If you’ve ever been a newcomer to a specific niche, you’ll know how difficult it can be when people use specific jargon that only belongs to that particular group. The same applies to investing terms, which can be challenging to understand as a novice investor. So, today, we’re going to help you decode some of the financial terms that have been recognized by an online trading firm as the most confusing. We’ll keep it simple, so you don’t have to put your investing journey on hold.
The Background: Investing interest tends to rise and fall as the stock market and other assets fluctuate. In the past two years, the pandemic and its impacts, such as the huge market slump that followed, caused a surge in sign-ups for new brokerage accounts among retail investors. Many of them were trying to buy the dip in stocks and later rushed into chasing “meme stocks” like AMC and GME as they attempted to find ways to maximize their returns. However, the recent bear market has caused a decline in investing activity.
Whether you are already a new investor or plan to become one in the future, you’ll likely encounter a plethora of terms you are unfamiliar with, and CMC Markets, a UK-based trading company, has analyzed search data on frequently searched stock market terms to help new investors understand their meanings. Below is a list of the 15 most baffling investment terms:
Here’s a brief summary of each term, along with a simplified explanation:
15. Margin Account: A margin account allows you to borrow money from your broker-dealer to purchase additional securities. Although this gives you more purchasing power, remember that your account funds are collateral, and this could lead to significant losses if your investments decline. Furthermore, you must pay interest to the broker-dealer while you’re borrowing.
14. Day Trading: This term describes the act of buying and selling shares of the same stock within the same day, hoping to profit from price fluctuations that occur throughout the day.
13. Whales: This term is used to describe investors with enough money or power to manipulate the market’s price. These individuals usually make massive investments, which cause a significant impact on the market.
12. Averaging Down: Averaging down is a strategy that involves buying a more considerable amount of shares after their price declines. This results in a lower average cost-per-share, albeit with increased risk.
11. Tanking: This word is used when a stock price drops significantly, or when a portfolio loses its value.
10. Dead Cat Bounce: This refers to a temporary recovery in the stock price, which occurs after the stock has declined significantly. The “dead cat” part of the term comes from the phrase “even a dead cat will bounce if it falls from a great height.”
9. Dividend Yield: Dividend Yield is a financial ratio that represents the dividend income earned by an investor in proportion to the value of his or her investment.
8. To The Moon: This phrase means that the price of an asset is rising continuously.
7. Bull Market: A bull market is a period of rising prices in a particular