Have you ever opened up the business section of a newspaper and wondered – what in Wall Street’s name are they talking about? The universal use of stock market jargon – words and phrases only insiders know – has made investing seem overwhelming and confusing. Just like trying to understand a teenager girl, if you’re not “down with the lingo” you’re in big trouble.
Wall Street jargon has the potential to be even more damaging; it promotes confusion which leads to apathy which leads to you not paying enough attention to the markets and your money.
Here is some of the more common headache-inducing stock market jargon explained:
The market is up 100 points today
When someone talks about the “the market”, they’re not talking about all 6,000+ stocks on the exchanges.
The “market” is actually represented by the 500 biggest names on the exchanges on a list known as the S&P 500. This list of stocks is also called an index, and since it represents the market, it is known as a market index.
The points refer to the price of the index. Each unit is a point. So, if the S&P 500 is at 1,200, that means it is at 1,200 points. If the S&P climbs from 1,200 to 1,300, you will hear that the “the market is up 100 points today”. So now you know!
Bulls and Bears (or bullish and bearish)
Nothing at all to do with petting zoos, sadly….
A Bull market refers to a market about which investors are confident. A Bear refers to the opposite; when investors fear the market price of stocks will go down. So when you hear something like, “I am bearish on Apple”, the speaker is probably talking about his expectation that the price of Apple will fall. Likewise, saying, “We are in the midst of a bull market”, means that the price of the S&P 500 is likely increasing.
The market is crashing or The market is rallying
These two statements are the opposite of each other, but are both used frequently. When you hear that the market is crashing, it doesn’t mean that the sky is falling – it merely means that people are selling off their stocks. In a crash, people sell their stocks rapidly fearing that a bear market (see above) is coming. Because everyone sells off their stocks quickly, prices drop, causing a “crash”.
But markets swing, and unlike gravity, what goes down usually comes up. As investors feel the market turn (read: bull market), they start buying stocks again. The rapid buying causes stock prices to climb. The climb back up is also know as rallying.
What is Market Timing? Obviously, it has to do with both time and the market, but what else? It is actually a trading strategy that attempts to buy and sell stocks by (trying to) predict what their future prices will be. You’ve heard of buy low, sell high - a market timer tries buy when the market is at it’s lowest point, and sell when it’s at its highest.
No, we don’t mean the problem that you might be having with your dog (or cat). A tick is a movement in a stock’s price. The reason it is called a tick is because in the old days, stock market data used to come through a “ticker” machine that punched holes in paper to represent the price, and made a “ticking” noise. Confusing? Don’t worry – they ditched that practice long ago. Basically, a price lower than the previous price is known as a down-tick, and a price higher is known as an up-tick.
Head over to the Wallstreetsurvivor.com quote page for Bank of America. Look at the price, you can literally see up-ticks in blue and down-ticks in red. Pretty awesome!
Double-Dips don’t only refer to hilarious party fouls. It refers to an economy heading back into a recession just as it has begun recovering from one. A recession following a recession without at least 6 months of a proper recovery (and since we’d be hypocrites to use jargon in a demystification article – a recession is basically an extended down period in the economy).
Paper-trading refers to trading with fake or play money. Wallstreetsurvivor.com is (the best) example of a paper-trading system! As a beginner, paper-trading allows you to build the confidence to test out the stock market for both basic trades as well as those potentially million dollar ones. Either way, it is a good idea to paper trade before risking your hard-earned money in the markets.
Quantitative Easing will bolster the economy
Fancy words. But you could easily rephrase this sentence to read “Governments create and dump new money into the financial markets to push them up.” It inadvertently increases stock market activity while providing more money for people to spend. But, keep in mind, this solution is like a band-aid. It is temporary, so don’t get to carried away thinking that everything is back to normal.
Analysts raise outlook for company
Analysts are great with their predictions…when they’re right, that is. Financial Analysts are people that work in financial companies, whose sole job is to find out everything they can about a company, and to make buy/sell recommendations to investors. So when analysts raise their outlook for a company, they expect the company to make more money than expected. If they are right, they are paid very well. If they are wrong, they are paid very well.
Be careful and do your own research into the stock. Do not make trades based solely on analyst expectations. Why? Analysts often have to give a buy or sell recommendation on a company that is paying them for other services. Which recommendation would you choose if you were them?
This is just a bit of the financial jargon out there. The trick is not to get intimidated by it, but rather to call it out and simplify it. Ask someone if you can’t figure it out yourself (or better yet, use the comments section below to ask us!). The only way to make money in the stock market is by understanding what you are dealing with. Jargon might sound cool, but if not understood, can be very costly.