Investopedia / Theresa Chiechi

What Is Red in Finance?

In finance, the color red has several negative connotations that generally revolve around losing money. "Red" can denote a negative balance on a company's financial statement or an individual’s bank account. It can also signify unfruitful investments, as well as unfavorable regulations governing businesses.

Key Takeaways

  • Red is a color with several negative connotations in finance that generally revolve around losing money.
  • It can express a negative balance on a company's financial statement or individual’s bank account, unfavorable regulations governing businesses, and unfruitful investments.
  • The negative associations of red in business can be traced back to the tradition of accountants using red-colored ink to enter a negative figure on a company's financial statement.

Understanding Red in Finance

In many places in the world, colors can be viewed as a type of language that each convey a particular type of feeling or emotion. Some colors are believed to evoke calm and tranquillity, while others, such as red, are regarded as more loud and powerful.

Red is generally associated with energy, passion, danger, violence, and war. In business circles, the color red tends to indicate that something bad or unwanted is occurring.

On Wall Street, and other financial markets around the world, the word "red" primarily appears in the following two business expressions:

  • Bleeding red ink: Meaning to have severe financial problems and consistently lose money.
  • In the red: Companies that have not been profitable within their last accounting period or individuals who have more liabilities than assets and are struggling to pay off debts.

When red is used with numbers, it generally implies that a company, government, or other entity is in financial difficulty, spending more money than it is bringing in. That line of thinking can be traced back to the old accounting custom of utilizing red ink to enter a negative figure on a company's financial statement.

Today, most financial and operational ledgers are maintained electronically. That said, it is still fairly common for software to respect past accounting practices, using red to illustrate a loss and black to signify that a number is positive or profitable.

The negative connotations of the color red in finance aren’t just limited to a company’s balance sheet, either. For example, regulations governing businesses that are deemed burdensome and unnecessary are often referred to negatively as "red tape." Investors may also describe a security position losing money as being “in the red.”

Red vs. Black in Finance

In finance, black is the opposite of red. Accountants elected to use the color black to highlight a gain. As is the case for the color red, that custom has stuck.

It’s common for people to describe a healthy business or investment as “in the black.” This particular expression means the subject is profitable, making money, and not overburdened by debt.

Black Friday, the day after the Thanksgiving holiday when retailers deeply discount merchandise to attract shoppers, was named this way because many retailers who've been operating "in the red" see their finances turn to profit (black) on account of heavy sales.