Like with anything, the stock market is as simple or complicated as you wish to make it. Investing in great companies over a long period of time is a near-guaranteed way of reaching true financial stability. Learning how to do so is another story. If you want to learn from the best investors and services, you need to familiarize yourself with the stock lingo. I’m sure you have already realized that there is an entirely different language in the world of investing.
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What Stock Lingo Should I Learn?
It takes everyone a while to learn these words and phrases, and you’ll even find that different people use different words for the same meaning. The stock market is an intricate and complex machine.
As time goes on and the financial world evolves, there are always new phrases popping up. Luckily for you, BullishBears is here to help sort out some of the confusion!
You can find most of these terms in our educational videos and lessons, but we’ll go over some of the more commonly used words in this article!
These days, social media is one of the most influential factors in what is moving the stock market. As strange as it is, a lot of stocks move more from being a trending topic, rather than company fundamentals.
But as a trader, you must change with the times. Decades ago it paid to be invested in the financial sector or in industrials. In the 2000’s it was tech stocks that were flying, eventually leading to the dot-com bubble. Today, if you can stand the volatility, it can often pay to be invested in this first example of stock lingo.
What is Social Media Saying With Stock Lingo?
Meme Stocks: Before 2021, did you ever think you’d hear the words meme and stock put together? What is a meme stock? There’s no real concrete definition or set of qualifications that a stock must have. Meme stock status is more gauged by social media influence and the percentage of shares shorted. GameStop and AMC pioneered the meme stock craze. But there were dozens of others included in the movement.
Meme stocks often have a sense of nostalgia to them as companies that might be considered past their prime. Examples include BlackBerry, Nokia, Koss, and Bed Bath and Beyond. These stocks aren’t for the faint of heart though. Meme stocks are accompanied by inherent volatility that can swing in either direction on any given day.
Apes: You’ve probably heard or at least seen the term Apes being used when discussing meme stocks. So what does it mean to be an AMC Ape? Retail investors who were involved in the meme stock short squeeze started referring to themselves as apes. The official reason is as an homage to the movie Planet of the Apes, where the apes rallied together in a united front. Right now, the Apes are one of the most powerful groups on Wall Street and have single-handedly caused several short squeezes to occur.
Diamond Hands: I am sure you have seen the diamond hands emojis that people use when they talk about a certain stock. To have diamond hands means you are holding that stock forever or until an event like a short squeeze happens. Diamond hands are considered the strongest hands you can have for an investor, the opposite of which are paper hands.
It’s All Greek To Me
As investing has gone mainstream, options trading has become popular amongst retail investors. It takes less upfront capital with potentially larger returns. It’s not as easy though.
Novice investors should definitely check out some of our educational lessons before they jump into the world of options trading and stock lingo.
The Greeks: The Greeks are actually measures of options contract sensitivity. By nature, options contracts have a decay rate as they approach their expiry date. Options traders use Greek letters to measure different factors that have a direct effect on the price of the contract. When someone mentions the Greeks, they’re almost always talking about options trading. Let’s take a look at what each Greek letter means when it comes to your contract.
Delta: The Delta is a measure of the change in the price of a contract based on a $1 price change in the underlying asset. It tells us exactly how much the price of the contract will be affected by the stock price rising or falling.
Gamma: Going one step further, the Gamma is a measure of the change in Delta when the underlying asset price rises or falls. For every point that the stock price moves, the Gamma will measure how this affects the Delta of the contract.
Theta: Theta is one of the more commonly seen Greek letters. It measures the effect that time has on the premium of the contract. A general rule of thumb with options: the longer you’re from your expiry date, the lower the time decay.
Vega: The final Greek is Vega; calculating how sensitive the contract is to market volatility. An increase in volatility will generally help to increase the price of options. A decrease in volatility will decrease the price of options.
The Evil Empire: Wall Street
Much has been made over the past year about the evil institutional investors on Wall Street. The Reddit-induced short squeezes have specifically targeted hedge funds with short positions in certain stocks. Without the institutional side however, the stock market simply wouldn’t function. What’s their stock lingo?
Market Makers: Market makers have really been getting a bad reputation, but they play a very necessary role in the stock market. They are essentially the creators of stock spreads by determining the bid and ask for every asset. Market makers are both buyers and sellers of equities and turn a profit by selling within the spread they create. They are usually large financial institutions or banks, and absolutely have a direct impact on the markets.
Dark Pools: These have also been given a bad reputation from retail investors, although it seems that they are not fully understood. Dark Pools exist so that institutional investors can buy and sell shares of a stock without affecting the markets. These are essentially separate, unregulated markets for large investors to trade in. We are talking blocks of millions of shares. If someone sold millions of shares of a stock on the open market, the stock price would take a sizable hit.
Payment For Order Flow: This was at the crux of the Reddit vs Wall Street movement from earlier this year. Payment for Order Flow is a specific way that a brokerage can earn revenue. It requires them to send trading information to market makers for a small fee. This system is used by platforms like Robinhood, which is how they can provide no-fee transactions to its users. Some have found this to be unethical, as it essentially gives trades to institutions before they even take place in their system.
Once you have learned all the stock lingo it’s time to start trading! But wait, there is even more lingo to learn about the actual art of trading. What kind of trader do you want to be? How long is your investment horizon? Let’s take a look at our last set of stock market lingo that will help you determine your trading style.
Swing Trader: They say swing trading is a happy medium between day trading and long-term investing. Swing traders will initiate a position in an asset, with intentions of selling within a certain time frame. Usually, they will hold the asset while it rises in price which can be anywhere from a few days to a few months. Swing trading takes some knowledge of technical analysis, as well as awareness of potential market catalysts.
Momo Trader: A style of trading that is somewhat similar to swing trading, momo traders look to play the momentum of a stock. This momentum can be from industry catalysts or earnings reports or anything related to the stock. The key to momo trading is getting out fast to lock in a profit, otherwise, that momentum can move against you in a hurry.
Fomo Trader: This one is definitely not advisable for people to use as a trading strategy. FOMO stands for Fear Of Missing Out and refers to when traders buy a stock after it has already surged. Buying a stock at its all-time highs generally hasn’t been a profitable endeavor. If you feel FOMO, remember that almost every asset that has skyrocketed in price comes back down to Earth eventually. Do not simply buy an asset because everyone else is, because that is a good way to be left holding the bag!