CAIRO: We’ve all seen the movies set on the floor of the New York Stock Exchange, the dialogue punctuated with cries of “hold, “stay in line or “hit me. But unless you’re a stock market specialist, it’s likely that these terms hold little meaning.
The fast-paced activity of floor trading demands an equally efficient coded language to keep the buying and selling running smoothly, and while most of us will never become fluent in this stock-speak, there are some important terms that every business savvy individual should be familiar with.
Mohamed Farid, a trader at Pharos Securities, said that it is important for investors to understand basic stock market terminology, even if they have a financial advisor that manages their investments for them.
“Educated investors will want to know at least a few terms so that they can keep up with what’s happening on the stock market, and track the progress of their investments, he said.
For example, terms like ‘margin,’ ‘buy and hold’ and ‘equity’ are must-knows.
Margin refers to the investor’s ability to borrow money from the brokerage firm to buy securities. To a client wanting to put more money into a hot investment, the broker might say: “I’ll margin you 50 percent (I’ll loan you 50 percent on top of your original investment).
Buy and hold is a phrase used to describe the strategy of purchasing a stock and holding it over a long period of time under the assumption that over 10 or 20 years the market will rise and the investor will gain regardless of fluctuations in the market. Your financial advisor might propose that you “buy and hold those shares of Ford stock to gain benefits over the long term.
Equity is one of those words that we hear all the time but most of us can’t define, probably because it has several meanings. Equity refers to ownership in a company via stock options but it can also mean simply the net value of an investor’s brokerage account.
On the Egyptian trading floor, a stock market language infused with terms from colloquial Arabic has appeared.
“Many of the terms we use are originally English, but we have Egyptianized them and use them to communicate amongst ourselves, explained Farid.
Sharrat from the English short, for example, is used by Egyptian traders in place of the ‘short position,’ meaning to buy a stock while the price is low in the hopes that it will rise quickly, for a fast profit.
Similarly, the word sifirat, from the Arabic sifr, is used to connote the English trading term ‘zero,’ which means to buy and sell a stock during the same trading session.
Apart from the daily terminology used to conduct business on the trading floor, brokers have their own brand of what they see as conventional wisdom.
One of these is “buy low, sell high, meaning that stocks should be bought cheaply and sold when they reach their peak value, when possible.
Strategies like this one are what keep so many analysts and advisors in business; in order to buy low, investors need good advice about which stocks are expected to rise from their low price and which ones won’t.
Of course, in today’s lagging markets, most stocks have lost a large percentage of their former value; a bad situation for them, but a great one for investors who have the cash to buy low in anticipation of a market revival.
“Some people lost a lot of money in the recent meltdown, but for those who happen to have disposable income, it’s a good time to pick up some cheap investments that will definitely pick back up in the near future as long as they have good information about the potential of the stocks to rebound, advised Farid.
Another rule to live by for some investors is “buy on the rumor, sell on the fact. In this strategy, investors should not wait for rumor to become fact when they are buying, because by then the price of the stock will have risen and the returns will be less.
Conversely, waiting to sell is preferable, as prices will have reached their peak value once all information about the company concerned is disclosed.
Some traders, however, like to reverse that rule and prefer to sell on the rumor, buy on the fact.
“For me, it makes more sense to sell when everyone wants to buy because you will get a good price, and then if the rumor turns out to be false, you still win, said Farid.
Common Trading Terms
Aggressive: An investment strategy that involves high risk and above-average profits. Aggressive strategies normally include: buying shares in fast-growing companies and buying on the margin.
Basis points (BPS): A unit that is equal to 1/100th of 1 percent, and is used to measure the change in financial measurements such as interest rates.
Bond: An investment in which an investor loans money to a company or government body that borrows it for a defined period of time at a fixed interest rate.
Capital gain: The amount by which an asset s selling price exceeds its initial purchase price.
Close a position: To end an investment.
Diversification: A strategy that aims to reduce risk by spreading money over a variety of investments. A diversified investment portfolio can include stocks, bonds and real estate.
Dividend: The distribution of a portion of a company s earnings to shareholders. In mutual funds, dividend refers to the mandatory distributions of income from the fund to investors.
Futures: Investments purchased against future costs of commodities.
Earnings are made when the price of commodities rises above the price of the original investment.
Net asset value (NAV): A mutual fund s price per share, calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
Over the counter (OTC): Refers to investments that trade via a dealer network as opposed to on a centralized exchange.
For more definitions, visit www.investopedia.com.
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