Trading terminology – Part 1
Don’t be intimidated by foreign-sounding terminology. I can help, and besides… Making money is more important. Of course, you can certainly be a Money Maker without knowing all the terminology, but understanding what everything means will give you an edge. So, today, let’s have a look at three different terms that you might not fully understand if you’re brand new to trading.
One of the most common terms that you’ve probably heard is “bullish” or “bull market.” If you’re noticing that some stocks are rising in price, even without good reason, then the market is said to be a bull market – almost, but not exactly, like a bubble. People trading in a bull market are usually pretty optimistic about their trades, and sometimes, this can be a self-fulfilling prophecy. On the flipside of that coin is “bearish” or a “bear market.” But maybe we’ll save that term for another time.
For now, I’d rather explain “Market Cap” (short for “Market Capitalization”), since it’s such an important one, and I’m hearing it used more and more in the media every day. Basically, the term is used to measure a company’s (or a commodity’s) size in the market. To figure out a Market Cap, you simply multiply the stock price by the number of outstanding shares. As a recent example, there was a huge buzz surrounding Bitcoin (a commodity, not a company) when one “unit” or “coin” (rather than a “share,” since it’s not a stock) reached a price of $54,000 USD. Why so much hype for such a random number? Because when Bitcoin started trading at $54K, and there were 18.66 million Bitcoins in circulation, that’s when it crossed the trillion dollar Market Cap threshold, which is a huge milestone. 54,000 x 18,660,000 = 1.0076 trillion.
Another good term to know right now, in light of what happened recently with GameStop: “short squeeze.” As you may or may not know, the GME stock was down in the dumps for quite some time, and many traders thought it would continue to plummet, so they shorted it. But then, all of a sudden, people on Reddit rallied, started buying the stock at rapid rates, and the stock skyrocketed, much to the dismay of those who had been shorting it. I say “dismay” because everyone who shorted it had to cover their positions (in other words, they got “squeezed out” as they were shorting), and those people lost a ton of money. And then, even more people bought the stock, and it continued to rise (until many brokerage firms immorally – and possibly illegally – surprised everyone by not allowing them to buy GameStop stock for a period of time).
So, hopefully, you’re never find yourself on the wrong end of a short squeeze, and all of the companies you invest in will continue to see Market Caps rise in bullish markets. Did that last sentence make a little more sense now? I sure hope so. Either way, let’s all keep being Money Makers, and I’ll see you guys again soon on my YouTube channel.