Investment Terms Starting with “C”
1. Capital
Capital is the money or assets used to invest or start a business. It is the foundation for generating future income and wealth.
Illustration: You invest $10,000 in stocks. That $10,000 is your investment capital.
2. Capital Gain
A capital gain is the profit earned when you sell an investment for more than you paid.
Illustration: You buy a stock for $50 and sell it for $75, earning a $25 capital gain.
3. Capital Loss
A capital loss occurs when an investment is sold for less than its purchase price.
Illustration: You buy shares for $100 and sell them for $80, resulting in a $20 capital loss.
4. Capital Appreciation
Capital appreciation refers to the increase in the value of an investment over time.
Illustration: A property purchased for $200,000 is worth $280,000 after five years.
5. Cash Flow
Cash flow is the movement of money coming into and going out of an investment or business.
Illustration: A rental property generates positive monthly cash flow from rent payments.
6. Cash Reserve
A cash reserve is money kept aside for emergencies or future investment opportunities.
Illustration: An investor keeps six months of expenses in a savings account.
7. Cash Dividend
A cash dividend is a payment made by a company to its shareholders from its profits.
Illustration: A company pays $2 per share annually to investors.
8. Compound Interest
Compound interest is interest earned on both the original amount and previously earned interest.
Illustration: Your investment grows faster because each year’s interest also earns interest.
9. Compounding
Compounding is the process of reinvesting earnings so they continue generating additional returns.
Illustration: Dividends are reinvested to purchase more shares every year.
10. Cost Basis
Cost basis is the original price paid for an investment, including certain fees.
Illustration: Buying a stock for $100 plus a $2 fee gives a cost basis of $102.
11. Credit Risk
Credit risk is the possibility that a borrower will fail to repay borrowed money.
Illustration: Investors buying corporate bonds face credit risk if the company struggles financially.
12. Convertible Bond
A convertible bond can be exchanged for company shares under specified conditions.
Illustration: An investor converts bonds into stock when share prices rise.
13. Coupon Rate
The coupon rate is the annual interest paid by a bond based on its face value.
Illustration: A $1,000 bond with a 5% coupon pays $50 annually.
14. Corporate Bond
A corporate bond is debt issued by a company to raise funds from investors.
Illustration: A technology company issues bonds to finance expansion.
15. Common Stock
Common stock represents ownership in a company and often includes voting rights.
Illustration: Shareholders vote on company directors during annual meetings.
16. Correction
A correction is a temporary market decline of about 10% from recent highs.
Illustration: After a strong rally, the stock market falls 12% before recovering.
17. Cyclical Stock
A cyclical stock performs well during economic growth but weakens during recessions.
Illustration: Automobile manufacturers often perform better when the economy is strong.
18. Counterparty Risk
Counterparty risk is the chance that the other party in a financial transaction fails to fulfill its obligation.
Illustration: A bank fails to honor a derivatives contract due to financial problems.
19. Custodian
A custodian is a financial institution that safely holds investors’ securities and assets.
Illustration: Mutual funds use custodians to protect investors’ holdings.
20. Currency Risk
Currency risk arises when exchange rate changes affect investment returns.
Illustration: A stronger domestic currency reduces returns from overseas investments.
21. Call Option
A call option gives the buyer the right to purchase an asset at a fixed price before expiration.
Illustration: An investor profits if the stock price rises above the agreed strike price.
22. Covered Call
A covered call involves selling call options while already owning the underlying shares.
Illustration: An investor earns extra income by selling options on stocks they already own.
23. CAGR (Compound Annual Growth Rate)
CAGR measures the average annual growth rate of an investment over several years.
Illustration: An investment growing from $10,000 to $20,000 over five years has a CAGR of about 14.9%.
24. Commodity
A commodity is a basic raw material such as gold, oil, wheat, or silver traded in markets.
Illustration: Investors buy gold as a hedge against inflation.
25. Commodity Market
A commodity market is where raw materials are bought and sold.
Illustration: Crude oil and natural gas are traded on commodity exchanges.
26. Collateral
Collateral is an asset pledged to secure a loan.
Illustration: A house is used as collateral for a mortgage loan.
27. Credit Rating
A credit rating evaluates the financial strength and repayment ability of a borrower.
Illustration: Governments with higher credit ratings usually borrow at lower interest rates.
28. Concentration Risk
Concentration risk occurs when too much money is invested in one asset or sector.
Illustration: Investing all savings in one company’s stock increases financial risk.
29. Capital Allocation
Capital allocation is how a company or investor distributes money among different opportunities.
Illustration: A company invests profits in research, expansion, and dividend payments.
30. Contrarian Investing
Contrarian investing involves buying assets that are unpopular and selling those that are highly favored.
Illustration: An investor buys quality stocks during a market crash, expecting long-term recovery.