3 Lessons Learned: Finances

Financial Terms You Should Brush-Up on Before Trading

The intermittent decreases in the value of global stocks which has been seen in earlier years have come with a lot of specialized financial terms that the greater part of us are not familiar with. This has required most stock market investors to take a refresher exercise on the most significant of them. You most likely fail to trade successfully in the unstable worldwide market if these terms are not known to you.

One of these terms that have seen its use growing among the trading community is correction. It may appear straightforward but it has a twist to its meaning. This generally happens when a specific resource like a stock decreases in market value by at least 10% from a recent high net worth. It is, notwithstanding, imperative to take note that this term suggests a drop in the value of an asset like a stock, commodity or a bond.

Another awfully common term is market close. It is common for a large number of market watchers to wait for the market t close until they can declare that an asset has indeed entered correction. For positively trending markets, it is a typical thing for corrections to happen. It is also fairly possible for the market to go for extensive trading periods without the occurrence of a single correction. The term bull market usually refers to a rise in stock indexes by twenty percent or more. Following the steep fall in the price of most stocks, the market has seen a continuous recovery that can be traced back to 2009.

A bear market happens when the price of stocks fall by 20% or more for a given period which is typically two months. Most of the time, sell-offs in a given market will impact sell-offs in another market or economy. This phenomenon is known as a contagion since market disturbances are constantly spreading from region to region. A good example of contagion is when the sell-offs in one region, say America, influences sell-offs in other economies like Asia.

Algorithmic trading has been a typical financial term recently as it is generally a new term in the world of trading. The general meaning of an algorithm is a series of codes that dictate the steps in the performance of an action by a computer. In the case of the stock exchange market, the algorithms being referred to are utilized to enable modified computers to place stock trades at surprisingly high speeds. Computers do not suffer fatigue or boredom and are faster in performing these tasks compared to humans. Algorithm trading immensely affects the market as it sets the upper limit speed for trading in most stock markets.

There are numerous other financial terms that will be worth knowing but these will put you a step forward in understanding the market. It is advisable that you continue learning new financial terms if you are to trade effectively in the modern market.

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