Study resources

Finance exam glossary

Short definitions of terms you will see across SIE, Series 65, and Series 3 practice on this site. For deeper study, pair these with the study guide and official outlines.

Markets & trading

Primary market: The market where new securities are issued and sold to investors for the first time, such as an IPO or a new bond offering.
Secondary market: The market where previously issued securities trade between investors, including exchanges and over-the-counter venues.
Broker-dealer: A firm that buys and sells securities for customers (broker) or for its own account (dealer). Broker-dealers are subject to SEC and FINRA oversight.
Bid / ask: The bid is the highest price a buyer is willing to pay; the ask (offer) is the lowest price a seller will accept. The difference is the spread.
Liquidity: How easily an asset can be bought or sold at a fair price without a large price impact. Cash and large-cap stocks are typically more liquid than thinly traded securities.
Settlement: The process of exchanging securities and payment after a trade. Many U.S. equities settle on a T+1 cycle; always confirm current rules for the product you are studying.
Clearing: Post-trade processing that confirms, matches, and prepares transactions for settlement. Clearinghouses often stand between counterparties to reduce default risk.
Market order: An order to buy or sell immediately at the best available price. It prioritizes speed of execution over a specific price.
Limit order: An order to buy or sell only at a specified price or better. It may not fill if the market never reaches the limit.
Stop order: An order that becomes a market (or sometimes limit) order once a trigger price is reached. Often used to help limit losses or protect gains.

Products & securities

Equity security: An ownership interest in a company, typically common or preferred stock, with residual claim on assets after creditors.
Common stock: The basic ownership share of a corporation. Holders may receive dividends if declared and often have voting rights, but dividends are not guaranteed.
Preferred stock: An equity security that usually pays a stated dividend and has priority over common stock for dividends and liquidation, but typically has limited or no voting rights.
Debt security: A creditor claim such as a bond or note. Issuers pay interest (or discount accretion) and repay principal according to the terms of the instrument.
Municipal bond: Debt issued by a state, city, or other local government entity. Interest may be exempt from federal income tax and sometimes from state or local tax for residents.
Treasury security: Debt issued by the U.S. Treasury (bills, notes, or bonds). Generally considered free of credit risk from the issuer, though prices still move with interest rates.
Mutual fund: A pooled investment company that issues redeemable shares and invests according to a stated objective. Shares are typically priced once daily at net asset value (NAV).
ETF (exchange-traded fund): A pooled investment that trades on an exchange throughout the day like a stock, often tracking an index or theme, with continuous pricing rather than once-a-day NAV pricing.
Option: A contract giving the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying asset at a set strike before or at expiration.
Call / put: A call gives the right to buy the underlying at the strike; a put gives the right to sell at the strike. Buyers pay a premium; writers (sellers) receive the premium and take on obligation.
Strike price: The fixed price at which an option buyer may buy (call) or sell (put) the underlying if the option is exercised.
Premium (options): The price paid by the option buyer and received by the writer. It reflects intrinsic value plus time value, and is affected by volatility, time to expiration, and interest rates.
Packaged product: A professionally managed or structured investment such as a mutual fund, ETF, or UIT that pools investor capital across holdings.
Annuity: An insurance contract that can provide accumulation and/or periodic payments. Variable annuities invest in subaccounts with market risk; fixed annuities credit interest subject to insurer guarantees.

Risk, portfolios & client standards

Market risk (systematic risk): Risk of loss from broad market moves that cannot be eliminated by diversifying within that market. Interest-rate and equity-market risk are common examples.
Credit risk: The risk that a borrower or counterparty fails to meet payment obligations. Bond investors face credit risk from the issuer; futures participants face counterparty risk that clearinghouses help mitigate.
Interest-rate risk: The risk that bond prices fall when interest rates rise (and rise when rates fall). Longer-duration bonds are generally more sensitive to rate changes.
Inflation risk: The risk that rising prices erode the purchasing power of cash flows or principal. Fixed nominal payments are especially exposed.
Liquidity risk: The risk of being unable to sell (or buy) an asset quickly at a reasonable price, or of needing to accept a wide bid-ask spread to do so.
Volatility: How much an asset's price tends to fluctuate. Higher volatility generally means greater uncertainty of returns and, for options, higher premiums all else equal.
Diversification: Spreading investments across assets, sectors, or strategies so that a single adverse event is less likely to dominate overall results. It reduces unsystematic risk, not all risk.
Asset allocation: How a portfolio is divided among major asset classes (for example stocks, bonds, and cash). It is a primary driver of long-term risk and return for many clients.
Risk tolerance: A client's ability and willingness to withstand investment losses or volatility. Advisers use it, with goals and time horizon, when recommending strategies.
Time horizon: How long an investor expects to hold investments before needing the money. Longer horizons can often support more growth-oriented allocations, subject to risk capacity.
Fiduciary duty: A legal and ethical obligation to act in the client's best interest, with care, loyalty, and full disclosure of material conflicts — central to investment adviser standards.
Suitability: A standard requiring recommendations to be appropriate for the customer's financial situation, objectives, and risk profile based on information known about the customer.

Accounts, disclosure & conduct

Discretionary account: An account in which the firm or adviser may decide which securities to buy or sell (and often when and how much) without contacting the customer for each trade, under written authorization.
Margin account: A brokerage account that allows buying securities with borrowed funds. Margin increases both potential gains and losses and is subject to maintenance requirements and possible margin calls.
Custody: Holding or having authority over client funds or securities. Advisers with custody face heightened rules, including surprise examinations or other safeguards under the Advisers Act framework.
Form ADV: The registration and disclosure form used by investment advisers. Part 1 is largely administrative; Part 2 (brochure) describes services, fees, conflicts, and disciplinary history for clients.
Disclosure: Providing material information so investors or clients can make informed decisions — including risks, fees, conflicts, and product features. Incomplete or misleading disclosure is a common exam trap.
Conflict of interest: A situation where personal or firm incentives may compete with the client's interest. Advisers and reps must identify, disclose, and manage conflicts appropriately.
Churning: Excessive trading in a customer's account primarily to generate commissions rather than to serve the customer's objectives — a prohibited practice.
Front running: Trading ahead of a known customer or firm order to take advantage of the expected price movement — a prohibited practice.
Insider trading: Trading on material nonpublic information in breach of a duty of trust or confidence. Both tippers and tippees can face liability under securities laws.
Best execution: The duty to seek the most favorable overall terms reasonably available for a customer's order, considering price, costs, speed, likelihood of execution, and related factors — not just the lowest stated commission.

Futures & commodities

Futures contract: A standardized exchange-traded agreement to buy or sell a specified quantity of a commodity or financial instrument at a future date, marked to market daily through a clearinghouse.
Forward contract: A privately negotiated agreement to buy or sell an asset at a future date for a price set today. Unlike futures, forwards are customized and typically not cleared on an exchange.
Long / short (futures): A long futures position profits if the futures price rises; a short profits if the price falls. Most positions are closed by offset before delivery.
Offset: Closing a futures (or options on futures) position by taking an equal and opposite position in the same contract, usually before delivery or expiration.
Clearinghouse: The entity that becomes the buyer to every seller and the seller to every buyer on an exchange, guaranteeing performance and facilitating daily settlement.
Initial margin (performance bond): The good-faith deposit required to open a futures position. It is a fraction of the contract's notional value and is not a down payment for the full commodity.
Maintenance margin: The minimum equity that must remain in a futures account. If equity falls below this level after marking to market, a margin call requires restoring equity to the initial margin level.
Mark to market (daily settlement): Daily crediting or debiting of futures account equity based on the day's settlement price, so gains and losses are realized each day rather than only at exit.
Tick size / tick value: Tick size is the minimum price increment for a contract; tick value is the dollar amount gained or lost when the price moves by one tick.
Open interest: The number of outstanding futures (or options) contracts that have not been offset or delivered. Rising open interest with rising prices can signal new money entering a trend.
Basis: Usually cash (spot) price minus futures price for the same commodity. Basis can strengthen or weaken as the cash-futures relationship changes — critical for hedging outcomes.
Contango / backwardation: Contango describes a futures curve where deferred contracts price above nearer ones (often reflecting carrying costs). Backwardation is the reverse, with nearer contracts richer than deferred.
Hedge (long / short): Using futures to offset price risk. A short hedge (sell futures) protects a holder of the commodity against falling prices; a long hedge (buy futures) protects a future buyer against rising prices.
Spread (futures): A position that is long one futures contract and short another related contract — for example a calendar (time) spread or an intermarket spread — to trade the price difference rather than outright direction.
Speculation: Taking futures or options positions primarily to profit from expected price moves, accepting risk that hedgers typically seek to transfer.
Options on futures: Exchange-traded options that give the right to assume a long or short futures position at a strike. Premium, intrinsic value, time value, and Greeks concepts apply similarly to equity options.
First notice day / last trading day: First notice day is when delivery notices may begin for a deliverable contract; last trading day is the final session the contract trades. Speculators usually exit before delivery obligations arise.

Regulators & exams

FINRA: Financial Industry Regulatory Authority — a self-regulatory organization that writes and enforces rules for broker-dealers and administers many qualification exams, including the SIE.
SEC: U.S. Securities and Exchange Commission — the federal regulator overseeing securities markets, disclosures, and many market participants.
NASAA: North American Securities Administrators Association — the association of state and provincial securities regulators; associated with exams such as the Series 65.
NFA: National Futures Association — the self-regulatory organization for the U.S. derivatives industry; associated with exams such as the Series 3.
CFTC: Commodity Futures Trading Commission — the federal agency that regulates U.S. futures and many derivatives markets. The NFA operates under CFTC oversight.
SIE: Securities Industry Essentials — FINRA's entry-level exam on capital markets, products, trading and accounts, and the regulatory framework. No firm sponsorship is required to sit for it.
Series 65: Uniform Investment Adviser Law Examination — a NASAA exam commonly used to qualify investment adviser representatives, covering economics, vehicles, recommendations, and laws/ethics.
Series 3: National Commodity Futures Examination — qualifies individuals to solicit futures and options on futures. It covers market knowledge and regulations under NFA/CFTC rules.
Administrator (state securities): The state official or agency that administers blue-sky (state securities) laws, including registration of securities, broker-dealers, and investment advisers within that state.
Registration: The process of becoming authorized to conduct regulated activity — for example registering a broker-dealer, investment adviser, or associated person with the SEC, a state, FINRA, or the NFA.

Definitions are simplified for study context and are not legal advice. Verify current rules and exam requirements with the official sponsor. See the disclaimer.