Investors, as well as financial market commentators and participants, use specific terms to refer to market moves, market sentiment, or even intention. For this reason, any potential investor interested in the financial markets must know some basic terms, crucial to understanding the market.
In time, an investor’s vocabulary will increase because all financial statements or press conferences use concepts that belong to the financial market. Because trading algorithms or bots dominate the decision-making process and execution in Forex trading, central banks make sure to use “code” words to signal the end or start of a tightening or easing cycle.
You may have noticed we just used the terms “tightening” and “easing,” without explaining what they mean. Here’s a basic guide for the most commonly used terms in the financial markets:
Going Long. “Going long” means the intent to buy a currency or currency pair. Investors often refer to trade as “going long at x” meaning they intend to buy the currency pair at x price. As a rule of thumb, going long only takes place from the Ask price.
Going Short. “Going short” means the intent to sell. Shorting a currency pair takes place from the Bid price; short sellers expect the price to fall.
Bullish. While “going long” expresses the actual trade, “bullish” represents the market sentiment. An investor can have the intent to go long regarding a currency pair, but still not take a position in order to wait for a better entry point. Bullish usually indicates the desire to buy a currency or currency pair and is a positive development for an economy. The term comes from the bull, as its horns point upwards.
Bearish. As the opposite of bullish, “bearish” indicates a negative bias. When investors feel the market is bearish, they want to sell a currency or currency pair. When an economy enters recession or contraction, this forms a bearish sentiment. The term comes from the bear, as it always walks with its head pointing downward. You may now understand why Wall Street battles are always illustrated with a bull and a bear, depicting the fight between bullish and bearish sentiments, or between buying and selling.
Hawkish. While the market can be bullish or bearish, central bankers can’t, because a central banker can’t express the desire to buy something. Instead, the term “hawkish” is used. Therefore, a central bank can’t be “bullish” and can’t “go long” but they can be hawkish. Hawkish illustrates positive economic development and the central bank’s expectation for the economic sentiment to improve further. When a central bank’s statement is hawkish, investors tend to go long on that currency. The term comes from the hawk, as it always flies high in the sky.
Dovish. A dove flies below the hawk’s altitude, and a dovish financial statement triggers a bearish market reaction.
Easing. Cutting interest rates and loosening the monetary policy conditions.
Hiking. Raising interest rates and tightening the monetary policy conditions.
These are just a few terms to consider, but the extent of the financial markets’ terminology goes well beyond that. For instance, during the ECB (European Central Bank) Trichet Presidency, the ECB introduced the word “strong vigilance” in the statement to illustrate a rate hike coming at the next meeting.
- Both investors and central bankers use specific language.
- Going long or short is similar to bullish and bearish, respectively; the former expresses an attitude and the latter a sentiment.
- Hawkish and dovish is the central bankers’ way of expressing bullish or bearish sentiments, respectively.
- Easing and tightening are the central bank’s reaction to economic developments.