Understanding 'Near Term': Definition and Key Uses

The phrase “near term” is used to describe and/or refer to a period that is not too far into the future. In essence, “near term” describes events that are likely to occur soon. The phrase is commonly used to depict the time frame during which a change or event is anticipated to happen.

Summary

• The phrase “near term” is used to describe and/or refer to a period that is not too far into the future. It describes events that are likely to occur soon. The phrase is commonly used to depict the time frame during which a change or event is anticipated to happen.
• Near term trades and/or investments are typically held for short periods, such as a few hours (day/swing traders), a few weeks, or few months.
• No set time frame describes “near term,” as the time being referred to as being “near term” will vary according to the individual or entity using the term. Near term can be a few months, weeks, days, hours, or minutes, depending on the context or scenario in which it is being used.

Understanding “Near Term”

For persons and businesses involved in the financial markets and institutions, and economic analysts, the phrase “near term” is likely to be used to refer to events that are set to occur shortly. Examples of such events can include stock price movements expected shortly. In terms of active trading, day tradersDay TraderA day trader is an individual who opens and closes all of his or her trades before the end of the trading day; no open positions are (also known as swing traders) tend to take on “near term” trades. Such trades tend to be short in duration, contrasting long-term trades executed by long-term traders. Long-term traders tend to hold their trade positions for longer periods.

Near term trades and/or investments are typically held for short periods, such as a few hours (day/swing traders), a few weeks, or few months. Traders can purchase instruments, such as futures or options contracts withOptions: Calls and PutsAn option is a derivative contract that gives the holder the right, but not the obligation, to buy or sell an asset by a certain date at a specified price. a short or near term expiry (expiring within a shorter time), hence qualifying as a short term trade. In the bond market, purchasing a bond on a date that is close to its maturity date can also be referred to as a “near term purchase.”

Unfortunately, no set time frame describes “near term,” as the period being referred to as being “near term” will vary according to the individual or entity using the term. Near term can be a few months, weeks, days, hours, or minutes, depending on the context or scenario in which it is being used.

Applications and Examples

“Near Term” in Financial Market Trading

When looking at traders and investors in financial markets, their trades and/or holding periods are likely to be within a range of days or a few weeks. Hence, their trading strategies are formulated concerning their holding periods and trading styles.

For example, a day trader is likely to enter and exit trading positions on the same day. Swing traders are likely to hold a tradable asset for one or a few days. Trend traders are likely to enter trades in conjunction with the existing predominant trend visible for the financial instrument, i.e., entering a buying or long position when there is an upward trend in the price of the asset or entering into a sell or short position when there is a downward trend in the price of the asset.

“Near Term” in the Business Environment

Concerning the business environment, “near term” can be used to refer to an active period or an upcoming active period. One example can be the current financial quarter; therefore, any event that is likely to occur within the quarter (three months) can be seen as being “near term.”

Other examples of “near term” applicability in business ventures can be the upcoming launch of a new business division or product line that is expected to occur within the subsequent months.

“Near Term” in Finance and Economics

When it comes to the field of economics, “near term” can be used to describe common economic indicators, such as interest rates, inflation rates, gross domestic product (GDP), Consumer Price Index (CPI), consumer spending, etc.

Economic analysts, for example, could monitor the “near term:” economic data (such as short-term changes in employment numbers, overall consumer spending, etc.) to get an overview of how the economy is moving. Central banks can monitor the same short term changes in economic indicatorsEconomic IndicatorsAn economic indicator is a metric used to assess, measure, and evaluate the overall state of health of the macroeconomy. Economic indicators to determine whether a not a revision in short term monetary or fiscal policies is necessary.

Near term includes more applications than mentioned above; however, in essence, the phrase is used to describe an event that is already occurring or is expected to occur in the near future.

Additional Resources

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In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:

• Expiration TimeExpiration TimeExpiration time in options trading occurs on the third Saturday of the expiration month at 11:59 a.m. EST. The expiration time is not to be
• Futures ContractFutures ContractA futures contract is an agreement to buy or sell an underlying asset at a later date for a predetermined price. It’s also known as a derivative because future contracts derive their value from an underlying asset. Investors may purchase the right to buy or sell the underlying asset at a later date for a predetermined price.
• Long and Short PositionsLong and Short PositionsIn investing, long and short positions represent directional bets by investors that a security will either go up (when long) or down (when short). In the trading of assets, an investor can take two types of positions: long and short. An investor can either buy an asset (going long), or sell it (going short).
• Short RunShort RunA short run is a term widely used in economics – or microeconomics, more specifically – to describe a conceptualized period of time. A short