Expert decodes all you need to know about stock market terminology

Given that the GameStop saga at Wall Street went viral recently, we invited an expert to share stock market terminology that everyone should know

You know an issue has truly gone viral when Netflix decides to make a film on it. That’s the latest development on the GameStop fiasco that emerged last week and hasn’t yet ended. GameStop, a video game retailer, struggled during the pandemic as the lockdown curbed shopping outdoors. As one of the most ‘shorted’ publicly traded companies, Wall Street investors started betting against it, ie that the company was doomed to fail. A few months ago, members of WallStreetBets, a stock market discussion group on the website Reddit, encouraged others to invest in the company and eventually Redditors bought in, driving the company’s stock price to rise by approximately 1,700 per cent last week — in turn, causing much financial misery to the Wall Street biggies who betted against it.

“What happened is nothing new; it’s the oldest form of cartelisation that takes place in markets. There have been many instances when people have ganged up against each other. The only thing that was new this time was that this was pulled off on Reddit by retail investors, which is a bit hard to digest,” says city-based financial market trainer Purv Shah. The incident generated interest and excitement even among those who would associate the word ‘hedge’ to nothing beyond, well, a hedgehog. And if you wish to delve deep into the matter, we invited Shah to suggest key market terminology you ought to know.

Memes about the incident also surfaced

. Equity shares: A form of business capital that’s not borrowed but created by equal voluntary contribution by investors. It doesn’t have a fixed repayment time nor does it have a fixed return on investment. These features make it different from borrowed capital (debt). It’s great for the business; but investors need to exercise caution.

. Bulls and Bears: Street slang for buyers (demand) and sellers (supply). Bulls help markets rise by buying shares whereas bears push markets down by selling shares.

GameStop is an American video game, consumer electronics, and gaming merchandise retailer. Pic/AFP

. Long and Short: When investors buy shares with a hope that prices will rise they have created a ‘long’ position and when they sell shares with a feeling that prices will drop they have created ‘short’ positions. Profits are made even when markets fall surprisingly by shorting stocks.

. Support and Resistance: Price points from which stocks have bounced back up (support; longing by bulls) or hammered down (resistance; shorting by bears) many times in the past and hence investors use these as reference for future buy-sell opportunities.

Purv Shah

. Profit booking: Selling off whatever you’ve bought or buying back whatever you’ve sold in order to nullify your long/short position resulting in a profit(selling price>cost price) or loss(selling price<
cost price).

. Long Unwinding and Short Covering: The contra action leading to profit booking. Bulls buy first wait for an up-move and then sell (long unwinding), and the case is vice versa for bears.

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