Financial Terms You Need to Know

The periodic declines in the value of world stocks which has been witnessed in the previous years have always accompanied a bunch of technical terms that most of us are not conversant with. This has necessitated most financial investors to take a refresher lesson on the most important them. You will not be able to trade effectively in the volatile global market if these terms are not known to you.

A term that has gained widest popularity in the near past has been the term correction. It may seem to imply a common notion but knowing its true meaning can save you a fortune by informing your trading decision. This generally happens when a specific resource like a stock decreases in market value by at least 10% from a recent high net worth. You should notice that the term correction only implies a decline in the market price of a bond, commodity or stock from a previous peak.

Another awfully common term is market close. Before authoritatively announcing that a stock has entered a correction, it is the standard procedure for financial specialists to hold up until the market closes. 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 in the business sector more often than not alludes to an ascent in stock value by 20% 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.

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. Most of the time, sell-offs in a given market will impact sell-offs in another market or economy. This condition is known as a contagion since turbulent market influences are continually spreading from economy to economy. A good example of contagion is when the sell-offs in one region, say America, influences sell-offs in other economies like Asia.

Being a fairly new term, algorithmic trading has seen a rise in its use among stock traders. 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. These algorithms enable the computer to perform the tasks without suffering fatigue or boredom and at a faster speed than any one human being. Algorithm trading immensely affects the market as it sets the upper limit speed for trading in most stock markets.

There are various other financial terms that will be worth learning however these will go a long way in helping you understand 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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