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New investors flummoxed by ‘dead cat bounce’ and other jargon
Equipped with easy-to-use smartphone trading apps, retail trade among first-time investors exploded during the pandemic. Yet many remain bamboozled by stock market jargon, which is fluid and can take years to grasp.
New data has shown that stock market jargon is causing the most confusion among young investors as global interest in share trading was growing at an exponential rate.
Michael Hewson, chief market analyst at CMC Markets, analysed google search data and concocted a list of the most baffling stock market terms in an attempt to educate beginners to become better investors.
“It’s not surprising that a lot of people find financial markets terminology baffling,” Hewson says. “As market professionals, we have to get used to new acronyms on a regular basis, and that’s before you take into account the ones that are in regular use.”
“If you’re looking to hone your interest in financial markets, it’s a huge benefit if you can understand the language that gets used on a regular basis.”
Taking a list of 50 popular words and phrases associated with the stock market, Hewson paired each one with the word’s meaning.
According to Hewson ‘ETF’ was the most baffling stock market word, included in 103,000 monthly retail investor searches.
“ETF stands for exchange-traded fund, which is essentially a fund that trades on exchanges, generally tracking a specific index,” he explains. “While stocks are just one instrument, an ETF consists of diversified investments such as stocks, commodities, bonds, and other securities, which are known as holdings.”
“ETFs are listed often less volatile yet less than individual stocks, meaning your investment shouldn’t swing in value as much, however, there is still a risk in loss of value.”
According to Hawson ‘dead cat bounce’ was another term that was commonly googled by new investors, racking up 3,200 in monthly searches.
“The saying refers to a temporary recovery in share prices after a substantial fall, caused by speculators buying in order to cover their positions,” Hewson says. “Derived from the famous Wall Street phrase: ‘even a dead cat will bounce if it falls from a great height’.”
Hewson also highlighted two investment terms; ‘bear market’ and ‘bull market. Despite being common and widely popular, these two terms often confuse new investors.
“Bear market is defined by a prolonged drop in asset prices. Typically, a bear market happens when a broad market index falls by 20 per cent or more from its most recent high. It’s believed that the term originates with pioneer bearskin traders. As the traders hoped to buy the fur from trappers at a lower price than what they’d sold it for, ‘bears’ became associated with a declining market.
“Bull market refers to a period of time when the price of an asset or security rises continuously by 20 per cent after two declines of 20 per cent each.”
Source: CMC Markets
