In the previous part, we looked at the most important trading terms that will help you better understand the basics of the financial markets. This is the second part, where we continue to familiarize you with the key concepts for successful trading.
Nasdaq (NASDAQ):
NASDAQ is a global electronic marketplace for buying and selling securities, known for its high-tech and growth-oriented listings. It was the world's first electronic stock exchange and today is a leader in innovation and technology stocks. Companies listed on the NASDAQ include some of the largest and most influential technology firms such as Apple, Microsoft, and Amazon. The NASDAQ Composite Index, which includes all stocks traded on the exchange, is a widely used index that reflects the health of the technology sector and trends in high-growth industries.
Overbought and Oversold:
Overbought and oversold are terms used in technical analysis to describe the state of a security's price relative to its recent trading history. An overbought condition indicates that the price of an asset has risen too high and may be due for a correction. An oversold condition, on the other hand, indicates that the price has fallen too far and is probably ready to reverse. These states are often identified using technical indicators such as the Relative Strength Index (RSI) or a stochastic oscillator. Traders use these signals to make buy or sell decisions, looking to capitalize on expected price reversals.
Portfolio:
A portfolio is a collection of financial assets such as stocks, bonds, commodities, currencies and cash equivalents owned by an individual or institutional investor. The primary objective of a portfolio is to diversify risk and achieve desired returns depending on the investor's financial objectives, risk tolerance and time horizon. Portfolios can be managed actively or passively: active management involves frequent buying and selling to outperform the market, while passive management seeks to replicate the dynamics of market indices. Portfolio management involves strategic asset allocation, regular rebalancing and ongoing monitoring to optimize performance.
Quantitative Easing (QE):
Quantitative Easing (QE) is a monetary policy tool used by central banks to stimulate the economy when traditional policies become ineffective. QE involves large-scale purchases of financial assets, such as government bonds and mortgage-backed securities, to increase the money supply and lower interest rates. The injection of liquidity into the financial system is intended to encourage lending, investment, and consumption. QE also boosts asset prices and counteracts deflationary processes. QE has been used by central banks such as the U.S. Federal Reserve and the European Central Bank during economic crises.
Return on Investment (ROI):
Return on Investment (ROI) is a financial measure used to evaluate the profitability of an investment. It is calculated by dividing the net return on investment by the initial cost and is often expressed as a percentage. ROI helps investors evaluate the performance and potential returns of different investment options, making it easier to compare the performance of different assets. A high ROI indicates a more profitable investment. This metric is important in both personal and corporate finance, helping to make decisions about where best to allocate capital for the best financial results.
Safe Haven (Protective Asset):
A protective asset is an investment that is considered relatively stable and maintains its value during periods of economic instability or market volatility. During crises, investors often turn to protective assets to preserve their capital. Common examples of such assets include gold, government bonds, and certain currencies such as the Swiss franc. While protective assets provide a degree of safety, their upside potential may be lower compared to other asset classes.
Take Profit Order:
A profit taking order is a type of limit order used by traders to automatically close a position when it reaches a predetermined profit level. This order helps lock in profits by ensuring that the trader will exit the position when the market price reaches the desired level. By setting a profit lock order, traders can manage their trades without constantly monitoring the market, reducing the emotional impact on trading decisions. Profit taking orders are often used in conjunction with stop losses, creating a balanced risk and reward management strategy.
Utility Stock:
Utility stocks represent companies that provide basic services such as electricity, water, and natural gas. These companies operate in regulated industries with stable demand, making their stocks attractive to conservative investors seeking reliable dividend income and low volatility. Utility stocks are known for their defensive characteristics, often showing consistent performance during economic downturns due to the constant need for their services. While their growth potential may be lower compared to other sectors, utility stocks provide stable income and can be a valuable element of a diversified investment portfolio.
Volume:
Volume is the total number of shares or contracts traded in a security over a given period of time. It is a key indicator of market activity and liquidity, reflecting the intensity of interest in buying and selling a particular asset. High volume usually indicates strong investor interest and can confirm the strength of a price movement, whether up or down. Conversely, low volume may indicate weak interest or consolidation. Traders and investors closely monitor volume to assess market trends, confirm price movements and identify potential entry and exit points for their trades.
Wick (Shadow):
A shadow, also known as a wick, is a thin vertical line above and below the body of a candle on a price chart. The shadow reflects the highest and lowest prices reached over a period of time, while the candle body shows the opening and closing prices. Long shadows indicate significant volatility and possible reversals, while short shadows indicate relative price stability. Analyzing shadows helps traders understand market sentiment and possible reversal points. For example, a long upper shadow may indicate selling pressure, while a long lower shadow may indicate buying support.
XAU:
XAU is the international code for one troy ounce of gold in the forex market. It is traded as XAU/USD, where the price shows the value of one ounce of gold in U.S. dollars. Gold is often seen as a protective asset in times of economic uncertainty, and its price can be affected by factors such as inflation and the state of the global economy.
Yield Curve:
A yield curve is a graphical representation of interest rates on debt obligations with different maturities. It shows the relationship between the yield (interest rate) and the time to maturity of a debt, usually government bonds. The yield curve can take different forms: normal (upward), inverted (downward) or flat. A normal yield curve indicates expectations of economic growth, while an inverted curve may signal an impending recession. Investors and economists closely monitor the yield curve because it provides information about future changes in interest rates, economic conditions, and possible investment strategies.
Zero Coupon Bond:
A zero coupon bond is a debt security that does not pay regular interest (coupons) but is issued at a discount to par value. The income on the bond is generated by the difference between the purchase price and the face value at maturity. Because these bonds do not provide regular interest payments, they are more sensitive to changes in interest rates than traditional bonds. They are often used by investors who seek a guaranteed amount at some point in the future, such as for saving for retirement or paying for education. Zero coupon bonds provide predictable returns and are useful for long-term financial planning