Investopedia's Dictionary includes more than 12,000 unique terms (and growing!), but year after year there are some tried-and-true favorites among our readers. Price/earnings ratio commonly tops the list, along with other basic terms such as return on equity and return on investment. However, when a new term breaks into our fairly consistent list of top terms, there's usually a good reason for it. Find out what some of our readers sought information on this year – and why.
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One term that jumped unexpectedly into our most searched list was the term death cross. And this term doesn't just sound ominous – it is, which is what ranked it as one of the most popular terms in July. A death cross occurs when a security's short-term moving average breaks below its long-term moving average, which can mean that a bear market is on the horizon. (Learn more about moving averages in How are moving averages used in trading?)
At the end of June, the Dow Jones Industrial Average crossed this threshold when its 50-day moving average dropped below its 200-day moving average. In early July, the S&P 500 followed suit, leaving traders scrambling to decide whether this was indeed the kiss of death for what had appeared to be a recovering market. But while the indexes did plunge over the summer, they slowly regained momentum and made up those losses as the year progressed – and then some.
Another major term that intrigued Investopedia readers in 2010 was double-dip recession, which took a spin in our top terms list in July and August. A double-dip recession refers to a recession that is followed by a short-lived recovery before dropping into recession again. (For background reading, see Recession: What Does It Mean To Investors?)
Throughout 2010, the financial news was buzzing about the possibility of a second dip into recession. Over the summer, the fear of another dip hit fever pitch, as analysts began warning that the economic recovery couldn't last. Although the White House recently warned that a failure to pass the U.S. government's proposed tax deal could lead to a second dip, that was more a political statement that one about the economy. For now, fears of another slide into recession (or a deeper recession) seem to have abated.
Hedge Funds and CDOs, Oh My!
Although the term hedge fund is fairly popular on Investopedia, this term saw a real surge in April. This may have occurred as a result of the fraud charges that hit Goldman Sachs in that month, which were centered around a major hedge fund that worked with Goldman to create collateralized debt obligations (also a major term in April and May) which would essentially benefit the fund (and cost Goldman's investors) if their value fell. The lawsuit alleged that Goldman Sachs failed to divulge "vital information" about the conflict of interest to investors. The SEC case against Goldman was only one of the latest blows against hedge funds and the lack of regulation (and transparency) surrounding the investments they make, including scandals at several small hedge funds. In July, Goldman Sachs agreed to pay $550 million and change its business practices to settle the SEC's claims. (For more information on how the company got into trouble, see Goldman Sachs: By The Numbers.)
The term basis point was also popular with our readers over the summer months. This spike may have occurred as a result of the U.S. government's negotiations with China's central bank to de-peg the yuan from the U.S. dollar. A basis point is a unit (1/100th of a percent) that can be used to denote an interest rate change, and can be used to compare the change of one currency against another. The argument against the yuan/dollar relationship was that it benefited China while hurting the U.S. This is because it served to make Chinese goods artificially cheap, making it difficult for American manufacturers to compete. Unfortunately for China, depreciating its currency could mean less foreign investment, lower wages and fewer exports, which could also negatively impact the U.S. by reducing access to the cheap goods the country has become so accustomed to. In 2010, U.S. President Barack Obama put major pressure on China to devalue the yuan, leading the term "basis point" to pop up all over the news. (For insight on this story, see Why China's Currency Tangos With The USD and Do Cheap Imported Goods Cost Americans Jobs?)
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The Bottom Line
The past year's financial development prompted a few relatively obscure terms to get some time in the limelight. Only time will tell which financial terms become a part of the general lexicon in 2011, but in the meantime, if you have suggestions for new terms you would like to see on Investopedia.com, please drop us a line!
For the latest financial news, see Water Cooler Finance: Canadian Takeover And U.S. Tax Breaks.