29 investing terms every investor should know

From meme stocks and short squeezes to poison pills, pump and dump schemes and dead cat bounces, the share market has developed its own unique language.

Whether you're following stock market news, researching shares or trying to make sense of discussions on Reddit and WallStreetBets, you'll regularly come across investing terms that can be confusing without the right context.

This investing glossary explains 29 common stock market terms and pieces of investing jargon, including HODL, diamond hands, ETFs, short selling and bear markets. Understanding what these terms mean can help investors follow market commentary, spot potential risks and make more informed investment decisions.

Meme stock and Reddit terms

1. What does diamond hands mean in investing?

Diamond hands is an expression made popular in online communities like WallStreetBets which refers to holding on to an investment despite its volatility or the pressure an investor is under to sell it.

It's often accompanied by diamond and open hand emojis.

2. What are paper hands in investing?

Paper hands is a slang term for an investor who sells an investment quickly, especially during periods of volatility or price declines.

The phrase is often used negatively in online investing communities and is the opposite of having "diamond hands".

3. What does HODL mean?

HODL is a misspelling of "hold" that became a popular investing term meaning to keep an investment despite market swings.

It is commonly used by cryptocurrency and meme stock investors.

4. What does "to the moon" mean?

To the moon is a phrase used online to express enthusiasm that a stock, cryptocurrency or other investment will rise sharply in value.

It is often accompanied by rocket emojis and became popular during the GameStop saga.

5. What are meme stocks?

Meme stocks are shares that gain popularity through social media, online forums or viral investor communities rather than traditional company fundamentals.

Their prices can rise or fall dramatically as retail investors pile in.

6. What is WallStreetBets?

WallStreetBets is a popular online forum for discussions related to stock trading on the social media platform Reddit.

The community became globally famous during the GameStop short squeeze and remains a hub for retail investor discussion.

7. What is dumb money?

Not just the name of a 2023 film, dumb money is a pejorative for retail investors (or their investments), while "smart money" is used to describe institutional investors.

Trading terms

8. What is short selling?

Short selling is a trading strategy based on the belief that the value of a particular stock will fall.

In practice, it could involve a short seller borrowing shares from a broker and then buying them back after the price falls, allowing them to profit from the difference.

9. What is a short squeeze?

A short squeeze happens when a heavily shorted stock rises sharply in price, forcing short sellers to buy shares to cover their positions and limit losses.

The resulting demand can drive the share price even higher.

10. What is a gamma squeeze?

A gamma squeeze occurs when heavy options trading forces market makers to buy shares, pushing the stock price higher.

This can create a feedback loop that accelerates gains.

11. What are call options?

A call option is a contract between a buyer and seller for a specific stock or security.

The buyer has the right, but not the obligation, to purchase the security at an agreed price before a specified date.

12. What is options trading?

Options trading involves contracts that give traders the right to buy or sell an asset at a predetermined price before a certain date.

Options can magnify gains, but they can also increase losses.

13. What is day trading?

Day trading is the practice of buying and selling shares or other assets within the same trading day.

Day traders aim to profit from short-term price movements rather than long-term investing.

14. What is volatility?

Volatility measures how much an investment's price moves up and down over time.

High volatility means larger price swings, while low volatility generally indicates greater stability.

Investing basics

15. What is an ETF?

An exchange traded fund (ETF) is an investment fund that holds a basket of assets, such as shares or bonds, and trades on a stock exchange.

ETFs can provide diversification at a relatively low cost.

16. What is a bull market?

A bull market occurs when share prices are rising or expected to continue rising over a prolonged period.

The term is associated with optimism and investor confidence.

17. What is a bear market?

A bear market occurs when share prices fall significantly from recent highs, typically by 20% or more.

Bear markets are associated with pessimism and weaker investor sentiment.

18. What are retail traders?

Retail traders are individuals who use their own money to buy and sell investments.

Unlike institutional investors, they do not manage money on behalf of others.

19. What is an institutional investor?

Institutional investors are organisations that invest money on behalf of large groups of people.

Examples include superannuation funds, pension funds, hedge funds and managed funds.

20. What is a multibagger stock?

A multibagger is a stock that increases several times above its original purchase price.

For example, a five-bagger has increased fivefold since it was bought.

21. What is Robinhood?

Robinhood is an American trading platform founded by Baiju Bhatt and Vladimir Tenev.

It became popular among retail investors by offering commission-free trading on stocks and ETFs.

Quirky Wall Street terms

22. What is a dead cat bounce?

A dead cat bounce is a temporary recovery in a falling share price or market before the decline resumes.

The phrase reflects the idea that even a badly falling asset can experience a brief rebound.

23. What is a bag holder?

A bag holder is an investor who continues holding a stock after its value has fallen sharply.

The term suggests the investor is left carrying losses while other investors have exited.

24. What is a fallen angel?

A fallen angel is a company, stock or bond that was once highly regarded but has experienced a significant decline.

Some investors view fallen angels as turnaround opportunities.

25. What is a black swan event?

A black swan event is a rare and unexpected event that has a major impact on financial markets.

These events are difficult to predict and often only seem obvious in hindsight.

26. What is the greater fool theory?

The greater fool theory suggests investors can profit from overvalued assets if they can sell them to someone willing to pay an even higher price.

The strategy relies on finding a "greater fool" rather than on an asset's underlying value.

27. What does catching a falling knife mean?

Catching a falling knife refers to buying a rapidly falling stock in the hope that it will rebound.

The phrase highlights the risk of buying before a share price has stabilised.

28. What is a widow maker trade?

A widow maker is a notoriously risky trade or investment strategy that has caused substantial losses for many investors.

The term is often used for trades that repeatedly catch investors out.

29. What is a pump and dump scheme?

A pump and dump scheme is a form of market manipulation in which false or misleading information is used to inflate a stock price.

The perpetrators then sell their holdings at the higher price, often leaving other investors with significant losses.

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