The Bull and the Bear: Market Terminology Explained

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Asset

Anything that can be owned and produce value can be considered an asset. Assets come in two main variants, fixed and current. Fixed assets will have a useful life of over one year and often include a company’s buildings and machinery. Current assets are things that can easily be turned into cash and tend to get used up. Inventory and cash itself are both types of current asset a business can hold.

Bear Market

Bear markets are characterised by falling prices and a lack of investor confidence. Traders tend to sell shares and stock in these situations which can further exacerbate the downward trajectory of the market.

Bull Market

A bull market is the opposite of a bear market in that it is characterised by high investor confidence and many stocks and shares are rising in value.

Commodities

Commodities tend to hold their price wherever they have come from. They most often take the form of raw materials like metals or ore, or harvested goods like sugar, wheat or barley. The latter of these are known as soft commodities.

Default

A default occurs when a borrower fails to make a prearranged repayment, thereby breaking the terms of a loan or debt. Although other instances can be termed a default, such as bankruptcy, this is the most common definition.

Hedge Fund

Hedge funds are investment vehicles which pool resources to invest in a range of markets, utilising a range of investment techniques such as hedging. Hedge funds get their name from the technique of offsetting risk by assuming a contrary or position in an opposing market, although modern hedge funds don’t necessarily engage in this practice. Hedge funds are usually only available to accredited investors and are not open to the public. As such they often escape much regulation.

Insolvency

Insolvency is when a company’s total assets are not of sufficient value to repay its current debts. In this situation a company or business may be declared bankrupt by a court.

Liquidity

Liquidity is the ability to which an asset can be converted into cash without affecting its price. Cash itself therefore tends to have the most market liquidity as it can be freely used to purchase products without altering its value that much. Property on the other hand tends to have much lower market liquidity as it can take months or even years to sell and is prone to go up and down in value.

Ponzi Scheme

Similar to a pyramid scheme these are enterprises where new investment funds and not profits are used to pay current investors. Ponzi schemes are destined to collapse, either when new investors dry up or large numbers of current investors wish to withdraw their funds all at once.

Reserves

Reserves are assets, usually gold or foreign currency, held by a central bank to underpin the value of its own currency. Many currencies are tied to the value of another currency with the US dollar being the predominant reserve currency.

Security

A security is a tradable asset that falls into one of three categories; debt (deposits, notes or bonds), equity (common stocks) and derivatives (futures or swaps). Securities are a form of contract that assigns a value. Securities are usually represented in ‘non-certified’ form which means they are in electronic or book entry only form.

Working Capital

This is a company’s ability to make payments to its debtors over the course of a year from its current assets. If a company’s current assets (future earnings and fixed assets) cannot cover its debts over this period then a cash flow problem could well arise.

Author Bio: Joe Cox is a writer for UK ISA and savings provider, GE Capital Direct and has written many articles and guides on financial issues and banking products