Have you ever wondered what TV news reporters talk about regarding the stock market on their channels? Or ever felt confused with the words mentioned in Newspaper Journal explaining market scenarios? For the longest time, this jargon has limited the scope of stock market understanding to the general public because of the technicality it brings.
Wall Street Jargon has more potential and damaging effects when it comes to managing your own money by directly investing in markets. Therefore, this blog will help you crack the jargon created by market pundits to combat this technicality and demystify the stock market.
Here is some of the more common head-scratching stock market jargon explained:
The market is up 200 points today!
When you hear someone saying, “market is up by 200 points”, they don’t refer to all the companies listed in the stock market. Although the market consists of +5000 companies listed there, the market is represented by a bunch of top selected companies only based on their market capitalisation.
For example, the ‘Indian Stock Market’ is actually represented by the 50 most prominent names on the exchanges on a list known as the Nifty 50. US Stock market at the same time is represented by top 500 companies under market Index known as S&P 500.
So next time you hear someone saying that the market is up by 200 points or 250 points, then remember that they are only talking about the Index of the biggest companies out there in the market.
A question can come as to why select only the top 50 or 500 companies to represent the whole market? The answer is straightforward, these top 50 or 500 companies constitute the maximum market share in a stock market. So bottom companies comparably don’t create much impact on their own.
Another most complicated jargon that creates havoc amongst newbies is market capitalisation. When a new anchor says that the market capitalisation of Google has crossed the $1.7 trillion mark, they are trying to say that the free-float market value of Google is now over \$1.7 trillion. If someone is willing to purchase Google from the market, it will cost \$1.7 trillion.
The market capitalisation of a listed company is calculated by multiplying the number of shares available in the market by the company’s current market price.
Since the company’s market price keeps changing daily, market capitalisation also changes.
Bulls and Bears
The two leading players in the stock market are the Bulls and Bears.
Bulls refer to those categories of traders and investors who are optimistic and confident and want the market to go up in value. A Bear refers to the opposite of Bulls. These traders and investors are pessimistic and fearful and want the market to go down in value.
In another way, we can say that Bulls reflect the buying side of the market and Bears reflect the selling side of the market. When the Bulls take charge over the Bears, then the market starts to go up and vice versa.
So, when you hear something like, “I am bearish on Google”, the person is talking about his pessimistic expectation that the price of Google will fall. Likewise, saying, “we have a bull market run”, means that the market price has started increasing lately.
Market timing simply means buying low and selling high strategy.
Every investor or trader uses the stock market platform to generate some return from the money they put in, and the only way to make money is by buying stocks at a lower price and selling it subsequently at a higher price. The art of ‘buying at low and selling at a high price’ is market timing.
Market Crashing Vs Correction In The Market
In the world of the Stock Market, whenever there is an unexpected drop in stock prices which may bring an extended run of the bear market, we say that market has crashed. When the market crash, you will find all over the place a pessimistic sentiment. The market crashes are typically due to a severe economic downturn or financial scam.
Whereas, Correction in the market simply means that traders and investors have started booking profits after a long bull run. This creates a downfall in stock prices due to the high supply of shares compared to their demand. At the time of both market crash and market correction, prices of stocks go down, but in the case of the market correction, severity is very low.
A Ticker Symbol is an arrangement of letters assigned to stock for trading purposes.
You can think of the ticker symbol as a shorthand way of showing a company stock. If you see stocks traded on New York Stock Exchange (NYSE), you will find four or fewer characters, whereas, on Nasdaq, you will find listed stocks with up to five characters. Ticker symbols are also known as stock symbols.
For example, the Ticker Symbol of Berkshire Hathaway Class A stock is BRK.A and BRK.B for Class B stock.
BlueChip stock refers to a category of stocks that are high class amongst other stocks in terms of market capitalisation.
These stocks are mainly categorised under the top 100 stocks. They bring the highest level of safety of money invested in the stock market.
Investors who are willing to participate in the stock market and at the same time want a high level of safety of principal money should invest in bluechip stocks. Google, Microsoft, Berkshire Hathaway, Amazon, Mastercard, Visa, Verizon, etc., are examples of Bluechip stocks.
It refers to the fluctuations in the price of an equity share.
Fluctuation happens due to the demand and supply of stocks. High volatile stocks are considered riskier as compared to low volatile stocks. You will often find that bluechip stocks are less volatile and penny stocks are more volatile. An investor always tries to look for stocks that bring less volatility, whereas a trader enjoys high volatility.
Remember, these are just a few jargons that have been explained here, which are considered as most vital jargon to understand before moving into the stock market. After all, it is better to invest money after getting thorough with technicalities than to feel sorry afterwards.