Near Term

What is Near Term?

Near term meaning can be defined as the period that isn’t too far. It is often used for events that are likely to happen soon. Near term is commonly used in the financial context. It is described as the changes that the company is going to experience in the near future. In the investment context, the near term is used to define the time frame in which the price movement will occur. Let’s understand the concept with an example.

It is the beginning of April 2021 and an investor decides to purchase the stocks of a company expecting their revenues to be released within a month. The investor decides to keep the stocks if the share value of the company increases after their Earnings are released. If the prices of the stock plunge, the investor will get out of the trade with whatever profit or loss they have made. The investor will decide if they should stick around or not in mid-April. Since the investor enters the Market for a month, it will be considered a near term trade. It doesn’t matter if they change their plans in mid-April and keep the position for an extended duration.

Near Term in Investment

The traders can invest in the near term trades that have a short duration. Long-term is the opposite of the near term. The former involves events that are unlikely to happen in the near future. In the investment context, the investors could decide to buy the long-term trades and keep them for several years. For the near term trade, the investor holds the assets they have purchased for a short amount of time.

They buy these assets with the intention of storing them for a few weeks to a couple of months. They could also invest in the near term derivatives, such as options and futures, that are about to expire shortly. Similarly, a bond that is close to its expiry or maturity date will be considered as a near term investment.

While the term is used to define short-term trades and events, it doesn’t have an exact timeframe. Some believe the near term is a period less than a month, while others believe the time frame for the near term is 2-3 days.

Near Term in Finance and Business

As mentioned above, the near term is often used in business and financial contexts. It refers to the soon-to-be-active time. Take the business quarter, for example. Whatever happens in the quarter period is expected to take place in the next three months. For instance, if a company is planning to release its new product to the market in the business quarter, then they will launch it in the next three months.

Even if they have worked for months and years to manufacture the brand, this initiative will be known as the near-term campaign. So, any project that a business is going to release or work on in a few months will be considered as a near term project.