Trading Terminology: Understanding financial jargon
Trading Terminology is a set of specialized vocabulary used in the trading world. It encompasses all words and phrases that are commonly used when discussing investments, commodities, and markets. Understanding the language of traders is essential for anyone interested in investing or participating in financial markets.
The most basic terms include stocks, bonds, derivatives, options, commodities and currencies. Stocks represent ownership claims on the companies that issue them while bonds are debt securities issued by governments or corporations to raise money. Derivatives are financial products whose value comes from an underlying asset such as stocks or commodities. Options give buyers the right to buy (call option) or sell (put option) a certain security at a predetermined price within a certain time period.
According to recent reporting, financial literacy is an increasingly big problem across the United States, particularly among minority groups and the socioeconomically disadvantaged.
Much like other forms of literacy, a lack of financial literacy can pose a significant hurdle for many Americans as they progress through life. This might mean Americans without a basic level of financial literacy will find themselves unable to reach their financial goals, or even to fully understand the financial agreements they have entered into.
For this reason, it is believed that increased financial literacy could help millions of Americans improve their socioeconomic standing. While other socioeconomic factors can’t easily be discounted, financial training still has an important role to play in closing the gap between the rich and poor.
One of the barriers to financial literacy is the sheer amount of technical jargon that gets thrown around in the financial services industry. In order to fully understand the implications of any investments you make, it is important to understand the often complex language used by financial services providers.
If you want to learn the meanings behind some basic financial jargon, keep reading this short article for some tips and strategies:
Pay attention to the news
A first step towards increasing your financial literacy, is to simply pay greater attention to the news.
Given its importance to our daily lives, it is unsurprising how much focus the news places on the current state of the economy. However, if you have struggled to understand some of the concepts these news stories are focusing on, you might have found yourself switching off.
This is the wrong approach to take, as you would be surprised how much information you can learn even from short news reports.
We recommend thinking of these news reports as short classes on the economy. Don’t be afraid to research any word or topic that gets mentioned. This might mean Googling what is GDP or what causes inflation when it is mentioned.
If you commit to doing this on a daily or weekly basis, you will be surprised at not only how quickly you will improve your knowledge, but how wide your understanding will become over time.
Listen to a podcast
Another great option for increasing your understanding of basic trading, investment and economic terminology, is to subscribe to a podcast about economics.
Podcasts are a great way of exposing yourself to some of this terminology, particularly as they are often accompanied by an explanation of what these terms mean.
Think of subscribing to a podcast as enrolling in a beginner-friendly economics class!
Apply your knowledge
If you really want to understand financial jargon and trading terminology, an important way of deepening your understanding is to apply these concepts to your own life.
Don’t just think about the economics and financial concepts you come across in isolation, but really try to apply them to your personal life. Think about what the implications of the latest news stories are for your personal finances.
Governments are constantly making policy changes in response to the ebb and flow of the global economy. Linking these policy changes to your own finances will go a long way to deepening your understanding of the economy.
Common trading terminology and financial jargon
With these tips and strategies in mind, here is a quick run-down of some of the most common financial, trading and economic terms you might come across:
- Inflation: Inflation measures the increase of the prices of goods and services in the economy. Although some level of inflation is important for economic growth, if average wages don’t keep up with inflation, then it can put serious pressure on your finances.
- GDP: Gross domestic product or ‘GDP’ is the measure of the total economic output of an economy over a specified period of time. It is a way of measuring how an economy is performing and whether there has been any growth.
