With the frequent fall in the prices of world stocks in recent years, there has been an accompanying trend of new financial terms that are not known by most people. This has made it paramount for any financial investor who seeks to make informed decisions to revisit or learn the most important of these terms. You will not be able to trade effectively in the volatile global 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 might seem clear, yet it has a twist to its importance and meaning. When the market value of a stock or commodity is subject to a fall by a minimum of ten percent, it is said to be in correction. It is, however, important to note that this term only implies a decrease in the value of an asset like a stock, commodity or bond from its previous peak.
It is almost by default that anybody in the stock trading business has heard of the term market close. Before officially declaring that an asset has entered a correction, it is the norm for investors to wait until the market closes. During bull markets, it is a common phenomenon for corrections to occur. There is likewise a probability for the market to go quite a while without a correction. The term bull market stated above refers to a situation where stock indices rise by at least twenty percent. During the global financial crisis, there was a steep decline in the value of most stocks which has seen a progressive recovery that traces back to 2009.
Another fairly important term is bear market which refers to a situation where the price of a given stock declines by a minimum of twenty percent for a period that is usually more than two months. It is common for a given disturbance in one economy also disrupts other economies. This phenomenon is known as a contagion since market disturbances are constantly spreading from region to region. An excellent incidence of contagion is when sell-offs in Asia affect sell-offs in other markets like America.
Algorithmic trading has been a typical financial term recently as it is generally a new term in the world of trading. An algorithm is essentially a coded message that guides a computer to play out a progression of activities. In the case of algorithms used in the stock market, they are used to perform high speed, repetitive and incessant trades in programmed computers. Computers don’t endure exhaustion or fatigue and are quicker in playing out these tasks contrasted with people. Because it sets the speed at which trading occurs, algorithms hold a great influence on the stock market.
There are exceedingly many other financial terms that you will also need to revisit but these are the best to start with in your quest to understand the market. It is highly recommended that you keep adapting new financial terms if you desire to make successful trades in the volatile global market.