What Is Near Term?
Let me explain what the near term means to you. It's a period of time that's not far off in the future, used to describe events that could happen soon. In finance, you'll hear this term when discussing the timeframe for an expected event or change. As a trader, you might use 'near term' when you anticipate a price move happening shortly, or when you're entering a trade that you'll hold for just a brief period.
Key Takeaways
You should know that the near term is simply a timeframe not far ahead. Think of it as short term; for instance, a day trader operates in the near or short term. Businesses and economists apply it to events or data emerging over the next few months. Remember, there's no exact duration— for some, it's a few months, but for active traders, it could mean minutes or hours.
Understanding Near Term
When financial market analysts and traders talk about the near term, they're referring to events on the horizon, like upcoming company earnings or an expected stock price shift. If something isn't happening soon, it's not in the near term. You, as a day trader or swing trader, would typically engage in near-term trades, which are short-duration positions. This contrasts directly with long-term traders who buy and hold assets for extended periods.
Near-term investments or trades mean acquiring assets you intend to hold for just a few weeks, maybe months at most. You might also buy options or futures with near-term expirations, classifying them as short-term trades.
There's no fixed timeframe for what counts as near term. You could see it as anything under a few months, while a day trader might mean the next five or ten minutes. In economics, it applies to growth levels in indicators like GDP, inflation, consumer spending, or labor costs.
For example, the Federal Reserve might track near-term weekly employment data to decide on interest rate changes at their next meeting—that data is near term because it's released weekly. Congress could wait for monthly trade deficit numbers before passing legislation; checking the next one or two releases is a near-term approach.
In business, the near term could mean the current quarter, where everything unfolds over the next three months. If your business is preparing a new product launch or marketing campaign in the coming months, that's a near-term initiative, regardless of how long it's been in planning.
Fast Fact
Here's a quick point: if you buy a bond close to its maturity date, that counts as a near-term bond purchase.
Near Term in Trading Example
Consider this hypothetical scenario to see it in action. It's early April, and you're a trader eyeing Apple (AAPL) ahead of its earnings release on April 28. You're bullish, so you plan a long position expecting positive earnings to drive the stock up.
You'll hold for one week post-earnings if it's good and the stock rises; if not, you'll exit immediately with whatever profit or loss. You wait for a good entry point by mid-April, making the trade last two to three weeks. This is a near-term trade because the key event—the earnings—is also in the near term.
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