Translating Stock Market Jargon

Have you ever been confused by the jargon used on Wall Street? Perhaps it is time to translate some of those esoteric stock market terms into plain English.

Blue chips: This term refers to stocks that have a history of consistently strong dividend payments, issued by large corporations with solid management. In addition, this is also a nickname for the Dow Jones Industrial Average, which includes 30 companies that usually deserve such a label.

Hedge: A position you take with your money or investments to try and counteract or control potential losses. An investor who owns a lot of bank stocks, for example, might hedge by also investing significantly in utilities shares. The two industries have little, if any, relationship, so if stocks suffer in one industry due to a trend or breaking news, the other may not be hurt. 

Moving average: This is simply the average, per-share price of a stock within a set period – it could be 50 days, 100 days, or 200 days. Stock market indices like the Dow and Nasdaq have moving averages, too, which are measured in the same way.

Thin trading: A period when the market has relatively few buyers and sellers. The months of August and December commonly see thin trading, as summer vacations and holidays impact the volume of buy and sell orders that traders process. The phenomenon can also apply to certain stocks or stock market sectors. Trading has become a bit thinner overall during this decade, as Wall Street has seen a decline in volatility (see below). As CNBC reports, stock trading volume on an average Wall Street trading day in 2017 is down 6% from 2016.1

Volatility: The price movement of a stock (or a stock index). Some stocks are not very volatile; others are. Thinly traded stocks may see greater price swings than others.

Yield: This is often confused with the return of a stock, but it is not the same. Yield is a measure of dividend from a dividend-paying stock, and you figure it out by dividing the yearly dividend payment by the original price you paid for the shares. Say you buy shares of a firm for $10 and they yield $0.45 annually. Your yield is 4.5%.

Hopefully, this clears up a little of that jargon and provides you with more insight. The more understanding you possess when it comes to investing, the more confidence you may have as you pursue your financial objectives.

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