Stock Market Glossary
Asset Allocation
Distribution of assets across different asset classes such as stocks, bonds or commodities.
In brief: Distribution of assets across different asset classes such as stocks, bonds or commodities.
Meaning in practice
According to studies, asset allocation is responsible for around 90 percent of the long-term differences in returns. It depends on the investment goal, time horizon and risk-bearing capacity and is brought back into target weights through regular rebalancing.
Context for investors and traders
For traders, this term is most useful when preparing and executing an order. Its meaning depends on the venue, liquidity, time frame and order type. A single reading is not a reliable buy or sell decision.
How to use this in practice
In practice, the term should be linked to a specific trading plan: entry, exit, position size and costs belong together. In short time frames, spread, slippage and delayed execution can quickly outweigh the theoretical benefit of an observation.
What to keep in mind
Write down which observation confirms or invalidates your assumption before trading. This keeps the term a decision-making tool rather than a retrospective justification for risk already taken.
