Glossary - B

Trading terms that begin with the letter B

Barriers To Entry
What Does Barriers To Entry Mean?

The existence of high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry benefit existing companies already operating in an industry because they protect an established company's revenues and profits from being whittled away by new competitors.

Barriers to entry can exist as a result of government intervention (industry regulation, legislative limitations on new firms, special tax benefits to existing firms, etc.), or they can occur naturally within the business world. Some naturally occurring barriers to entry could be technological patents or patents on business processes, a strong brand identity, strong customer loyalty or high customer switching costs.

Base Currency
What Does Base Currency Mean?

The first currency quoted in a currency pair on forex. It is also typically considered the domestic currency or accounting currency. For accounting purposes, a firm may use the base currency to represent all profits and losses.

It is sometimes referred to as the "primary currency".

Bear Market
What Does Bear Market Mean?

A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

A bear market should not be confused with a correction, which is a short-term trend that has a duration of less than two months. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the bottom is very difficult to do. Fighting back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller.

Bear Market Rally
What Does Bear Market Rally Mean?

A period in which prices of stocks increase during a bear market. A bear market rally is usually a short-lived market increase following a period of market decline and is followed by another period of market decline leading to a pronounced down trend.

Although there are no official guidelines for a bear market rally, it is sometimes defined as an overall market increase of 10-20% during an overall bear market. There are many examples of bear market rallies in modern stock market history, including the bear market rally of the Dow Jones following the stock market crash of 1929, which eventually saw a bottoming out in 1932

Bid
What Does Bid Mean?

  1. An offer made by an investor, a trader or a dealer to buy a security. The bid will stipulate both the price at which the buyer is willing to purchase the security and the quantity to be purchased.
  2. The price at which a market maker is willing to buy a security. The market maker will also display an ask price, or the amount and price at which it is willing to sell.

This is the opposite of the ask, which stipulates the price a seller is willing to accept for a security and the quantity of the security to be sold at that price.

  1. An example of a bid in the market would be $23.53 x 1,000, which means that an investor is willing to purchase 1,000 shares at the price of $23.53. If a seller in the market is willing to sell that amount for that price, then the transaction is completed.
  2. Market makers are vital to the efficiency and liquidity of the marketplace. By quoting both bid and ask prices on the market, they always allow investors to buy or sell a security if they need to.

Bid-Ask Spread
What Does Bid-Ask Spread Mean?

The amount by which the ask price exceeds the bid. This is essentially the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it.

For example, if the bid price is $20 and the ask price is $21 then the "bid-ask spread" is $1.

The size of the spread from one asset to another will differ mainly because of the difference in liquidity of each asset. For example, currency is considered the most liquid asset in the world and the bid-ask spread in the currency market is one of the smallest (one-hundredth of a percent). On the other hand, less liquid assets such as a small-cap stock may have spreads that are equivalent to a percent or two of the asset's value.

Boom
What Does Boom Mean?

A period of time during which sales or business activity increases rapidly

Broker
What Does Broker Mean?

  1. An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor.
  2. The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.
  3. A licensed real estate professional who typically represents the seller of a property. A broker's duties may include: determining market values, advertising properties for sale, showing properties to prospective buyers, and advising clients with regard to offers and related matters. Traditionally, only the wealthy could afford a broker and access the stock market. The internet triggered an explosion of discount brokers, which allow investors to trade at a lower cost, but don't provide personalized advice. Because of discount brokers, almost anybody can afford to invest in the market

Bubble
What Does Bubble Mean?

  1. An economic cycle characterized by rapid expansion followed by a contraction.
  2. A surge in equity prices, often more than warranted by the fundamentals and usually in a particular sector, followed by a drastic drop in prices as a massive selloff occurs.
  3. A theory that security prices rise above their true value and will continue to do so until prices go into freefall and the bubble bursts.

Bull Market

What Does Bull Market Mean?

A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. It's difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets.

The use of "bull" and "bear" to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market.

Buy the Dips
What Does Buy The Dips Mean?

A slang phrase regarding the practice of purchasing stocks following a decline in prices. After a significant dip in the price of a security or stock index, investors should increase positions or purchase different stocks to capitalize on what is seen as an eventual upswing.

The concept of buying dips is based on market fluctuation. Because the market is volatile, any given dip in prices should eventually rise back up. By purchasing stocks right after a dip, investors are essentially buying shares at a discounted sale price.

Like all trading strategies, buying the dips is not a sure thing, because some stock price drops are due to negative changes in the underlying company's fundamentals. For example, investors who followed this strategy around the bursting of the dotcom bubble may have lost a lot of money because many internet companies lacked a proper revenue-generating business model

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