The world of investing can be exciting, complex, and downright daunting at first. It is full of insider jargon that may overwhelm beginners looking to start their investment journey. While whales, swans, and unicorns are not intuitive terms to associate with business, the truth is rather colourful. Knowing such basic jargon is essential to navigating the landscape and making informed decisions.
We will go over some of the most widely used investment terms so that you gain confidence in understanding financial contexts and the jestful insider slang. By the end of it, you will be much better equipped to keep up with finance news, community posts, and what is behind all the viral investment memes.
Bulls
A bull market refers to a positive cycle of growth. Being described as a bull or feeling bullish is synonymous with being optimistic about a specific investment. It is believed that the term may be based on how a bull tosses its foes upward with its horns, but there is no clarity on the origin.
Bears
A bear market, or feeling bearish, is the opposite of a bullish notion. A bearish trend is used to explain a downtrend in a market, feeling pessimistic about a stock, or progress generally being sluggish and slow to develop.
To The Moon
“To the moon” is a widely used catchphrase when an asset price leaps or is about to rapidly rise in value and volume. It is especially popular to use on social media when expressing hope for a soaring valuation on an investment.
HODL / Diamond Hands
HODL, or “Hold On for Dear Life,” refers to an investment strategy where one does not sell their assets, even in the midst of extreme price fluctuations. Diamond hands refers to a similar sentiment of having a high risk tolerance—an investor who will not panic and sell assets during vast fluctuations in price.
Meme Stock
Meme stocks are referred to as shares of companies that are actively traded by a group of dedicated online investors. Such stocks would not necessarily be of value without their cult followings. GameStop is considered to be the first meme stock, but nowadays entire ETFs and indexes are dedicated to meme stocks.
Black Swan
A black swan event is an extremely rare and unforeseen happening that has severe negative consequences. It often is difficult to avoid such events, and they cause significant economic damage. Black swans are hard to predict, while in hindsight, they may appear inevitable.
Unicorn
In business, a unicorn is considered a privately held startup company that is valued at over $1 billion. This makes unicorns quite rare. Often, such companies are innovators in their field.
Whale
Whales are companies or individuals that have enough financial power to influence the prices of stocks or cryptocurrencies. The term often has a negative connotation because whales are usually associated with market manipulators who buy up positions and limit orders to drive up the price.
Shark
Shark investors aim to capitalise on the advantages that small players have in the market. They use their size, aggressiveness, and rapidity of execution to outmanoeuvre the whales of investing.
Tiger
A tiger economy originally described a number of growing economies located in Southeast Asia: South Korea, Singapore, Taiwan, and Hong Kong. Nowadays, the term tiger economy has expanded to describe any small, outperforming market with fast growth.
Diversification
Diversification is a practice where one spreads their investments across numerous assets and asset classes to help reduce the volatility of one’s portfolio.
Dividends
Dividends are a portion of a company’s earnings or reserves that are regularly distributed among its shareholders. It is a reward for having invested in the company.
Asset
An asset is something of value, such as a property, possession, or digital item. Assets can be owned by companies or individuals and are regarded as being able to meet commitments, legacies, and debts.
Systematic Trading
Systematic trading is also known as automated or algorithmic trading. This method involves relying on pre-defined trading rules and mathematical models. Such an approach minimises human bias and emotion, therefore achieving a more objective decision-making process.
ETF
Exchange-traded funds (ETFs) are SEC-registered companies that offer investors the option to pool their money into a fund. This fund then invests in assets, stocks, and bonds, in return paying investors interest.
Compound Interest
Compound interest is referred to interest that is being earned on an initial interest. Say you make an investment that earns you a specific rate of return. Depending on the interest received, it will multiply year over year. 12% compounded monthly equals 1% (12% / 12).
Stocks
A stock gives investors the opportunity to take fractional ownership of a company. It is a security that represents a little piece of a particular company, usually bought when an investor thinks it will rise in value.
Short Selling
Short selling is a transaction where an investor borrows securities and sells them on the open market while anticipating a decline in price. This is done with the intention of later buying back the stocks at a lower value in order to give back the borrowed shares.
Short and Long Squeeze
A short squeeze occurs when many investors place bets that a stock will lose value, but it shoots up instead. This quickens the rise of a stock price because short sellers have to bail out of their positions to cut their losses. A long squeeze happens when the sale of an asset incites further selling, thereby adding fuel to a cycle that results in a huge price drop.
Pump and Dump
A pump and dump scheme is a nefarious operation where fraudsters build hype around a project by spreading misleading information. This creates a frenzy of buying, “pumping” stock prices up. The fraudsters then “dump” their shares of the stock by selling them at an inflated price.
Blue Chip
Blue chip companies are mostly industry leaders which are deemed valuable and reliable investments due to their long track record of stability. Buying blue chip stocks is considered a low-risk investment.
Liquidity
Liquidity refers to the ease or efficiency with which a security or asset can be turned into cash to cover liabilities or pay short-term expenses. It also applies to the ease of acquiring cash, or getting a bank loan.
Hedging
Hedging is an investment management strategy that aims to minimise risk by offsetting potential losses by acquiring opposite positions in related assets. Reducing risk usually also means reducing one’s potential profits. Hedging also requires investors to pay a premium for the protection.
Securities
Securities is a general term to describe financial instruments that hold value. These can be bonds, debentures, stocks, funds, and other types of assets one can buy or sell.
Arbitrage
Arbitrage stands for taking advantage of value differences in different markets. If a security is differently priced in two markets, traders can exploit the price difference by obtaining assets in the cheaper market and selling them in the other for a profit.
Derivatives
Derivatives refer to a specific financial contract made between two or more parties. Its value depends on an agreed upon benchmark, underlying asset, or group of securities. The price of derivatives can fluctuate depending on the determined benchmarks. Such contracts are often used as leverage instruments, increasing potential risk as well as rewards.
Options Trading
Options trading is a contract where one agrees to give the holder of an asset the choice to buy or sell a set of underlying securities at a given price, on a specific date. An investor can choose to buy or sell it but does not have to.
Margin Trading
Margin trading enables a trader to borrow money from a broker without having to put up the value of a trade. This can greatly increase the profits as well as the potential losses of the trader.
Futures
Futures refer to a derivative financial contract where the buyer is obligated to purchase an agreed upon asset, or the seller to sell it. The contract is set at a predetermined future date and an agreed upon price. It must be fulfilled regardless of what the current market price is.
In conclusion, now that you’re equipped with the essential investment terms and insider jargon, you’re ready to confidently dive deeper into the world of finance. While the investment realm can be serious, the communities surrounding it add a dash of humour that makes the journey all the more vibrant. Happy investing, and may all your trades lead you “to the moon”!
