Stock market investing can be a risky venture, but it offers an excellent opportunity to accumulate wealth. If you’re learning about the stock market, the lack of knowledge on pursuing such investment can make this venture seem intimidating. This article shares some common terms that will help ward off any fear you may have about investing.
Bear Market
A bear market refers to a period where the stock prices have fallen by more than 20%. This is also a time when investing can be risky. Some of the common causes of a bear market include investor uncertainty or fear. The coronavirus pandemic caused the most recent bear market, but other historical reasons include over-leveraged investing, presidential election, oil price movements, and irresponsible lending.
While investing in a bear market is a risky move, there are plenty of approaches you can take to manage the risks. For instance, you need to focus on your investments in companies with a durable competitive advantage and solid balance sheet. You should also invest in the stocks that you plan to own for a long time and don’t sell them because of their low prices in a bear market.
Blue Chip Stocks
This refers to the stocks of an established company with a reputation for excellent financial performance. They can also overcome tough market conditions and have great returns in great market conditions. Most of these stocks cost high and are mostly leaders in their industries. These stocks are also part of a major stock index like the NASDAQ 100, Dow Jones Industrial Average, and the S&P 500.
Insider Trading
Insider trading is where a public company’s stock is traded by someone based on information that’s not publicly available. Investor trading can either be legal or legal based on when an insider makes the trade. It’s important to note that insiders are allowed to sell or buy shares of a company and the subsidiaries that employ them. However, such transactions need the approval of the securities and exchange commission.
An example of legal insider trades is when employees buy stock of the firm they work for or when a CEO buys back shares of their company. Illegal insider trading is using information that’s not supposed to be public information for profit. An example is a CEO who discloses a company’s quarterly earnings to a friend or hairdresser who later trades based on the news.
A Bull Market
This is a condition where the financial market gradually rises over a fixed period. In the case of Wall Street stocks like the NASDAQ or the New York Stock Exchange, a bull market signifies a rise in stock prices. However, a bull market is still applicable to different financial markets such as bond prices and real estate prices.
Different aspects characterize a bull market. The typical sign is the lowering of interest rates by the United States Federal Reserve. Another sign of a bull market is when investors make a bold investment move like pumping money to help it grow.
Day Trading
This is a situation where investors open and close their positions within the same day. This is a short-term trading tactic that traders employ to profit from the fluctuation in prices within the day. Remember that most day traders operate differently than investors because they primarily focus on an asset price action than its potential in the long term. This is the reason why they have to update themselves on the causes of market fluctuations constantly.
Short Selling
This is an investment strategy that speculates a decline in the decline of security price or stock. It’s worth noting that this is an advanced strategy that experienced investors and traders should only attempt. Most investors and portfolio managers employ short selling as a hedge in case of a downside risk of a long-term position in the same security.
Volatility
Volatility refers to a situation where security prices decrease or increase for a particular set of returns. You can measure volatility by calculating the standard deviation of the annual returns within a set time. Marker volatility is usually associated with risk, and without it, investors would hardly have the same opportunities to sell high or buy low.
While most people are afraid to venture into the world of investing because of the jargon, this guide has highlighted a few basic terms to ease your understanding of the world of investment.
