The variable income market can be challenging for beginners. With so many details, many people give up learning more about stocks and how this type of investment can change lives. Let's change that with simple and accessible language for everyone starting to invest their money.
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Introduction
The Brazilian financial market is vast and complex, with a variety of terms and concepts that can be challenging for beginners. This glossary aims to provide clear and concise definitions of the most common and important terms used in the Brazilian financial market. Whether you are an experienced investor or just starting to explore the world of finance, this glossary will be a valuable tool to better understand the mechanisms and operations of the market.
Stocks
Common Stocks
Represent ownership of a fraction of the company, with voting rights at general meetings.
Preferred Stocks
Offer preference in the distribution of dividends and capital reimbursement but generally do not grant voting rights.
Blue Chip
A term used to describe shares of large, well-established, and financially sound companies.
Small Caps
A term used to describe shares of companies with a smaller market capitalization compared to large corporations, such as blue chips. Small caps generally have higher growth potential but also present higher volatility and risk. These companies tend to be less known and have lower market liquidity.
Liquidity
The ease with which an asset can be converted into cash without significant loss of value.
Dividends
A portion of a company's profits is distributed to shareholders, usually in cash or additional shares.
Fundamental Analysis
The evaluation of financial assets based on economic, financial, and other qualitative and quantitative factors to determine a company's intrinsic value.
Technical Analysis
A method of evaluating assets based on price charts and patterns to predict future movements.
P/E (Price to Earnings Ratio)
A financial indicator that relates a company's stock price to its earnings per share, used to assess whether a stock is expensive or cheap.
Assets
Financial Assets
Financial instruments, such as stocks, bonds, or funds, that have economic value and can be traded.
Fixed Assets
Tangible long-term assets used in the production of goods and services, such as real estate and equipment.
Stock Exchange
B3 (Brasil, Bolsa, Balcão)
The main stock exchange in Brazil, where stocks, bonds, derivatives, and other financial assets are traded.
IPO (Initial Public Offering)
The process by which a company sells its shares to the public for the first time, becoming publicly listed.
Over-the-Counter Market (OTC)
A segment of the financial market where the trading of assets such as stocks, bonds, and derivatives occurs directly between parties, without the mediation of a formal stock exchange. Transactions are conducted privately, by phone, or through electronic platforms, often involving assets of smaller or less liquid companies. This market offers greater flexibility in negotiations but can also present higher risk and less transparency compared to exchange-traded transactions.
Primary Market
A segment of the financial market where the initial issuance of securities (IPOs) occurs, allowing companies to raise funds directly from investors.
Secondary Market
The marketplace where securities issued in the primary market are traded between investors.
Commissions and Fees
Brokerage Fee
A charge by brokers to execute buy and sell transactions of assets on the stock exchange.
Management Fee
An amount charged by investment fund managers to cover the costs of managing the fund.
Performance Fee
An additional charge by investment fund managers when the fund exceeds a specific benchmark or reference index. The performance fee is a form of variable compensation that rewards the manager for achieving results superior to the market. This fee is usually calculated as a percentage of the excess gains over the benchmark and is charged in addition to the management fee.
Spread
The difference between the buy and sell price of an asset, representing the transaction cost.
Derivatives
Options Market
A segment of the financial market where options contracts are traded, granting the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price (strike price) on or before a specific future date (expiration date). Options contracts can be on stocks, indices, commodities, or other assets.
Futures Market
A segment of the financial market where futures contracts are traded, which are agreements to buy or sell an asset at a specific price on a determined future date. These contracts can be based on various assets, such as commodities (like oil, gold, and wheat), currencies, stock indices, and interest rates.
Investment Funds
Investment Fund
An investment vehicle that pools resources from various investors to invest in a diversified portfolio of financial assets, such as stocks, bonds, real estate, and other instruments. The investment fund is managed by professionals known as fund managers, who make investment decisions based on the fund's strategy and objectives.
Equity Fund
An investment fund that invests most of its capital in company stocks.
Fixed Income Fund
A fund that primarily invests in fixed-income securities, such as CDBs and government bonds.
Multimarket Fund
A type of investment fund that has the flexibility to invest in a variety of assets, such as stocks, fixed income, derivatives, currencies, and other financial instruments, both in the local and international markets. Multimarket funds offer a diversified strategy, ranging from conservative to aggressive risk profiles, depending on the portfolio composition and the investment policy adopted.
Private Equity
A type of investment where specialized funds or investors acquire stakes in companies not listed on the stock exchange, usually with the aim of restructuring, expanding, or transforming these companies for later sale at a profit. Private equity focuses on companies with growth potential that need capital, management improvements, or other strategic interventions.
Indices
Ibovespa
The main index of the Brazilian stock exchange, composed of the most traded stocks on B3 (Bolsa).
IGP-M (General Price Index - Market)
An index used to measure price variations and inflation in Brazil, influencing rental contracts and public tariffs.
IPCA (Broad Consumer Price Index)
The main inflation indicator used by the Brazilian government to measure price variations of a basket of goods and services consumed by households earning between 1 and 40 minimum wages in urban areas. The IPCA is calculated monthly by IBGE (Brazilian Institute of Geography and Statistics) and serves as a reference for the inflation target set by the Central Bank.
Fixed Income
Debt Securities
A financial instrument used by companies or governments to raise funds in the market. By purchasing a debt security, the investor lends money to the issuer (company or government) in exchange for future payments, usually including interest and the nominal value of the security upon maturity.
Government Bonds
Debt instruments issued by the federal government to finance its activities and projects.
Debentures
Debt securities issued by companies, offering a fixed or variable return to the investor.
CDB (Certificate of Deposit)
A fixed-income security issued by banks to raise funds, offering remuneration to the investor.
LCI/LCA (Real Estate Credit Note/Agribusiness Credit Note)
A fixed-income security issued by financial institutions, backed by real estate/agribusiness credits, with income tax exemption for individuals.
Risk and Return
Credit Risk
The probability of financial loss due to the non-payment or default of a debt by the issuer of the security, such as a company or government. Credit risk is the possibility that the issuer will not fulfill the agreed payment obligations.
Market Risk
The possibility of loss due to fluctuations in market prices of assets.
Expected Return
An estimate of the gain an investment may provide, considering the associated risks.
Beta
A measure of volatility or systematic risk of a financial asset relative to the overall market. Beta is used to assess the sensitivity of a stock's (or portfolio's) price to market fluctuations. A Beta of 1 indicates that the asset tends to move in line with the market. A Beta above 1 means the asset is more volatile than the market, amplifying both gains and losses. A Beta below 1 suggests that the asset is less volatile and tends to fluctuate less than the market. Negative Beta indicates that the asset moves in the opposite direction to the market.
Sharpe Ratio
A measure used to evaluate the risk-adjusted performance of an investment or portfolio. The Sharpe Ratio is calculated by dividing the excess return (investment return minus the risk-free rate, such as the Selic) by the investment's volatility (standard deviation of returns). A higher Sharpe Ratio indicates that the investment is offering better compensation for the risk taken.
This metric is widely used to compare different investments or strategies, helping investors identify those that offer the best return relative to the risk.
