Have you ever listened to a podcast or read an article about investing and wondered why we use the words we do? Don’t worry, you’re not alone. I am Googling words or phrases to keep up with the stock market language. Sometimes, it feels like investing in a different language. But don’t worry; there’s no shame in not knowing what certain words or phrases mean. Especially if you’re new!
Why do many words and phrases we hear seem to be from a different era? Because they are! The U.S. stock markets date back to the nineteenth century. It’s not surprising that some of the terminologies that we still use today seem out of touch. So, if you’re new to investing or want a refresher, I will explain some of the more unique terms used in the stock markets.
Table of Contents
Stock Market Language Sentiment
We begin with some more commonly used stock market language to describe sentiment. And the overall behavior of the markets. These are words you’ll likely hear daily in the investing world. So it’s probably a good idea to get to know them.
1. Bulls and Bears
These are the two most commonly used words to describe market sentiment. A bull is a trader who believes the market will rise. A bear is a trader who believes the market will decline.
But where did these terms come from? Bulls and bears have long been believed to be used because of how they attack a foe. A bull thrusts its horns upwards, while a bear swings its paws downward.
We have used the same terms for hundreds of years. And still label any change in stock patterns as bullish or bearish. We can understand exactly how an asset or market has traded with just one word.
2. Blue-Chip Stock
Blue-chip is used to describe high-priced stocks of well-established, foundational companies. The Dow Jones Industrial Average is often called the Blue-chip stock index because of the high number of elite and high-performance stocks.
But where does the term derive from? It is a gambling adage with a tip of the cap to poker chips, which traditionally come in red, white, and blue. As you can imagine, blue chips are the most valuable, so we use blue-chip stock to describe stocks with high market caps and prices.
3. Initial Public Offering
Often referred to as IPOs, this is a stock market language used when a company begins to trade on the public markets. When a stock goes public, it provides an initial public offering to investors to buy shares as they hit the market. IPOs have generally been like the shiny new toy for investors. Research has shown that stock prices rise significantly following an IPO. This is because investors are enamored with the new stock and buy up shares at what is believed to be a low price. Companies go public in other ways, including direct listings and SPAC mergers.
4. Short-Selling
Here is some stock market language that’s been a hot topic this year. Short selling has become a trading strategy with a negative connotation. A short seller isn’t cheering for a company to go bankrupt, but a short position profits when the stock price falls. Short selling is usually seen as a bearish outlook on the stock. Most short sellers are institutional investors, like the hedge funds that Redditors squeezed in stocks like GameStop (NYSE: GME) and AMC (NYSE: AMC).
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Stock Market Language Terms
There are countless stock market language terms and phrases that we use when we’re actually trading as well. Before you head to the stock market to execute some trades, check out these widely used terms.
1. Pump and Dump
One of the most malicious actions on the stock market. A pump and dump scheme is when a trader, usually a public figure or someone with a lot of power, pumps up a certain asset so the price rises. As the price hits the top, the pumper will sell those shares just as others buy-in. This creates a tidy profit for the pumper, although those who follow them will likely lose. Pump-and-dump schemes are often seen with penny stocks and cryptocurrencies. Remember this stock market language!
2. Strike Price
For options traders, the strike price refers to the price at which the contract is bought or sold. If you’re buying a call option, the strike price is the price you think the stock will be at or higher than in the future. The strike price is generally only used for trading derivatives like options. But a popular options contract strike price can indicate where investors believe the price will move to by a certain date.
3. Options Expiry or OPEX
The jury is still out on how volatile OPEX weeks are. OPEX week is the third week of every month and is the week when options contracts expire. Forward-looking options chains usually only offer OPEX weeks to start as expiry dates for the contract. It’s widely believed that market makers try to pin stock prices above and below a popular call option strike price.
Taking it one step further, quadruple-witching or quad-witch dates are the days of the year when stock index futures, stock index options, stock options, and single stock futures all expire on the same day. Quad-witching days happen four times per year, once in each quarter.
4. Market Cap
The market cap is the company’s perceived value in terms of outstanding shares. The formula for calculating a company’s market cap is multiplying the number of shares outstanding by the stock price. Since it does not consider assets or debt, the market cap is a crude calculation of what the public market believes the company is worth.
5. Moving Averages
You will see a lot written about the moving averages of the stock. The moving average calculates the stock price over a set period. Trading above or below the moving averages can indicate whether sentiment for the stock is bullish or bearish. Common moving averages to use are 21-day, 50-day, and 200-day. In technical analysis, you will hear about these a lot, as stock prices generally follow these moving averages as strong support and resistance levels.
6. Support and Resistance
In another technical analysis term, the support and resistance levels are seen on a stock’s support at the lower end or bottom of the stock’s price levels. Resistance is the higher end or top of the stock’s price levels. Support is generally good and means that the stock, generally the stock course, meets a resistance level, which stops a stock from continuing higher.
Final Thoughts: Stock Market Language
As you can probably tell, the stock market is rife with unique terms and industry-specific phrases. Learning these terms can go a long way in helping you understand what people are talking about! These words can also help in general market analysis and individual stock analysis. Before you dive headfirst into trading stocks, make sure you familiarize yourself and learn the language of the stock market!
