'ETF,' 'IPO,' 'To the Moon': These Are the Top 15 Investment Terms Confusing the Internet
These days, there’s really no excuse not to know the most basic words used in financial language. It’s always a good idea to familiarize yourself with business or investment jargon just in case you find yourself caught in a conversation where terms like “ETF” or “arbitrage” are thrown around. Of course, it’s also to expand your own personal knowledge.
If you’re completely clueless when it comes to industry jargon, here’s a good place to start. Stock market trading experts at financial services provider CMC Markets used Google search data to analyze the most common terms used in trading in the stock market to help budding investors understand their meanings.
In a list of 50 of the most popular words and phrases related to investing in the stock market, CMC Markets came up with the top 15 and provided concise definitions for each of them.
With 103,000 monthly searches, "ETF" seems to be the most baffling stock-market term in the world. Here’s what it means, along with the rest of the top 15 most searched investment terms worldwide. (All definitions are provided by CMCMarkets.com):
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"ETF" stands for exchange-traded fund, which is essentially a fund that trades on exchanges, generally tracking 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 your investment shouldn’t swing in value as much. However, there is still a risk in loss of value.
In second place with 95,000 searches is IPO, which 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 to pay off debts.
With 46,000 searches, people seem to be confused about what a ‘broker’ actually does. In laymen’s terms, a broker is an individual or firm that acts as a middleman between an investor and a securities exchange. They facilitate trades between individuals or companies and may provide investors with research, investment plans, and market intelligence.
According to the Cambridge dictionary, ‘arbitrage’ is “the method on the stock exchange of buying something in one place and selling it in another place at the same time, in order to make a profit from the difference in price in the two places.”
ADRs are simply American depositary receipts for foreign companies that are listed on U.S. stock exchanges. An ADR is a form of equity security, offering US investors the opportunity to gain investment exposure to non-US stocks without the complex task of dealing with foreign stock markets. Many large companies based outside of the US list their shares on US exchanges through the use of ADRs.
6| Bear Market
Another term that’s proving to be popular is ‘bear market,’ which is defined by a prolonged drop in asset prices. Typically, a bear market happens when a broad market index falls by 20 percent 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.
7| Bull Market
Meanwhile, bull market is the opposing term to bear market. Bull market refers to a period of time when the price of an asset or security rises continuously by 20 percent after two declines of 20 percent each.
8| To The Moon
Often used by stocks and cryptocurrency traders, the phrase “to the moon” essentially means the price of an asset is continuously growing or on an upward trajectory.
9| Dividend Yield
The dividend yield is a financial ratio that tells you 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, meaning the dividend yield of their portfolio could have a meaningful effect on their personal finances.
10| Dead Cat Bounce
This phrase gets around 3,200 searches each month. The saying refers to a temporary recovery in share prices after a substantial fall caused by speculators buying in order to cover their positions. Derived from the famous Wall Street phrase "even a dead cat will bounce if it falls from a great height", dead cat bounce is now applied to any case where there’s a brief resurgence following a severe decline. You may also hear this referred to as a “Sucker Rally.”
When you hear the phrase “tanking” or “in the tank,” this typically means that a stock has encountered a poor quarterly performance, leading to a price decline shortly after. If someone says their assets are “tanking,” it means they aren’t doing great right now.
12| Averaging down
There is a common strategy called “averaging down” which investors use when their investment decisions go against them. It involves buying more shares after they fall in price, lowering the average cost of all the shares held, in the effort to add value to their portfolio.
While whales are usually found in the ocean, when it comes to stocks, the term “whale” 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 the price of a stock. These individuals usually make huge investments, with their actions causing a huge “splash.”
14| Day Trading
“Day trading” is a strategy that involves buying and selling shares of stocks within the same day with the intent of profiting from price movements. For example, a day trader may open a new position of a stock at 9 a.m., then close that same position at 2 p.m. These traders rarely hold positions overnight.
15| Margin Account
A margin account involves borrowing funds from your broker-dealer to purchase securities, using the account as collateral. You will also be required to pay a periodic interest rate to the broker. A margin account can increase your purchasing power but it can also expose you to greater losses.