- Tausif Mulla
Breaking down the 12 most common financial terms for non-finance people
The Language of Wall Street is a different language than the one spoken on the main street. Much like how people who work in medicine speak their own language, stock analysts, traders, and investors also have their own special lingo. The terms and acronyms used in fiance can be confusing for beginners, but that's what this article is all about: explaining the key lingo used by those working in the financial sector.
This blog post will explain the 10 most popular terms used by traders and investors on wall street.
Bull market or being bullish means that you are expecting higher stock market prices in anticipation of future events or economic news. You can expect prices to go up after it has gone down. Usually, the term bullish is used when referring to markets as opposed to individual stocks.
Bear market or bearish refers to the mindset that prices will go down after they've gone up in anticipation of future events or economic news. A bear market refers to the stock market moving downwards for an extended period of time. The opposite of a bull market is generally defined as when securities are selling at prices that are lower than their previous highs or lows.
3) "Buy the rumor, Sell the news"
Buy the rumor, sell the news is an expression that means to take advantage of market volatility by buying stocks or other securities when rumors are strong but selling them after you hear the official news.
The expression buy the rumor and sell the news was first used in connection with stock trading in 1929. The Wall Street Crash of 1929 resulted in a "buy low, sell high" mentality which would have been contrary to this trend. It's difficult to know exactly who coined it or when they did so because people could have said it before 1929 for all we know. When you buy the rumor and then sell the news, you're taking advantage of market volatility by doing two things:
Buying stocks or other securities when rumors are strong
Selling them after you hear the official news.
One of our favorite examples is from 2010 when rumors were strong that Apple was going to launch a tablet computer. The rumor was already gaining momentum as more and more analysts began to talk about it until Apple finally unveiled the iPad in January of 2010.
The term headwind is used to describe conditions that impede or inhibit progress and shares the same meaning for impacts on economies, industries, individual companies. Factors leading towards a decrease in value like high-interest rates could cause an economic recession while positive factors such as lower business costs due to the increased competition may result in share price growth (or vice versa).
One of the biggest challenges that are faced in the stock market is trying to know when a bull market turns to a bear market. In general, people buy stocks when they are bullish and sell them when they are bearish. If you have been tracking the market for a while, you'll notice that sometimes it can be difficult knowing what phase things are in.
In some cases, you may think that things might be going up and then something happens and the trend starts going down again. All of this is brought on by 'headwinds'; it comes from all different places and can affect how the markets change direction. For example, some people believe that there might be political headwinds if someone like US and China.
A tailwind in finance refers to a situation or condition that may lead to higher profits, revenue, and growth. A nautical term used by aviation professionals for this phenomenon is "tailwind." Tailwinds are particularly helpful when you're trying to fly faster because it helps move your plane's rear end up front where all of its power can do some good.
Source: Corporate Finance Institute
Headwinds are the opposite of tailwinds. A headwind pushes your plane's front end, slowing its speed down and making things take longer than they should happen! In business terms, this means that there may be lower profits or revenue growth ahead for you because of something like a decline in people spending money - which can make it hard on an entire company as well as individuals within those organizations who rely heavily upon their salaries from work.
Breaking out is an exciting moment for traders because it means that the stock may be ready to make its next move. A break above resistance or below support levels signals this possibility, giving rise to breakout traders who enter long positions when confident in their trades and short ones if they believe the price will reverse direction soon enough
Shares of Tesla Motors had been trading in a range between $800 and $840 before the stock finally broke through resistance at $860. The price move was so powerful that it sent shares shooting up above $1000, which is why this type of breakout is called "to the upside."
The opposite kind of breakout happens when prices on securities or assets fall below support levels after having traded within an established range. This means that buyers are simply no longer interested in owning them for some reason; perhaps they decided to sell all their holdings while new investors (who aren't familiar with how strong these types of moves can be) start buying them higher than ever before! A big reason behind breakouts on either side might also come down to traders
Mergers and acquisitions (M&A) can be used interchangeably, but they come with different legal meanings. In the case of a merger, two companies combine to form one single entity while an acquisition by definition means purchasing another company as opposed to taking over its management or ownership
Types of Mergers and Acquisitions (M&A) Transactions
When two companies in the same industry decide to join forces, it is called a horizontal merger. These types of mergers happen all too frequently between competitors who may not directly compete with each other but still have many overlapping products or services that could affect their customers negatively if one company becomes less competitive due to increased costs from this kind of partnership agreement.
Vertical mergers are when a company moves up or down the supply chain, in order to take over more competitors.
A vertical merger could be between an original supplier and its customer because usually, they have quite close relationships with each other that will allow them both benefits from being closer together such as lower shipping costs for inventory.
In a Conglomerate, the goal is usually to diversify risk and invest in unrelated industries. These types of transactions can happen between companies that have competing products or services for example an oil company might buy from another one producing chocolate chip cookies.
IPO stands for Initial Public Offering and this is when a company needs to raise capital by selling its stocks in the form of an equity offering. The company's shares are then made available on the stock market after an IPO. A firm is considered to be private before an IPO, with a smaller number of owners (typically angel investors/venture capitalists and high-net-worth individuals) and/or early investors (such as the founder, family, and friends). The issuing firm becomes a publicly listed company on a recognized stock market after an IPO, allowing the public to trade a pre-determined quantity of shares. As a result, an IPO is also known as "going public."
When companies decide to go for an IPO, it's usually because they need more capital to grow their business. This is why you'll see many large startups decide to do this when they're at their most profitable point of growth - just like Freshworks did recently.
9) Sell-side analysts
A sell-side analyst is an investment professional who helps companies and investors make informed decisions concerning stocks. They do this by providing analytics about a company's earnings growth, profitability margins, or other factors that might affect profitability in the future. A proper title for some of these individuals would be Equity Research Analyst.
Simply put, as a sell-side research analyst, their job is to follow companies in the same industry and provide regular reports for the clients.
10) Buy-side analysts
Analysts in the buy-side (also known as "buy-siders") work for buy-side money management firms like mutual funds, pension funds, trusts, and hedge funds. They are responsible for finding investment possibilities that will boost the portfolio's net worth.
A buy-side analyst works for a mutual fund, pension fund, or another non-brokerage company and provides analysis and recommendations only for the benefit of the company's own money managers (as opposed to individual investors). Buy-side recommendations are exclusively available to those inside the firm, whereas sell-side recommendations and reports—which are intended for the analyst's brokerage firm's clients and the general outlines of which the press frequently widely distributes—are not accessible to anybody outside of it. It's important that buy-side analysts keep their findings private if they discover a technique, idea, or approach that works.
Wall Street is a strange and seemingly impenetrable world to those outsides of it. The financial terms can be confusing, but that's why I'm here to break down the key lingo used by those working at Wall Street and other similar investment hubs. If you are new to finance, this article should help clear up some confusion and bring clarity to your understanding of what goes on in the financial industry. So go ahead and subscribe now if you want more posts like this one delivered straight into your inbox! You won't regret it!