AARP Hearing Center
Wall Street throws fits periodically, and as you watch the market see and saw, you might be hearing some unfamiliar words — as you mutter some very familiar ones under your breath. Let's take a look at some of the most important terminology.
Algorithmic trading: Computer programs that buy and sell vast amounts of stock at lightning speeds based on proprietary formulas.
Bear market: A decline of 20 percent or more from a recent high by a major stock market benchmark such as the Standard & Poor's 500 index. The median bear market — half higher, half lower — since 1945 has clawed the S&P 500 for a 33 percent decline and lasted 14 months. Months to recovery: 25.
Circuit breaker: When there's a surge in selling and the stock market plunges too far, too fast, rules kick in that temporarily halt trading — akin to a circuit breaker in a home's electric panel that trips when there's a surge in electricity. This gives investors a few minutes to cool off and rethink their next trades. The first circuit breaker is a 15-minute halt, triggered by a 7 percent decline during the trading day, that occurs before 3:25 p.m. The second level is a 15-minute halt at a 13 percent drop, and the third level is a halt at a 20 percent decline, which will last the rest of the trading day.
Correction: A 10 percent decline from a recent high in a major stock market benchmark such as the S&P 500. A correction becomes a bear market when the decline hits 20 percent.
Dollar-cost averaging: An investing approach that calls for making regular investments in a stock or mutual fund at regular intervals. If followed, the strategy takes emotion and market timing out of the equation, spreads out risk and decreases the likelihood of investing all of your money when prices are highest.
