Stock Market Glossary
Inflation
General increase in the price level, which reduces the purchasing power of money.
In brief: General increase in the price level, which reduces the purchasing power of money.
Meaning in practice
Inflation devalues cash and nominal interest-bearing investments. Real assets such as stocks, real estate or raw materials can often compensate better in the long term, but in the short term they also suffer from interest rate increases that central banks use to combat inflation.
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.
