Decoding the Stock Market: Top 10 Investment Terms & Definitions to Know
2022 brought us meme stocks, trending NFTs, inflation, increased interest rates, and now talks of a recession, with the stock market currently doing a yo-yo.
Before you can begin to comprehend the market, you must first understand the industry jargon.
You may run into terms like ‘bull market’ and ‘dividend,’ which may be familiar, but what about ‘dead cat bounce’? What does that mean?
If you’re confused, you’re not the only one. According to AHREFS, the term’ stock market’ receives over 2.4 million Google searches globally each month. Further, data reveals which related terms are causing curious investors the most confusion.
Stock market trading experts at financial services provider CMC Markets used Google search data to analyze the most baffling stock market terms to help new investors understand their meanings.
Michael Hewson, Chief Market Analyst at CMC Markets, said: “It’s not surprising that a lot of people find financial markets terminology baffling. As market professionals, we have to get used to new acronyms on a regular basis, and that’s before you take into account the ones that are in regular use. If you’re looking to hone your interest in financial markets, it’s a huge benefit if you can understand the language that gets used on a regular basis”.
In other words, intelligent investing requires some basic knowledge of the market. How else can you understand if you’re spending your money wisely or what you’re getting in return?
Top 10 Most Baffling Stock Market Terms
CMC Markets used the Ahrefs tool to research the search volume of common stock market-related terms. The below data reveals the top 10 terminologies that internet users are keen to understand. Cmcmarkets.com provides all the definitions.
Decoding the Stock Market
Let’s start with the two commonly used terms to describe the market during periods of gains and losses. Bull and Bear Market.
Bear Market is defined by a prolonged drop in asset prices, typically by 20% or more. Opposite of this is a Bull market, which refers to a period when prices rise by more than 20%.
We all want a bull market all the time. However, market dynamics and the economy often dictate otherwise. Here are the rest of the most popular stock market terms searched on the internet to fully understand and be in the know.
Top 8 Stock Market Terms Searched Each Month
With 103,000 monthly searches, ‘ETF’ is the most baffling stock-market term in the world. So, if you’re keen to find out what an ETF is, you’re in luck.
ETF stands for exchange-traded fund, which is essentially a fund that trades on stock exchanges, generally tracking a specific index. While stocks usually represent shares of one company, an ETF can consist of hundreds or thousands of diversified investments such as stocks, commodities, bonds, and other securities, known as holdings. Thus, when you purchase one share of an ETF, you get a small percentage of each asset within the fund.
The advantage of investing in ETFs is that they are often less volatile than individual stocks, and you benefit from diversifying your investments.
In second place with 95,000 searches comes another abbreviation: IPO. IPO stands for initial public offering, or 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.
With 46,000 searches, people are asking about the word ‘broker.’ In layperson’s terms, a broker is an individual or company 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. Some popular examples of online brokers include Fidelity, Vanguard, and Wells Fargo.
Another term that’s baffling internet users is ‘arbitrage .’The Cambridge dictionary defines this as ‘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.’
Then there are ADRs, which are American Depositary Receipts. ADRs are how foreign companies get listed on US stock exchanges. In other words, it allows an American investor to purchase stocks of foreign companies without dealing with foreign stock markets. Many large, international companies list their shares on US exchanges through ADRs.
Next up is dividend yield. Dividends are payouts that companies give to their investors. A dividend yield calculates that payout. You’ll often see the dividend yield listed as a ratio. This ratio is the percentage of the company’s share price paid out each year. Some investors, such as retirees, rely on dividends for their income, meaning the dividend yield of their portfolio could have a meaningful effect on their finances.
An interesting term you may never associate with the stock market is ‘to the moon,’ which refers to a rising stock price.
Finally, here’s a term that you may have never heard of, but it makes the top-ranked searches for the stock market, ‘dead cat bounce .’This phrase originates from the famous Wall Street saying, “even a dead cat will bounce if it falls from a great height. The saying refers to a temporary recovery in share prices after a substantial fall. “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.
In Summary
The stock market is an interesting universe that can make anyone money if they know what they are doing. A big part of investing successfully is paying attention to market trends and understanding the industry jargon.
These heavily searched terms are commonly used and worth knowing to invest intelligently. For anything else you’d like to know, ask the internet for help!
