainly in stocks with a “special situation” and has the potential for substantial growth, but the risk is at the top of the equity fund. The targets of special situations fund include: small companies, low-priced stocks which is undervalued, less popular stocks, or stocks that have not been explored or focused on but have growth potential.

Industrial Fund

Industrial fund refers to the investment targets that are mainly stocks of individual industries. Common classifications include high-tech industry stocks, real estate stocks, public utility stocks, and gold ore stocks. Because the target of investment is concentrated in a single industry, it is greatly affected by factors such as the cyclicality of individual industries or products, government policies and regulations, and domestic competitiveness. The volatility of funds is much higher than that of stock market, and most stocks belong to highly explosive industries with high profit potential and relatively high risk, which is more suitable for investors with more investment experience or active investors.

Fixed Income Securities

Mortgage Backed Securities

Package and combine financial institution’s real estate mortgage loans, hand over to the trust institution, and then a credible guarantee institution such as GSEs (government-sponsored enterprises) guarantees the issued securities to increase credit to increase the securities sales rate. After the credit has been strengthened, the securities are classified into standard units, issued in the capital market, and raised funds from investors. Among them, mortgage assets are divided into commercial mortgage backed securities (CMBS) and residential mortgage backed securities (RMBS).

Convertible Bond

Convertible corporate bonds are securities (bonds) issued by the company and are a financial instrument for raising long-term funds directly from investors. The issuing company regularly pays certain interest to investors in accordance with the conditions of issuance established at the time of issuing, and investors has the right to convert bonds into ordinary shares. When the rate of return after converting into common stock is higher than the interest rate of the company's bonds, the investor holding the company's bonds can convert the company's bonds into the ordinary shares of the issuing company at a predetermined conversion rate or conversion price within a specified period of time to get higher yields. For investors who do not exercise the right to convert, the issuing company will repay the principal and interest according to the conditions of issuing when the bond expires.

Callable Bond

Callable bond indicates that the issuer has the right to buy back the bond from the investor.

Corporate Bond

The issuing company agrees to pay a certain principal amount on a certain date (or installment) and pays the interest at the agreed interest rate during the fixed period (or expiration).


Duration refers to the average maturity of the investor's holding of the bond, which is the actual average number of years that the investor recovers the principal and interest. It measures the change or percentage change in bond price per unit of interest rate change. It can be an indicator of bond price risk.

Credit Spread

The credit spread is used to compensate investors for the default risk of underlying asset. It is the spread above the risk-free rate.

Sovereign Debt

Government bonds issued by the state.

Investment Grade Bond

Bonds rated above BBB.

High Yield Bond

High-yield bonds refer to bonds issued by companies with bond ratings below the investment grade (e.g. BB+, Ba1 or below). Because bond credit ratings are lower, investors generally refer to them as junk bonds. This type of bond has a higher risk of default, so the company will give a higher rate of return as compensation when it is issued, and that is called the default risk premium.

Credit Risk

Credit Spread

The credit spread is used to compensate investors for the default risk of underlying asset. It is the spread above the risk-free rate.

Fiscal Policy

Fiscal policy refers to the guiding principle of fiscal work stipulated by the state according to the tasks of political, economic and social development in a certain period of time. It regulates aggregate demand through fiscal expenditure and taxation policies. Increasing government spending can stimulate aggregate demand and thus increase national income.

Monetary Policy

Monetary policy refers to the sum of the policies and measures adopted by the central bank to achieve the set economic goals (stabilize prices, promote economic growth, achieve full employment, and balance the balance of payments) by using various tools to regulate money supply and interest rates, and thus affect the overall economy.

Structured Note

Structured note is a kind of financial derivative, also known as linked bond. The so-called “linkage” refers to the bond linked to the performance of the stock price or interest rate. Its basic structure is fixed-income goods (such as zero-coupon bonds) plus financial derivatives.

At Premium

When the bond coupon rate is better than the market interest rate, and the bond transaction price is higher than the face value, it is called a premium issue. Therefore, the discount and premium of bonds are closely related to the trend of market yield to maturity.

Distressed Bond

Distressed bond refers to bond that investors believe that the issuer is about to have a risk of bankruptcy. There are usually two indicators as the standard, one is a bond whose price falls below 50% of the face value, and the other is a bond with a credit spread of more than 1,000 bps.

Credit Rating

The credit rating is an assessment of a company's solvency, including:

Issuer rating: An objective assessment of the overall solvency of an enterprise compared to other debtors in the region.

Issue rating: For a particular debt, assess the debtor’s ability to repay the principal and interest on time and the security provided by the debt. The rankings and grades generated by the ratings make it easier for investors to understand whether the financial status of these companies or institutions is good.

Base Point (BP)

Base Point (BP) 0.0001

Yield to Maturity

Investors buy bonds and hold them until maturity. The annual return on investment during this period is called the yield to maturity.

Recovery Rate

When a corporate bond defaults, in general, the court will liquidate the issuer, sell the company’s assets, look at the total liabilities, and then repay the bond investors in batches in debt order. There are also asset restructuring companies that acquire such corporate bonds that have defaulted in the market.

Asset Backed Securities

Broadly defined ABS refers to commodities that are securitized by financial assets, including real estate mortgage securitization bonds or other commodities that have been securitized by assets such as credit cards and accounts receivable. The narrow sense of ABS is to distinguish between MBS and other financial asset securitization products. The debt securitization goods related to real estate mortgage loans are called MBS (Mortgage Backed Securities); the non-real estate mortgage loan securitization goods are called ABS (Asset Backed Securities), which is the narrow sense of ABS.

Option Adjusted Credit Spread

Discounting the option adjusted cash flow to get the theoretical price of a bond with rights, and OAS is the level of spread that ultimately makes the theoretical price equal to the market price. It can reflect investor’s expectations of bond defaults.

Credit Default Swap (CDS)

A credit default swap contract (CDS) is similar to insurance, and the buyer (the insured) agrees to pay the seller for a period of time, and the seller pays the amount to the seller only when a particular credit crisis occurs, such as a default. The CDS is issued by an insurance company and is subscribed by the bank or corporate bond holders. Once the company is unable to pay off the debt, the debt will be borne by the CDS issuer, but both the buyer and the seller can transfer and resell the contract to others for risk dispersion. So CDS has hidden risks.

Coupon Rate

The coupon rate refers to the interest rate marked on the bond and the ratio of interest for one year to the face value. It is equal to the percentage of the total amount of interest that the bond pays to the bondholder each year divided by the total face value of the bond. Bonds with higher coupon rates are less affected by market interest rates.

Yield Curve

Yield curve refers to the relationship between different maturity dates and yield to maturity under the same credit risk and liquidity. The common yield curve is the yield curve of the government bond. There are four basic types of yield curve, which are positive slope, negative slope, horizontal line and irregular variation. The pattern of the yield curve reflects investors' perceptions and predictions about the degree of future economic prosperity, and is one of the reference tools for judging the good or bad of the economy.

Default Rate

The probability that the bond issuer will not be able to repay the principal or interest on time and the debtor will face bankruptcy.

Distressed Ratio

Distressed ratio refers to the ratio of discount bonds to the total bonds. The investor's confidence in the overall market can be observed by the distressed ratio, which is often used as an indicator of the default rate.

Federal Funds Rate

Federal funds rate is the interest rate charged by commercial banks for overnight borrowing of federal funds of other banks. The federal funds rate is an important benchmark for short-term interest rates, which is determined by the market, and is managed by the Federal Reserve by increasing or decreasing the reserves in the banking system.

Financial Ratios


EBITDA refers to interest before interest, tax, depreciation and amortization. EBITDA is an accounting indicator commonly used in the telecommunications industry around the world to reflect operating results, leverage ratios and liquidity.

Earnings Per Share

EPS can be expressed in “(the net profit after tax in the current period - the dividend of preferred stock) ÷ the weighted average number of common shares outstanding in the current period”, which indicates the surplus earned by the company's common stock through equity operation during the period. It is often used as a profitability indicator of company. A high EPS represents the company's high profitability per unit of capital, indicating that the company has some better capabilities, such as product marketing, technical capabilities, management capabilities, etc., so that companies can create higher profits with less resources.

Price-Book Value Ratio

P/B can be expressed in “price per share ÷ net value per share”, which refers to the ratio of stock price at a specific time to the net value per share in the end of recent quarter. When the business is not doing well, investors are not optimistic, the price-book value ratio (PBR) declines, and vice versa. The price-book value ratio (PBR) reflects the investor's confidence index for the stock.

Gross Margin

Gross Margin can be expressed in “(gross profit / operating income) × 100%”, which is an indicator for measuring the profitability of a company. It means that how much of each unit of operating income can be invested in the business, and also indirectly indicates how much direct cost the company must pay to produce goods or provide services in each unit of operating income. The higher the gross margin, the higher the profitability of the company and the stronger the ability to control costs.

Dividend Yield

Dividend yield can be expressed in “Dividend per share / earnings per share”, which measures the rate at which a company distributes its earnings as dividends to shareholders. From the change in the ratio, we can see the company's dividend distribution policy and the expectations for future growth. If the company expects that future growth will generate a large amount of capital demand, it tends to retain the surplus and issue less dividends as the basis for future expansion.

Profit Margin

Profit margin can be expressed in “(After-tax profit and loss ÷ Net sales revenue) × 100%”, which indicates the profitability of sales.

Price-Earnings Ratio

P/E can be expressed in “each stock price ÷ earnings per share”, which refers to the price that investors are willing to pay for each unit of earnings, that is, the amount of money investors need to invest in order to obtain a unit of profit. Investors use this ratio to measure whether stocks are worth investing. Companies with high growth potential will have a higher reasonable P/E ratio. As far as investors are concerned, the smaller the ratio, the smaller the amount investors need to invest to get the same compensation. But as far as the company is concerned, the higher the ratio, the better. It indicates that the company's potential for future growth is growing. The higher the P/E ratio, the lower the return on investment. Only when the company has significant growth potential, investors are willing to invest, but such companies are usually at greater risk.

Return on Equity

ROE can be expressed in “(after-tax profit and loss ÷ average net shareholder equity) × 100%”, which indicates the net profit that a company's shareholders can earn per unit of investment. It is usually used to compare the profitability of companies in the same industry and the strength of the company management's ability to use equity to create profits for shareholders.

Return on Assets

ROA can be expressed in “[After-tax profit and loss + interest expense × (1 - tax rate)] ÷ The average total assets × 100%”, which means how much net profit the company can obtain for each unit of asset investment. It is usually used to compare the company's profitability in the industry, and the ability of company's management team to use the total assets to create profits for shareholders. The higher the ratio, the more efficient the operator is in the use of assets, and vice versa.

Economic Data

Consumer Price Index

Consumer Price Index (CPI) reflects the price change indicators of product and labor prices related to residents' lives, expressed as a percentage change. It is one of the main indicators for measuring inflation. Generally, more than 3% is inflation, and more than 5% is more serious inflation.

IFO Business Climate Index

Developed by the German IFO research institute, it is an important leading indicator for observing the economic situation in Germany. IFO is the English abbreviation of the German Institute of Economic Information, which was founded in Munich in 1949. IFO is a public welfare, independent economic research institute known as the German government's think tank.

The compilation of IFO Business Climate Index requires monthly surveys of various industrial sectors including manufacturing, construction and retail, each survey covers more than 7,000 entrepreneurs, and then according to the current situation of the company, the short-term plan of the company and the views on the next half year to compile the index.

The IFO Business Climate Index is published once a month. It surveys the company's view of the future and covers a wide range of sectors, so it has a high reference in the forecast of economic trends.

ISM Manufacturing Index

The manufacturing index reflects the comprehensive development of manufacturing in terms of production, orders, prices, employees, delivery, etc. It usually has a critical point of 50, above 50 means that the manufacturing industry is expanding, and below 50 means that the manufacturing industry is shrinking.

Misery Index

The misery index is an economic indicator proposed by American economist Arthur Okun in the 1970s. It is the sum of unemployment rate and inflation rate. The higher the number, the higher the pain.

Producer Price Index

The Producer Price Index (PPI) is an index used to measure the average change in the ex-factory price of a manufacturer. If the producer price index is higher than expected, it indicates a risk of inflation. If the producer price index is lower than expected, it represents a risk of deflation.

Rediscount Rate

That is to say, when the bank funds are insufficient, in addition to the use of interbank borrowing, it can also borrow money from the Central Bank. The method of borrowing is to rediscount to the central bank with existing commercial papers to obtain funds. The interest rate paid for rediscounting is called rediscount rate. The rediscount rate is usually one of the means by which the central bank controls currency. When there is too much money in the market, the central bank can raise rediscount rate to promote the market interest rate increase. Conversely, lowering the rediscount rate causes the market interest rate to fall.

Current Account

Current Account is one of the accounts of the balance of payments, which records transactions in the import and export of goods, services, wages and investment income between residents and non-residents of an economy, as well as transactions in the recurring income and expenditure. If the balance is positive (surplus), it means that the country's net foreign wealth or net foreign investment increases. If it is negative (deficit), it means that the country's net foreign wealth or investment is reduced. The expansion of a country’s current account surplus usually indicates a better economic outlook.

Institute for Supply Management

The Institute for Supply Management (ISM) is the world's largest and most authoritative organization for procurement and supply chain management. It was founded in 1915, and formerly known as the National Associate of Purchasing Management (NAP), which aims to lead the supply chain management profession through research, promotion and education.


A statistical indicator of the money supply. According to the definition: M1B=M1A (cash in circulation + check deposit + current deposit) + current savings deposit, where the net currency refers to the currency held by various departments outside the monetary institution. It is the same currency as the check deposit, which is highly liquid and has a relatively obvious nature of the transaction medium.

Nonfarm Payroll Employment

It is employment-related data compiled by the US Bureau of Labor Statistics in collaboration with the state government's employment security agencies, based on a sample of approximately 380,000 non-agricultural institutions. The United States publishes the results of the previous month on the first Friday of each month. The increase in Nonfarm Payroll Employment indicates an increase in economic prosperity.

Treasury Bond Financing

One of the financing methods of the government's fiscal policy is to borrow funds from the private sector through the issuance of bonds.

Michigan Consumer Confidence Index

In order to study the impact of consumer demand on the economic cycle, the Survey Research Center at the University of Michigan took the lead in compiling consumer confidence index, and then some European countries began to establish and compile consumer confidence index. Researchers conduct regular surveys of consumers' perceptions of their personal finances and national economic conditions and conduct corresponding assessments to prepare the index.

Gross Domestic Product

Gross Domestic Product (GDP) refers to the total market value of final goods and services produced by a country using production factors within a certain period of time.

ISM Non-Manufacturing Index

The index reflects the degree of prosperity of non-manufacturing business activities in the United States. When the value continues to be above 50, it indicates that non-manufacturing activities are expanding and the overall economy is expanding. Conversely, when the value is continuously below 50, it usually represents that the whole economy is in a state of contraction.


M2, broad money is a statistical indicator of money supply commonly used in China. According to the definition: M2=M1B (cash in circulation + check deposit + current deposit + current savings deposit) + time deposit + fixed savings deposit + transfer remittance deposit.

Purchasing Managers’ Index

The Purchasing Managers' Index (PMI) measures manufacturing industry conditions in eight areas, including production, new orders, commodity prices, inventory, employees, order delivery, new export orders, and imports. It is announced on the first business day of each month. When the index exceeds 50, it represents the manufacturing industry is expanding; and below 50 represents the manufacturing industry is shrinking.

Foreign Exchange Reserves

An asset is held by a country’s monetary authority and can be exchanged for foreign currency at any time. It is usually expressed in US dollars, and can be considered as “international reserve”. When the exchange rate is fixed, the change in foreign exchange reserves is equal to the sum of the trade surplus and the net capital inflow, deducting the foreign currency holdings in the private sector. In general, the more trade surplus in a country, the more foreign exchange reserves held by the central bank of the country.

Housing Starts

Housing starts is usually published between the 16th and the 19th of each month. Generally, there are two types of new houses: individual housing and collective housing. When the individual housing starts to be built, the base of one household is 1, and when a 100-unit apartment starts construction, its base is 100, thus housing starts can be calculated. In general, the increase in the rate of housing starts indicates that the economy continues to grow.

Rating Agencies


Lipper is a wholly-owned subsidiary of Reuters and responsible for providing independent global investment information for asset management companies and media organizations, including securities investment funds, pension funds, hedge funds, fund fees, and expenses. As a world-renowned research and analysis fund organization, Lipper covers more than 172,000 shares and more than 95,000 funds in 53 registered locations around the world, and provides free Lipper Leaders fund rating services for funds recognized by other regions.


Fitch International is one of the top three international rating agencies in the world and is the only European international rating agency, which is headquartered in New York and London. It has more than 40 branches worldwide and more than 1,100 analysts. The agencies rated by Fitch are located in more than 90 locations around the world, including rating the financial status of more than 2,000 insurance companies (IFR). Fimalac, S.A., is a major shareholder of Fitch, headquartered in Paris, France, and is an international financial services group.

Standard & Poor's

Standard & Poor's is an authoritative financial analysis organization in the world, founded in 1860 by Mr. Henry Varnum Poor. Standard & Poor's was formed in 1941 by the merger of Pool Publishing Company and Standard Statistic Company. Standard & Poor's provides investors with credit rating, independent analysis, and investment consulting services.


Moody's was founded by John Moody and first rated the railway bond in 1909. In 1913, Moody's began a credit rating on utilities and industrial bonds. Moody's has approximately 800 analysts and more than 1,700 assistant analysts worldwide. Moody's has branches in 17 regions and its stocks are traded on the New York Stock Exchange.

Institutional Organization

Bureau of Labor Statistics

The US Bureau of Labor Statistics is the main agency of the US federal government's labor economy and labor statistics, which collects, processes, analyzes and publishes important statistical data to the public.

Organization for Economic Co-operation and Development

The Organization for Economic Co-operation and Development (OECD), was founded in 1961 and it is headquartered in Paris. The organization is made up of 33 countries that work together to address the economic, social and government governance challenges of globalization. The OECD conducts a variety of research for a long time, and its database covers various areas such as the national balance of payments, economic indicators, labor, trade, employment, migration, education, energy, health, industry, taxation, tourism, and the environment.

European Central Bank

The European Central Bank was established in July 1998 and it is primarily responsible for the currency, exchange rate, and interest rate policies of the Eurozone. The ECB Council is the supreme body of policy decisions, consisting of the central bank presidents of seventeen-member country and six executive directors (decision members). The six-person decision-making committee is responsible for the formulation of the interest rate policy of the seventeen countries, and its status is very important. Its members are generally selected by countries after consultation.

International Monetary Fund

The International Monetary Fund (IMF) was established at the end of 1945. As one of the two major financial institutions around the world, it is responsible for monitoring international exchange rates and trade among countries, providing technical and financial assistance, to ensure that the global financial system works properly. It is headquartered in Washington.

The purpose of the IMF is to stabilize international exchange rates, eliminate foreign exchange controls that are not conducive to global trade. Promote international cooperation on the currency issue and solve the foreign exchange demand generated by the disequilibrium of the international balance of payments of member countries by providing short-term loans. Its funding comes from the share of subscriptions by member states. The share of each member country is determined by the organization based on economic indicators such as national income, gold and foreign exchange reserves, import and export trade volume, and export volatility. The main right of member states is to borrow foreign exchange in proportion to the share of the contributions.