No time? blue News summarizes for you
- The world of the stock market is a world full of complicated terms.
- What do investment funds mean? What are ETFs? And why do a bull and a bear stand opposite each other in front of many stock exchange buildings?
- blue News explains 15 key stock market terms in a simple and understandable way.
The tariff conflict between the USA and the rest of the world is sending stock market prices on a rollercoaster. However, news about the financial markets often contains technical terms that are not self-explanatory and are therefore difficult for many to understand.
The blue News stock market ABC briefly and concisely explains 15 key terms from the world of the stock market, funds and markets.
An investment fund is a pot into which you as an investor pay money. The fund is managed by a manager. This means that your money is invested in shares, bonds, precious metals, commodities or other asset classes.
The advantage of this diversification is that your assets are invested in different investments.
In front of many stock exchanges, a bull and a bear stand opposite each other. Why is that?
The bear symbolizes the bad times on the equity and stock markets. It stands for a time when there are many sellers but far fewer buyers. As a result, the prices of securities fall. The technical term is bear market.
If things get even worse, the share or, even more precariously, the stock market collapses. The value of a share or a company falls when many shareholders want to sell their securities and have to sell them at falling prices.
The bull stands for the good times. So there is a lot of buying, those offering securities can demand a lot for them and prices rise. The technical term is bull market.
And this is how you can memorize the terms: The bear beats the price down with his paw. The bull, on the other hand, takes the price by the horns and hurls it upwards.
Transaction fees are incurred when buying or selling securities. These are called brokerage fees, especially on stock exchanges. The amount depends on the transaction amount, the trading venue and the asset class.
As a rule of thumb, you can remember Larger orders are proportionately cheaper than smaller ones, as the brokerage fee does not increase linearly with the value of the security purchased.
Diversification is the be-all and end-all of a successful investment strategy. In concrete terms, this means that experts advise spreading money as widely as possible across different markets, sectors, currency areas and securities.
The reason for this advice is that it reduces the likelihood of backing the wrong horse. However, less risk also means less profit, as rarely do all stocks rise at the same time.
Exchange traded funds, or ETFs for short, are funds that are traded on the stock exchange.
ETFs consist of several securities and usually track the performance of an index – such as the Swiss Market Index (SMI) –but there are also variants with active management or special strategies (“smart beta”).
Are you bold and want to achieve the highest possible returns? Then hedge funds might be right for you.
A hedge fund is a specialized investment fund that aims to achieve high returns through a variety of investment strategies – regardless of whether the markets rise or fall.
Hedge funds are often subject to different and sometimes less stringent regulations than traditional mutual funds – particularly with regard to investment strategies and transparency requirements. In many countries, they are only authorized for professional or institutional investors.
But beware: as with all investment products, investors who invest in a hedge fund must accept the risk of a total loss.
Junk means garbage in German. These bonds are issued by companies or countries with poor credit ratings. When you buy junk bonds, you are lending money to a company with a low rating. Because the risk of such investments is high, the interest payments are often higher than for other bonds. If things go well, this enables higher profits.
And hence the warning: this is an investment with a high risk of default and should therefore only be made if you are good with finances and have sufficient reserves.
A benchmark index is a barometer that tracks the performance of the securities of a group of economically important companies. For example, the Swiss Market Index, or SMI for short, includes the shares of the 20 most traded and largest stock corporations in Switzerland.
In a nutshell: a benchmark index tracks part of a market and shows how it is developing. However, it does not represent the entire market or all securities traded on a stock exchange.
Bonds are debt instruments issued by companies or governments in order to raise new capital. The issuer of bonds receives money from you as an investor and undertakes to repay you the invested capital at the end of a certain term – usually at a fixed interest rate.
Bonds are a classic form of investment for people who want to take little risk and are therefore happy with less profit.
The portfolio is the sum of all your investments, i.e. from individual shares to ETFs and funds through to possible real estate. A diversified portfolio usually consists of assets from different asset classes.
The advantage of a diversified portfolio is that the risk is lower. But, as already explained, less risk often means less profit.
A quality share is a share in a company that is characterized by a strong position in the market – i.e. high earning power, a stable dividend policy and a solid balance sheet.
Shares in these companies are usually less exposed to fluctuations. They are therefore popular with investors who like to invest for longer and with less risk.
In this type of transaction, two parties enter into a commitment not to buy or sell immediately, but only in the future. Forward transactions can be used to hedge against price fluctuations – for example in commodities or currencies. However, they are also frequently used for speculative purposes.
Volatility means how strongly the value of a financial investment fluctuates. The higher the volatility or the more volatile, the more the price moves up or down. Or in both directions.
Particularly volatile investments are considered especially risky. However, strong fluctuations in value always mean an opportunity for price gains – provided you catch the right moment to sell.
Securities are documents that secure certain property rights for you as the holder. The most common types include shares, bonds and funds. Once issued in paper form, they are now usually recorded electronically, allowing you as an investor to invest capital and potentially earn a return. But like any investment, they involve risk and instead of making a profit, you can also make a loss.
Yankee bonds are a special type of bond issued by foreign companies or governments in the US and traded in US dollars. They allow companies and governments based outside the US to raise money on the US capital market.
Yankee is a colloquial term for US Americans. After the Second World War, the cry “Yankee go home” was sometimes heard in European countries, directed against the presence of US troops. In the USA itself, Yankee stands for the northern states during the Civil War.
This article is for information purposes only and does not constitute financial advice. The analyses and assessments contained herein are based on thorough research, but are no substitute for an individual assessment by experts. The development of the financial markets is influenced by numerous, sometimes unpredictable factors. Investments in shares, cryptocurrencies and other financial products are associated with risks, including a possible loss of capital.