Accumulation

Reviewed by Bhavana | Updated on Aug 26, 2020

Introduction

In finance, accumulation can draw quite a few different meanings. With relation to trading, accumulation indicates the position size within an asset which elevates with multiple transactions. Accumulation also indicates the overall inclusion of positions to a portfolio. It can also be a reference point to an increase in the purchasing activity within an asset. In such a scenario, the asset will be considered to be either being accumulated or under accumulation.

When the size of a trader's positioning increases over multiple transactions, it implies that the trader is accumulating a stock or any other asset. A trader might also intend to accumulate a position with time, versus all at once, with the aim of getting a better average price or obtain information via multiple purchases or to make sure the market impact is lesser.

Understanding Accumulation

The term accumulation is also applicable when a portfolio manager or an investor includes new positions to a portfolio. Here accumulation translates to the investor accumulating investments. As the investor makes his/her contribution to his/her retirement portfolio over time, he or she may choose to use the funds for buying commodities, additional stocks, and other assets.

When a stock or any asset's value is increasing, particularly in relation to rising volume, it will be considered to be under accumulation. This implies that both investors and traders are keen on buying the asset in mass. When the asset's value begins to decline, it is termed as distribution. Accumulation refers to buyers who are more aggressive when compared to sellers, which results in a price hike. Distribution refers to sellers who are more aggressive when compared to buyers, which results in bringing down the price.

The accumulation phase refers to a period wherein an individual is working as well as planning to ultimately build up the value of his or her investment via savings.