Why Do These Financial Terms Exist: Understanding the Lingo of the Stock Market
A financial market is a place where many individuals trade stocks and other financial products to make money. Unfortunately, there are so many financial terms that it can be hard for individuals to understand what they all mean. This article will explore some of the financial terms associated with the stock market and how they might affect your investments.
Some important terms every stock trader should know:
- Financial crisis: A financial crisis is a situation where economic activity has slowed to the point that it can cause an economy or financial system to collapse. These are often associated with high unemployment and significant levels of debt. They have been caused by wars, natural disasters, financial market crashes, and even political revolutions. In 2008, for example, there was a global financial crisis sparked by mass investor panic selloffs, which led many international banks into bankruptcy because they were not hedged against other countries’ risk in their investment portfolios.
- Stock market crash (the 1990s): The ’90s stock market crash refers to the period between October 11th, 1990 – March 24th, 1998 when the S&P 500 fell nearly 50% from its highs. This financial crisis is often cited as what led to the “lost decade” in Japan and a part of the global financial crisis that started in 2008.
- Financial market: The financial markets refer to all institutions, such as banks, securities brokers, futures exchanges, credit card lenders, or insurance companies that trade money for people who want it now. These can include private individuals and large corporations with plenty of cash on hand looking for loans, someone wanting a mortgage loan at an interest rate lower than they could find elsewhere; even countries needing foreign currency reserves might borrow funds from other sovereign governments or international agencies.
- Stock indices: A stock index tracks the performance over time of different stocks within a particular region’s economy. It is also sometimes used as a benchmark for financial market performance.
- Financial risk: Financial risk is the financial activity that an investor takes to make a profit. There are many different types of financial risks, and investing involves accepting some level of financial risk as there’s no guarantee that investments will increase or lose value at low levels.
- Bid and Ask: A bid is a price that a financial institution is willing to buy an asset, while the ask (or offer) represents the price at which a financial institution offers to sell. The difference between these two prices equals the spread, and it’s typical for financial traders to attempt to take advantage of this by buying assets where there are lots of sellers and selling them back again when they’re in demand on other markets.
- Initial Public Offering (IPO): An initial public offering or IPO refers to the first time a company will issue stock shares available for purchase by some members of the general public – usually through a process administered by either one investment bank, called underwriting syndicate, or more commonly these days with several banks involved in what’s called a bookrunner.
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