What does “correction” really mean?

Published on February 14, 2018

When you have a company and you believe the company will make profits or expand its business, you speculate in what a part of that company is worth. You buy a part and then you follow the company on a quarterly basis. If it’s not going the right way, you might correct your estimate if it’s value. When a lot of people do this, the market goes through a “correction”.

When it comes to currencies, it’s not really the same thing. You rather look at what the country that uses a certain currency produces on a yearly basis. A country that does well and has a high output and is stable, has a stable current. If it turns out Europe is doing worse than anticipated, the value of the Euro might be corrected. A correction.

If a company suddenly turns out to be on the verge of bankruptcy, or if it simply disappears like Enron, we’re not talking a correction. We’re talking a depreciation close to zero (rarely 0, because there are often things of value in the balance sheets). If a country is in total war and on the verge of being eliminated, we’re not talking “correction”, we’re talking value depreciation that could very well become 0.

A market correction is one thing. A burst bubble is something else. A lot of crypto currencies had tanked, yet people keep calling it a “correction”



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