About Stock Market Slang Terms

Stock trading is loaded with slang. These words and phrases derive from insiders who, when seeing a practice or phenomenon over and over, label it colorfully. If you are taking a serious approach to the markets, then understanding these words and phrases is essential so you do not get lost.

Features

• The basic structure of Wall Street slang concerns repetitive phenomena or practices; in other words, traditions that have shown themselves either in the behavior of traders or in the market itself. For example, the "Dead Cat Bounce" refers to the phenomenon in which a radically falling market shows a slight but rapid increase in value near the end of the fall.

Function

• These words and phrases are designed to, first, separate trading insiders from novices, and second, to encapsulate complex practices and phenomena into a short, pithy word or phrase. For example, the noun "nut" refers to the expenses that a broker pays for a specific trade. "Castles in the Sky" refers to radically overpriced stock whose price has no relation to the firm's true value.

Benefits

• The real benefit of slang is to ease communication. Insiders can recognize each other through the quick, mutual recognition of these terms and outsiders can rapidly be spotted. For example, someone who is behind the "learning curve" is one who is not initiated into the complex workings of the market. Someone not savvy to the market might engage in "Random Walks," or a general practice of choosing stock investments based solely on feelings or even shooting darts at a list of major firms; basically, random stock picking. There is some precedent that this method is just as good as professional research.

Effects

• These slang terms, if used consistently, can reduce the stock market to a few words and phrases for concepts that otherwise would take a long time to explain. For example, "bottom fishing" is a verb that refers to a practice of buying up stock that is undervalued due to overtrading or a falling market. "Chasing Returns" refers to the practice of taking great risks on the feeling that one can gain great returns. Some words, though a minority, refer to outside forces. For the Federal Reserve to be "dovish" means that it will reduce rates. For it to be "hawkish" means it is ready to increase rates.

Significance

• Though it sounds like slang to the outsider, the fact is that these terms, widely accepted, actually refer to the professional vocabulary of professional traders and those wanting to become professional. Terms like "crunching" do not just mean a stock is falling but that it is falling at an alarming rate. Therefore, there is a sense of urgency and even panic to the term that "the stock is falling a lot" might not capture.