Financial market jargon may be intimidating for those unfamiliar with its intricacies, yet understanding it will enable you to become an informed investor and increase your success as an investor.
Some of the most frequently used terms in stock trading include public float and blue chip. Other significant terms include initial public offering (IPO), leveraged buyout (LBO), and yield. Discover these and more in this article!
Bull Market
Financial markets can be complex environments, with numerous terms used by professionals and reported on in the media to describe investments and markets; two that you are likely to hear most frequently being bull and bear markets.
Bull markets refer to periods when stock prices and market sentiment increase significantly, usually as measured by major indexes but can also apply to individual securities.
No consensus has yet been reached on why “bull” and “bear” became synonymous with markets, although some believe their usage relates to how these animals attack their opponents: bulls thrust up their horns while bears swipe downward.
Bear Market
No one has agreed on an explanation for why we refer to “bull” and “bear,” though some think they come from how these two animals attack; bulls thrust their horns upward while bears swipe downward with their claws. Whatever their origin, these animal-themed investment terms have become part of market language.
Bear markets occur when stock prices and investor sentiment decline significantly, often as a result of factors like changing interest rates, global events or other influences.
Investors can secure their investments by diversifying into more secure assets like bonds, cash, gold or real estate and decreasing exposure to riskier asset holdings like growth stocks. Dividend-paying stocks or government bonds that provide steady payments over an extended period are another good way of protecting one’s investments – compare brokers using NerdWallet ratings of account fees/minimums/investment options/support for easy comparison.
IPO
An Initial Public Offering, or IPO, marks the initial public sale of shares for a company by engaging the Securities and Exchange Commission and major stock exchanges in this process. Companies must meet strict criteria before going public and work with investment banks known as underwriters – these banks then sell the most shares through lead underwriters who receive both gross spread and concession fees as part of their fees for providing underwriting discounting services.
Once an IPO is in the works, companies will issue a prospectus listing share prices and its initial public offering date. Investors can then apply for shares and the company will confirm allocations; if oversubscription occurs then your application may be altered and may only get some or none at all.
Annual Report
Public companies must publish an annual report which provides comprehensive financial data from one year, as well as shareholder updates and analysis from management. It must comply with laws concerning public firms; often it can be found posted online in an investor section on their company website.
As an investor, it’s crucial that you fully comprehend the contents of an annual report. Doing so allows for accurate comparisons when investing. The Financial Highlights section typically serves as the gateway into an annual report’s contents; providing an overview of a company’s finances from year past.
An annual report will also include two other key sections, including ‘Management Statement and Discussion and Analysis. These documents provide you with more insight into your business’s performance and future goals.
Arbitrage
Arbitrage is an often-heard term in finance circles, yet many investors remain unclear of its meaning. Simply put, arbitrage involves simultaneously purchasing and selling substantially identical assets across markets to take advantage of minor price differences in order to make risk-free profits.
Arbitrage trades help improve market efficiency by narrowing price differentials between markets. Quick-thinking traders can purchase such an item in one market before selling it in another for profit – improving overall efficiency by narrowing differences in pricing between two marketplaces.
Arbitrage trading also takes on more intricate forms, such as “risk” or merger arbitrage. This involves purchasing stock in an organization suspected to be acquired or merged and anticipating that its price will increase after acquisition or merger.
