ALBAWABA – Amid the new tariffs recently imposed and announced by US President Donald Trump and his administration, global markets are experiencing significant downturns and meltdowns. In this article, we will walk you through the essential and possibly new definitions and terminology to help you better understand the market, especially if you own stocks and shares.
Recent tariffs affecting economies and trade globally
As US President Donald Trump announced additional tariffs last week, the global economy, trade, and markets are experiencing major meltdowns and downturns.
Technical definitions, terminology, and glossaries are often used to describe the market’s overall status. Below are the key terms you need to understand and become familiar with:
Bear Market
A Bear Market typically refers to a 20% drop in the market after a period of significant growth. This term is often used to describe a potential crisis, although many experts prefer to use more specific language to explain the situation.
Barry Ritholtz, Chairman of Ritholtz Wealth Management, previously introduced the term 'secular bear market' to better describe the market's volatility and recession.
The term 'Bear Market' also has historical roots, with some experts drawing connections to the way bears and animals fight or the sale of bear furs back in the 18th century.
Black Swan
The term 'Black Swan' is often used to describe unpredictable events that fall outside of normal expectations and have potentially severe consequences. When the market experiences rare and impactful events, experts typically refer to them as Black Swan events.
Notably, this term was first introduced by Nassim Nicholas Taleb, a Lebanese-American essayist and mathematical statistician, in 2007.
Buying the Dip
Buying the Dip’ refers to purchasing assets, stocks, or shares after their prices have dropped significantly.
Typically, investors and experts buy the dip, believing the assets will recover and rise in value over time.
Circuit Breakers
This refers to an emergency measure enacted by exchanges to temporarily halt trading. It usually occurs when stocks and shares in the market reach new levels.
As US President Donald Trump announced additional tariffs last week, the global economy, trade, and markets are experiencing major meltdowns and downturns. (Shutterstock)
Contagion
Contagion occurs when a crisis in one region spreads to another, affecting both domestic and international markets.
Correction
This refers to a 10% drop that markets, shares, or stocks may experience. This decline is typically described as a short-term drop, occurring immediately after the asset reaches high levels.
Crash
As the name suggests, a 'Crash' refers to a sudden and significant decline in stocks, shares, or markets.
Notable examples of crashes include Black Monday in 1987 and the 2008 financial crisis.
Safe Haven Assets
Safe Haven Assets refer to investments that are expected to remain stable or increase in value during times of market stress or economic downturns.
Major examples of Safe Haven Assets include gold and certain government bonds.
Margin Call
A Margin Call occurs when an investor is forced to quickly come up with cash or borrow money to cover debt incurred during trading.
This typically happens when markets decline and asset values drop.
Short Selling
This refers to a strategy where traders profit from a decline in the price of assets and stocks. Traders typically borrow shares, sell them at the higher price, and then repurchase them at a lower price to return to the broker.
Notably, they benefit from the price difference and make a profit based on the transaction costs.
VIX Volatility Index
The last term, also known as the 'Fear Index,' refers to the ticker symbol for the Chicago Board Options Exchange's CBOE Volatility Index.
It is a popular measure of the stock market's expectations of volatility, based on S&P 500 index options.
