Financial Terms Glossary: Part 1

Asset class

In order to structure the huge supply of securities and other investments, they are divided into asset classes. The most important are shares, bonds, commodities, real estate and cash. Cryptocurrencies are also an asset class in their own right. How one allocates one's capital to the various asset classes has a great influence on the risk of an investment and can be more definitive for stock market success than the selection of securities within the asset classes.

Basic allowance

The basic allowance is the portion of income that remains tax-free in Germany. It ensures that the minimum subsistence level – the amount of money needed to cover essential living costs – is not subject to taxation.

In 2025, the basic allowance amounts to €12,348 for single persons and €24,696 for married couples or registered partners. Income above this threshold is subject to taxation. The allowance is automatically taken into account in the tax assessment. All taxpayers are entitled to it, regardless of whether they are employees, self-employed, retirees, students, or trainees.

The basic allowance is regularly adjusted to the minimum subsistence level, with inflation also being taken into consideration. In addition, there are other allowances such as the child allowance and the saver’s allowance, which applies specifically to investment income such as interest, dividends, or capital gains from shares and funds. (As of 2026)

Bear market

A bear market is a period of sharp price declines. There is no official threshold at which a price decline is classified as a bear market. But in the financial world, a decline of 20 percent or more is usually considered a bear market. The most severe bear markets occurred during the Global Financial Crisis (2007 - 2009), the dotcom crash (2000 - 2002) and the Great Depression of the 1930s.

Bid-ask spread

The ask price refers to the price at which someone is willing to sell a security. The bid price represents the price at which someone is willing to buy. Accordingly, the bid-ask spread refers to the difference between the bid and ask prices.

Bonus certificates

Bonus certificates allow you to achieve a positive return even if prices move sideways. A bonus certificate pays back a bonus amount at the end of the term if the price of the underlying asset has not touched or fallen below a certain barrier during the entire life of the product.

Broker

A broker - Also known as a stock broker - handles buy and sell orders. Using a broker like Scalable Broker, securities such as stocks, ETFs, commodity ETCs or even derivatives can be traded via a smartphone app or web platform.

Bull market

The opposite of the bear market is the bull market. In this market, prices rise over a long period of time. Bull markets usually last longer than bear markets. Bear markets are often more severe.

Co-investments

When investing in private equity (PE), general partners (GPs) are responsible for the investment decisions and the development of the portfolio companies. Limited partners (LPs) provide the necessary capital and pay it into a fund or limited partnership. This is the classic structure of private equity.

A co-investment is a particularly exclusive form of investment in which investors can directly invest in portfolio companies in addition to the PE fund or limited partnership. As a rule, co-investments are reserved for selected high-net-worth individuals with a corresponding relevant network. Co-investments offer more favourable conditions for access to the portfolio companies, for example they do not pay the management costs and need to give up part of the profit as in the limited partnership.

Co-investments make it possible to invest in private equity on an equal footing with other major professional investors and with the expertise of renowned private equity companies. They therefore represent an attractive and increasingly relevant form of investment alongside the traditional limited partnership.

With the help of ELTIFs, investors with smaller assets can now also gain access to co-investments. Learn more about ELTIFs in the Scalable Broker.

Cryptocurrencies

Cryptocurrencies are digital assets that are not created or guaranteed by a central bank or government agency and do not need to be tied to legal tender. Similar to central bank currencies, cryptocurrencies can be used as a medium of exchange. They are transmitted, stored and traded electronically via decentralized blockchain systems. Examples of well-known cryptocurrencies include Bitcoin (BTC), Ether (ETH), Ripple (XRP), and Litecoin (LTC).

Discount certificates

Discount certificates allow you to invest in the underlying asset at a discount to the current price. The discount enables you to achieve a positive return even if prices move sideways or fall slightly. The maximum profit, however, is limited and you forego possible dividends.

Diversification

Diversification means spreading your risk when investing money. As the saying goes: don’t put all your eggs in one basket. As a practical example, this might mean selecting assets across different asset classes and/or regions to mitigate overall portfolio risk. The result is that the loss of one investment can be, at least partially, offset by the gain of another.

Dividend

A dividend is a share of a corporation's profits that is paid out to shareholders. In this country, dividends are usually paid out annually, whereas in the USA they are quarterly. The amount of the dividend is determined at the company's general meeting.

Double taxation agreements

Double taxation agreements (DTA) are international treaties between two states that define which state has the right to tax specific types of income. Their purpose is to prevent the same income from being subject to comparable taxes multiple times for the same taxpayer.

A DTA determines whether income may be taxed in the state of residence, the source state, or-depending on the treaty-in both states using methods such as the exemption method or the credit method. Germany has entered into such agreements with many countries, and the specific provisions vary from one treaty to another. The Federal Ministry of Finance offers a complete overview online.

For investors, DTAs are particularly relevant when receiving foreign investment income such as dividends or interest. They define to what extent foreign withholding taxes can be credited against the German final withholding tax.

€STR (Euro Short-Term Rate)

The €STR (Euro Short-Term Rate) is a benchmark interest rate published by the European Central Bank (ECB) that measures the cost at which banks in the eurozone can borrow unsecured funds overnight from other financial institutions. It is based on actual transactions and offers a transparent reflection of wholesale euro unsecured overnight borrowing costs. €STR is published daily, offering a current indicator of the average interest rate level in the interbank market. This benchmark rate plays a crucial role in the pricing of various financial instruments, such as overnight deposit products, swaps, or floating rate bonds.

Early start pension (Frühstartrente)

The Early start pension (Frühstartrente) is a planned state subsidy instrument for children and adolescents and is designed to complement the reform of private retirement provision. Its aim is to build up initial capital for a capital-funded retirement provision at an early stage.

From the age of six, the state is expected to pay monthly €10 into an individual, capital-funded retirement account.

Upon reaching the age of majority, the account is intended to transition seamlessly into the tax-subsidised Retirement account (Altersvorsorgedepot). Earnings remain tax-free until retirement. The introduction of the Early start pension is planned to take effect retroactively from 1 January 2026. (Status: Key points paper, December 2025.)

ELTIF (European Long-Term Investment Fund)

An ELTIF is a type of investment fund that channels capital into long-term real-economy investments in the private market such as infrastructure projects, real estate, private credit and private equity - which concerns for instance small and medium-sized enterprises (SMEs) not listed on the stock exchange. These funds are regulated by the European Union and designed to provide investors with opportunities to invest in long-term assets that can potentially offer higher returns while they may involve higher risks and longer investment horizons.

ELTIFs are available to both retail and professional investors, although there may be minimum investment thresholds and liquidity is typically lower compared to other investment funds. ELTIFs can focus solely on infrastructure, real estate, private credit, private equity or invest in a mix of them.

ETF (Exchange Traded Fund)

ETFs are investment funds that are traded directly on a stock exchange and track the performance of an index such as the DAX or the S&P 500. There are also ETFs on bond, commodity and real estate indices. The management fee of ETFs is usually cheaper than that of classic actively managed funds. There is no upfront/entry fee when purchasing ETFs.

Exemption order

An exemption order allows investors to apply the saver’s tax allowance directly at their bank or asset manager. With an exemption order in place, the institution does not withhold final withholding tax on eligible investment income such as interest, dividends or capital gains-up to the available allowance.

Investors with accounts or portfolios at multiple institutions can divide their exemption orders across providers based on investment amounts and expected returns. Although it is also possible to reclaim withheld tax via the income tax return, this delays reinvestment and therefore potential returns.

Unused allowance amounts cannot be carried over to the next year. Exemption orders can be adjusted at any time during the year.

Factor certificates

By buying a factor certificate, you participate in the price development of an underlying asset. Your participation is not 1:1, but disproportionate depending on the factor set.

Final withholding tax

Withholding tax is applied for all German tax resident clients. Tax residents outside Germany must declare their taxes themselves. Certain taxes such as those on dividends may still be withheld by the paying institution.

Various taxes are due on investment income which arises from interest, dividends and realised capital gains. In Germany, this is done via the final withholding tax. This is a withholding tax that the paying institution (e.g. asset manager, bank, fund manager or insurance company) pays directly to the tax office. The final withholding tax in Germany is currently 25 % plus a solidarity surcharge and, if applicable, church tax.

The final withholding tax on capital gains is not due if you have issued an exemption order to the respective institution and have not yet exhausted your personal allowance which is currently 1,000 euros per year. Exemption orders can also be adjusted during the year. As at: 2023)

Fund

An investment fund is a special asset consisting of securities (e.g. shares or bonds) that are managed by an investment company for the investors. The money is invested in one or more asset classes. Since these are special assets, the fund assets are protected in the event that the investment company goes bankrupt. In such a scenario, the assets would be returned to the investors.

Guarantee certificates

Guarantee certificates, also known as capital protection certificates are structured in a way that you get your invested capital back at the end of the term. In addition, you benefit from possible price gains - but within a limited framework.

Hybrid replicating ETFs

Hybrid replicating ETFs (exchange traded funds) track their index with both physical and synthetic ETF components. In the physical ETF component, the individual securities are purchased according to their weighting in the index to be tracked. In the synthetic ETF component, the performance of the individual index values is modelled via so-called total return swaps. These are swaps in which a financial services provider guarantees the performance of the underlying index. Hybrid replication also allows some indices, such as the MSCI All Country World Index (ACWI), to be replicated much more efficiently. Due to tax advantages in US stocks, it is even possible to outperform the benchmark index. A synthetic ETF component can also be advantageous for tracking the Chinese equity market. The A-shares listed on the Shenzhen and Shanghai mainland stock exchanges in particular can often be tracked more favourably synthetically.

Index

An index is somewhat like a barometer of the stock market. It reflects the performance of a large number of securities traded on an exchange. The best-known indices are stock indices, for example the S&P 500 or the DAX. There are different types of indices such as price and performance indices. Price indices only reflect the price changes of the underlying shares. Whereas, performance indices also include dividends in the index performance. The DAX is the most prominent stock index in Germany and is a performance index consisting of the 40 most important shares on the German stock market. Indices also exist for other asset classes such as bonds or commodities.

IPO (Initial Public Offering)

An initial public offering (IPO) refers to the first sale of a company's shares to the public. Through the IPO, the company is transformed into a public limited company and gains access to capital markets in order to obtain additional financial resources for growth and expansion. The company itself decides how many shares it wants to offer for sale, and an investment bank proposes the initial share price based on expected demand.

Issuer

The term “issuer” is derived from the Latin word “emittere,” which means “to send out” or “to release”. In the field of finance and capital markets, it refers to the entity that issues securities, financial products, or comparable certificates. Companies, banks, governments, or other authorized entities may act as issuers — for example, a typical share issuance is a company’s initial public offering (IPO). By issuing securities, the issuer raises either equity or debt capital, depending on the type of issuance: if shares are issued, it constitutes an increase in equity capital; if bonds are issued, the debt capital increases.