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Vocabulary: The Stock Market

The "stock market" is a crazy place, where trillions of dollars change hands every day.

We created this stock market vocabulary page to help people learning English - and even those fluent in English - to better understand some of the most popular stock market terms. These are the terms that you might hear on the TV, or hear people using in a conversation about the stock market.

Stock Market

The “stock market” is the general term used to describe all of the publically traded stocks that can be bought on a stock market exchange. There are many different “indexes” of stocks, and each stock market index includes a different group of stocks.

In the United States, the most popular stock market indexes are the Dow Jones (mostly industrial companies), the S&P 500 (a wide range of companies from different industries) and the Nasdaq (mostly tech stocks).

When people say that the stock market is going up or going down, they are generally referring to one or more of these stock indexes.

Volatile / Volatility

When something is “volatile” it means that it is instable; that it is moving rapidly and erratically. When there is volatility in the stock market, the stock indexes are rising and falling much more rapidly than normal. This volatility can cause people to panic and sell, which can create even more volatility.

Equities / Stocks

Stocks, also known as “equities” are the shares of ownership in a company that can be bought and sold. When you buy a stock you are buying a part ownership of a company. When you sell a stock you are selling your ownership in the company.

Shorting

Shorting is basically the exact opposite of buying a company.

When you “go long” (which means to buy a company) you are buying the shares because you expect the price to go up in the future. When you “short” a company, you are selling shares in the company that you do not even yet own, with the expectation that you can later buy the shares at a lower price (“cover” the position) and keep the difference.

Crash

A stock market crash means that the stock market has fallen rapidly over a relatively short period of time. For example, on Black Monday, the stock market crash in October 1987, the Dow Jones fell more than 20% in a single day.

In contrast to a Bear Market, which are steady declines in the stock market over a long period of time, crashes usually happen very quickly as panic spreads and everybody is trying to sell at the same time.

Correction

A stock market “correction” is a general term that is used when prices have turned a bit lower, but there is an expectation that prices will turn higher again and continue to go higher after the correction. Professionals in the industry use the term “correction” when there is a 10% fall from the recent highs in the stock market. For example if the stock market falls from 20,000 to 18,000, this is a technical correction.

Bear Market

A bear market generally means that prices are falling over an extended period of time. Unlike a correction, which is generally defined as 10%, a bull market is defined by professionals as stock market declines of 20% or greater. A classic example of a bear market is the stock market crash of 1929 or the housing crisis of 2008.

Bull Market

A bull market is the opposite of a bear market. In a bull market, the overall market is generally going up and prices are rising. In a bull market people are confident about the future of the economy and they are willing to buy shares in companies because they believe the companies will generate more revenue and profit.

Treasuries (Bills, Notes and Bonds)

Treasuries are how governments finance themselves. They borrow money from the general public and from other creditors such as foreign central banks and corporations. These loans to the government are called “treasuries” and are repaid in a structured manner.

In the United States there are generally 3 different types of treasuries: Bills (short term loans, e.g. 1 Year), Notes (medium term loans, e.g. 10 Years) and Bonds (long term loans, e.g. 30 years). Bill, Notes and Bonds each have different repayment terms and different interest rates.

Treasuries are seen as a “safe haven”. This means that generally when people are buying bonds it is because they are unsure about other types of investments, such as stocks/commodities, so they buy treasuries, thinking that the government will always repay the loans even if they have to simply “print” the money.

In the U.S. treasuries are issued by the US Treasury.

Commodities

Commodities are a class of investments. Commodities are generally physical products that are used in construction, for production purposes, or food. Examples of commodities include oil, iron ore, copper, wheat and soybeans. Precious metals such as gold and platinum are also considered commodities.

To check the latest prices of some of the most important commodities, we recommend the commodities section on Bloomberg.

Futures

If you watch CNBC or another financial news TV show you will probably hear the news anchors referring to “the futures”. These futures are quite complex, but in simple terms they are contracts to buy or sell something, at some price, at some date in the future.

The futures are popular because they trade almost 24 hours per day. This means that traders can use the futures to make bets on the economy and stock markets, even when the stock markets themselves are closed. They also provide “indications” as to what the stock market will do when it opens, which is why you will mostly hear the term “futures” in the morning before the stock market opens.

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