How to Talk Like an Investor

Most investors need to learn a new language when it comes down to understanding the long-term and short-term implications of investing. The phrase "the short and long of it" originated in financial markets. This article will discuss how to talk like an investor and the key terms that can help you understand other market participants and make better connections. These terms are used in the equities and derivatives markets, as well as futures, commodities, forex, and currency (or currency) markets.

This article will explain what selling, buying, and shorting mean to investors. It also explains how certain terms can be interchangeably used with confusing words such as bullish or bearish. Options traders also add terms like "writing a contract" and "selling a contract" to compound the problem. You will become more comfortable communicating about the markets and be better equipped to make informed investment decisions.

Long Positions and Short-Term Positions

You can do some things that are very common in your daily life and some more uncommon things. You own the car you purchase when you buy it. The stock market is also known as the equity market. When you purchase a stock, it becomes your stock. A stock is also known as the equity market. You can trade futures, commodities, or currencies. If you are long on a stock, you own the position and hope it will rise in value. It would help if you sold a position to close out a long one.

Most investors will find shorting difficult because it is like selling stock you don't own. Brokerage firms let speculators borrow stock shares and then sell them on open markets with the promise of eventually returning the shares. Investors will then be able to sell their stock at the current price and repurchase it at a lower price while retaining the difference.

This concept is used by online and catalog retailers to sell products at a higher cost and then purchase them from suppliers at a lower cost. This term is derived from the situation in which a person attempts to pay a bill but is "short on funds." It may interest you that not all people view shorting as patriotic or a "bad form." John Pierpont Morgan Sr (J.P. Morgan) coined the phrase "Don't Sell America Short." This continues to be a topic of debate.

The Currency Caveat

You will usually be long or short when trading foreign currencies on the "spot market." This is because many commodities and currencies are traded in futures and spot markets. Because you exchange one currency for another, many worlds' currencies trade in pairs. If you believe the U.S. will rise, but the euro will fall, you can shorten the euro and trade long on the dollars. You could also be long on the dollar but short on the Japanese yen if you believe the dollar will rise while the yen will drop.

Bullish vs. Bearish

For beginning investors, "bullish" is a new term. Bullish refers to a person's belief that the market will rise, while bearish refers to someone who believes the market will fall. People most commonly remember these terms as a bull attacking with its head down and its horns raised—a bear attacks by wiping its paws away. Chicago is home to commodity and futures markets. Coincidentally, the Bulls are the professional basketball team and the Bears the professional football team. A bear cub is the Chicago Cubs mascot.

Investors may also use "long" and "short" terms to describe market sentiment. Instead of saying that they are bullish on the market, investors may say that they are long on it. Investors may also use the term bearish to describe their market sentiment. Any term can be used to describe your market sentiment. Remember that both short and long can be used to describe your market sentiment. However, it is not always true.

Calls vs. Puts

Also known as the options marketplace, the derivative market is called the options market. Options are contracts where one party agrees to buy or sell certain security (security can be used to refer to any financial product). The price and time of the option contract are set by either the seller or buyer. Options are common in the equities and futures markets. Exotic options are a category of derivatives used in forex markets.

Call options allow the buyer to buy stock shares at a fixed price on or before a specific date. Another investor usually sells a call contract. This means they think the stock will either go up or stay flat. The call buyer is usually long, while the seller is short.

The option buyer can sell stock at a fixed price prior to a specific date by purchasing a put option. A put option is similar to a call option. It allows the buyer to sell stock at a set price before a date. This means the investor believes that the stock will remain the same or increase in value. The person who purchases the option contract is long, and the one who sells it is short.

Conclusion

You may be tempted to go back and reread the vocabulary you just read. Overcoming the language barrier is crucial for success in many situations, not only in the financial industry. Investing comes with its own language barriers. You need to translate the terms and control the syntax.