Financial Terms and Sayings

The Tradefair Trader / Editor / 18 July 2008 / Leave a comment

Definitions of all the lingo!

The trend is your friend - Suggests that investors should trade in the same direction as the medium term trend and not try to pick tops and bottoms (ie if stocks have been going down for the last few months, you should be looking to for opportune times to short stock)

Markets can stay irrational longer than you can remain liquid - Even though you might eventually be right, you could lose a lot of money because you don't have enough money to wait the madness out

Idiot options - Options with no chance of hitting the strike price. The only chance to make money off these options is finding a bigger idiot that yourself to buy them off you

Shares for widows and orphans - Shares that are not considered exciting or as having high growth potential. These shares are generally of well established companies and pay high dividends (which the widows and orphans need to survive) but have little chance of producing exceptional returns

Dividend aristocrats - A group of companies that have not cut their dividends in many years.

Fallen Angels - Well known companies that were once the shining stars in their respective industries but have fallen out of favour. With this the share price has generally been beaten down.

Taking a breather - Shares are said to be taking a breather when they decline slightly or trade sideways after an aggressive upward move. Saying this insinuates that further upward movement is expected but the shares first need a bit of time to "catch their breath"

Short squeeze - An upward movement in the price of an instrument caused by traders covering their short positions. There is thus not a lot of new buying interest driving the market but rather previous shorts that are now stopping out

3-6-3 Rule - A Banking saying. Pay 3% interest on deposits, lend money out at 6% and you can be n the gold course by 3pm.

Acquisition indigestion - When 2 companies that have merged are having trouble integrating with each other or the purchasing company has trouble making the most of the company that it has bought

Aspirin count theory - Theory that suggests that price movement in the stock market and aspirin sales are inversely correlated. When stocks go down people, need more aspirin to get through the day. Theory is yet to be proved correct.

Buck the Trend - A company that produces the opposite result to the general market or sector in which it operated is said to be bucking the trend. This is generally used when a company performs well despite the sector or market performing very badly.

The Tradefair Spreads Team