Help your clients work through the jargon
Those working in the financial industry have to deal with a lot of investment terms, but Google has recently flagged the 15 most baffling stock market terms that people search most – and it’s an interesting array with ETF as the headliner.
ETF: ETF stands for exchange-traded fund, which is a fund that trades on exchanges and usually tracks a specific index. While stocks are just one instrument, an ETF consists of diversified investments such as stocks, commodities, bonds, and other securities, which are known as holdings. ETFs are often less volatile than individual stocks, meaning the investment shouldn’t swing in value as much, however, there is still a risk in losing value.
IPO: IPO stands for initial public offering. This is when a private company becomes public by selling its shares on a stock exchange. Companies often issue an IPO to raise capital to fund growth initiatives, raise their public profile, or pay off debts.
Broker: A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange. Brokers facilitate trades between individuals or companies and may provide investors with research, investment plans, and market intelligence.
Read More: 7 basic investment types for first-time investors | Wealth Professional
Arbitrage: The Cambridge dictionary says it is a stock exchange method to buy something in one place and sell it in another place at the same time in order to make a profit from the difference in price in the two places.
ADR: ADRs are American depositary receipts for foreign companies that are listed on U.S. stock exchanges. An ADR is a form of equity security, offering investors the opportunity to gain investment exposure to non-U.S. stocks without the complex task of dealing with foreign stock markets. Many large companies based outside of the U.S. list their shares on U.S. exchanges by using ADRs.
Bear Market: This is a prolonged drop in asset prices. Typically, a bear market happens when a broad market index falls by 20% or more from its most recent high. It’s believed that the term originates with pioneer bearskin traders. As the traders hoped to buy the fur from trappers at a lower price than what they'd sold it for, ‘bears’ became associated with a declining market.
Bull Market: A bull market is the opposite of a bear market. Bull market refers to a period of time when the price of an asset or security rises continuously by 20% after two declines of 20% each.
To The Moon: Stock or cryptocurrency traders say this when an asset’s price keeps growing.
Dividend Yield: This is a financial ratio that indicates the percentage of a company’s share price that it pays out in dividends each year. Some investors, such as those who are retired, rely on dividends for their income, so their portfolio’s dividend yield could significantly impact their personal finances.
Dead Cat Bounce: This is a temporary recovery in share prices after a substantial fall, caused by speculators buying in order to cover their positions. It comes from the famous Wall Street phrase, even a dead cat will bounce if it falls from a great height, and now applies to any case where there’s a brief resurgence following a severe decline. It can also be called a sucker rally.
Tanking: This typically means that a stock has encountered a poor quarterly performance, leading to a price decline shortly after. If someone’s assets are ‘tanking’, they’re not doing well right now.
Averaging down: This is when investors’ investment decisions go against them. It involves buying more shares after they fall in price, lowering the average cost of all the shares held, as the investors try to add value to their portfolio.
Whales: This is a nickname given to investors who have the potential to manipulate the market. A whale can be an individual or company with enough money or power to influence a stock’s price. These individuals usually make huge investments, with their actions causing a huge splash.
Read More: Are you following the smart or dumb money on the stock market? | Wealth Professional
Day Trading: This is a strategy that involves buying and selling shares of stocks within the same day with the intent of profiting from price movements. A day trader, for example, may open a new position of a stock at 9 a.m., then close that position at 2 p.m. They rarely hold positions overnight.
Margin Account: A margin account involves borrowing funds from a broker-dealer to buy securities, using the account as collateral. The investor will also be required to pay a periodic interest rate to the broker. A margin account can increase an investor’s purchasing power, but it can also expose them to greater losses.