To help you gain a better understanding of how professional investors speak, we’ve put together a short list of popular expressions.
Block Trade: Large orders typically placed by institutional investors with a total market value of at least $200,000 are known as block trades. Depending on market liquidity, block trades can impact a security’s market price.1
Dead Cat Bounce: This phrase can come up when an unexpected drop in the market is followed by an unconvincing rally. It implies that share prices could decline further and recover later or stay stagnant for a while. Traders who use this expression are doubtful that a recent rally indicates the market has actually turned around.2
Don’t Fight The Fed: The U.S. Federal Reserve has a powerful impact on the state of our nation’s economy. As a result, the expression “don’t fight the Fed” advises investors to keep their investments in line with current monetary policy instead of betting against the Fed.
Fat Tail: Fat tails represent unlikely events that can have a significant impact on market prices if they occur. They are located on the outer edges of bell curves that are used to predict investment outcomes.3
Source: Financial Times4
Hit The Bid: This is an expression that can come up when selling stock. If Broker A agrees to sell a stock at the highest price Broker B is willing to purchase it at, Broker A is said to have hit the bid.5
Take The Offer: Purchasing a security at the lowest price a dealer is willing to sell is referred to as taking the offer. It’s the opposite of hitting the bid.6
Momo Play: This slang expression is derived from the word momentum. An investor who isn’t concerned about fundamentals and makes a trade solely on the momentum of a stock’s price is said to have made a momo play.
Random Walkers: Investors who believe it’s impossible to outperform the market due to the unpredictability of future performance in the market are known as random walkers. The expression stems from random walk theory, which suggests that historical price movements and trends can’t be utilized to predict future performance.7
Sell Down To The Sleeping Point: This expression stems from a quote by J.P. Morgan who was advising an anxious friend about his stock portfolio.8 The gist: only take on an amount of risk that doesn’t keep you awake at night. Decrease large positions to comfortable levels.
Stalking-Horse Bid: A bankrupt company looking to sell its assets selects a promising buyer to provide an initial bid. This stalking-horse bid is used as a price floor to weed out trivial buyers in the hope of receiving the best price possible.9
Tail Risk: A type of portfolio risk that can emerge if an investment moves over three standard deviations from the mean of a normal distribution. There is only a 0.03 percent chance of this occurring.10
Widow Maker: Risky investments such as commodities that have the potential for significant losses are often dubbed widow makers in jest.11
Knowing how active traders talk can empower you to comprehend more investment commentary. Congratulations on furthering your financial literacy.
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1 InvestorWords, “Block Trade,” InvestorWords.com, 2015.
2 Cook, Holly, “Say What? Investment Jargon Explained,” Morningstar, October 11, 2012.
4 FT.com/Lexicon, “Definition of Tail Risk,” FT.com, 2015.
5 Investopedia, “Hit The Bid,” Investopedia.com, 2015.
6 InvestorWords, “Take The Offer,” Investorwords.com, 2015.
7 Investopedia, “Random Walk Theory,” Investorwords.com, 2015.
8 Hoeing, Jonathan, “Find Your Stock Market ‘Sleeping Point,’” MarketWatch, May 9, 2011.
9 Investopedia, “Stalking-Horse Bid,” Investopedia.com, accessed July 31, 2015.
10 Investopedia, “Tail Risk,” Investopedia.com, accessed July 31, 2015.
11 InvestorWords, “Widow Maker,” Investorwords.com, accessed July 31, 2015.