The Market, this word is thrown around everywhere on television, during debates, and even at meetings with your financial planner. While many people use this word, do you know what they are actually referring to?
This term, like many other terms in the world of investing, is actually a word that can be used in different contexts and can have different meanings. It is no wonder investing sounds confusing when the main word ‘market’ is actually referring to more than one thing! Let’s take a look at a variety of ways we refer to the market….
First off, the word market is a broad strokes term to define the entire stock market overall. It is the abbreviated word to refer to everything that is going on in the investing world. Investors, reporters or any of us might discuss ‘the market’ and refer to the stock market as a whole but not one specific index, stock or ETF. Generally, this term will be used like “lets take a look at the market” in the same way you would say to someone “lets take a look at the forest”. You would say market as an overarching term to relate to the stock market as a whole.
The word can also use to refer to a specific stock. An investor might say “look at what happened to this market today”, and he might actually be talking about one specific stock. In this scenario, the investor is probably inviting you to look at the price of the stock because it had a big move in one direction or the other.
The S&P 500, which, just like the DOW, is an index and is often quoted as ‘the market’. In this case, we are referring to the index itself. This market reference is something that I have a habit of doing, I talk about the ‘market’ but what I’m referring to, is the ES, which is the futures contract of the S&P 500. When I trade options (www.shecantrade.com ), and especially when I’m trying to decide what options strategies I am going to trade, I will refer to the ‘market’ (which means the ES). I watch to see if the index is trending or not, and moving up or down. I will then relate it to a specific stock that I am looking to trade options on.
I too fall into the habit of over using this term, and while I do point to the visual of the ES while I analyse how price of the ES is moving, I often call it ‘the market’. (in fact, even writing this article I’ve realised how often I use the same word ‘market’ but am referring to different things. For all of you who may feel confused, I think you are perfectly justified in feeling this way….it is confusing!! The term ‘market’ changes as often as a chameleon changes color.
While the term ‘market’ is broadly used, I do think it is a good term to remind you of what the market actually is, it is a place where many people come together to shop for specific products. In a sense, the stock market is very much just like a farmers market, so maybe using the word ‘market’ isn’t that confusing after all. Any traded product is really just like products at one farmers booth, and you as an investor decide which booth you want to go to, and how much you are willing to pay for that product.
So as the saying goes, lets go off to market to market…..but in the stock market….