The world of stock, bonds and options is overwhelming for new traders. The vocabulary of trading can be one of the most difficult aspects of trading. Trading jargon, while difficult to grasp and understand, is necessary to make informed choices and avoid costly mistakes. In this article, we've compiled a list of 17 common trading terms that every beginner should know.
Liquidity
Liquidity is the ease at which a security may be purchased or sold, without its price being affected. Understanding liquidity allows you to trade quickly and avoid slippage.
Short Selling
The practice of short selling involves the sale of securities that a trader does own in order to buy them back later at a discounted price. Understanding short selling will help you take advantage of bear market conditions and profit from the falling prices.
Market Order
A market order is an order type that is immediately executed at the current market rate. You need to know this term if you want to execute quick trades on volatile markets.
Blue Chip Stock
A blue-chip stock refers to a large, stable, and financially sound company with a long history of steady dividend payments. Understanding blue-chip stocks can help traders identify potential long-term investments.
Position Trading
The term position trading refers holding a stock for several months up to a year to take advantage long-term movements in price. Understanding position trading will help traders to identify long-term investing opportunities.
Price-to Earnings Ratio (P/E).
The price-to earning (P/E), or ratio, is a valuation metric that compares an organization's stock to its earnings. Understanding the ratio helps traders to determine if a stock has been overvalued.
Market Order
A market order allows you to buy or sold a security for the best possible price on the market. Understanding market trades can help traders complete their transactions quickly.
Swing Trading
Swing trading means holding a particular security for several days or weeks to take advantage price swings. Understanding swing trading will help traders identify possible short-term trade opportunities.
Stop Loss
A stop-loss order is an instruction to sell a particular security at a given price. Understanding stop loss is vital to protecting the capital of the trader and limiting losses.
Volume
Volume is the number shares of a stock that have been traded during a specific period. Understanding this term is crucial to gauge the market's sentiment and identify trading opportunities.
Bull Market
A bull-market is a market characterized as a long-term upward movement in the stock price. Knowing the term can help a trader understand the market's overall mood and how to make better-informed trading decisions. For instance, traders can buy stocks during a bullish market and hold onto them for a long period of time to profit from the increasing prices.
Moving Average
A moving average is an average of a security's price over a specified period. Understanding moving averages helps traders to identify trends and make better trading decisions.
Candlestick
A candlestick can be used to represent the price of a specific security. Understanding candlesticks can help traders identify patterns and make better-informed trading decisions.
Day Trading
Day trading means buying and trading securities during a single day of trading. Understanding day trading can help traders take advantage of short-term price movements and volatility.
Earnings Per Share (EPS)
The earnings per share (EPS), or profit divided by outstanding shares, is the measure of a company's financial health and growth potential. Understanding EPS allows you to assess a stock’s financial health as well as its potential for growth.
Risk Management
Risk management is a process that involves identifying, assessing, managing, and minimizing the risks involved in trading. Understanding risk can help traders reduce potential losses and protect capital.
Margin
Margin is how much money a dealer borrows from his broker to buy stocks. Understanding the terms can help traders leverage capital to increase potential profit but comes with increased risks.
To conclude, knowing these 17 commonly used trading terms gives beginner traders the foundation they need to start trading. Understanding these terms will help traders make more informed trading decisions, reduce risk and increase profits. It is important that new traders take the time necessary to understand these terms and succeed in the trading industry.
The Most Frequently Asked Questions
Can I start trading if I don't know all these terms and phrases?
It is possible, but you should have a good understanding of the terms in order to make well-informed decisions about trading and manage your risks effectively.
Where can I find out more about these words?
There are many online resources, including trading forums, blogs, and educational websites that can provide more information on these terms.
How long will it take me to learn all these terms?
This can range from a week to several months depending on what you are studying and your preferred learning style.
Do these terms apply to all forms of trading?
All types of trading are covered, including stock, options, forex, futures, etc.
Can I trade on my own?
Although it is possible to trade on your own, we recommend using a reputable brokerage firm in order to protect your funds and execute your trades.
FAQ
What is a mutual fund?
Mutual funds can be described as pools of money that invest in securities. They provide diversification so that all types of investments are represented in the pool. This helps reduce risk.
Professional managers oversee the investment decisions of mutual funds. Some funds also allow investors to manage their own portfolios.
Mutual funds are more popular than individual stocks, as they are simpler to understand and have lower risk.
How do people lose money on the stock market?
The stock market isn't a place where you can make money by selling high and buying low. It's a place you lose money by buying and selling high.
The stock market is for those who are willing to take chances. They would like to purchase stocks at low prices, and then sell them at higher prices.
They hope to gain from the ups and downs of the market. They might lose everything if they don’t pay attention.
What is a REIT?
A real-estate investment trust (REIT), a company that owns income-producing assets such as shopping centers, office buildings and hotels, industrial parks, and other buildings is called a REIT. They are publicly traded companies that pay dividends to shareholders instead of paying corporate taxes.
They are similar to a corporation, except that they only own property rather than manufacturing goods.
What is the role and function of the Securities and Exchange Commission
SEC regulates the securities exchanges and broker-dealers as well as investment companies involved in the distribution securities. It also enforces federal securities laws.
What is security in the stock exchange?
Security is an asset that produces income for its owner. Most security comes in the form of shares in companies.
A company may issue different types of securities such as bonds, preferred stocks, and common stocks.
The earnings per shares (EPS) or dividends paid by a company affect the value of a stock.
You own a part of the company when you purchase a share. This gives you a claim on future profits. You receive money from the company if the dividend is paid.
You can sell shares at any moment.
Statistics
- Our focus on Main Street investors reflects the fact that American households own $38 trillion worth of equities, more than 59 percent of the U.S. equity market either directly or indirectly through mutual funds, retirement accounts, and other investments. (sec.gov)
- For instance, an individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake. (investopedia.com)
- Even if you find talent for trading stocks, allocating more than 10% of your portfolio to an individual stock can expose your savings to too much volatility. (nerdwallet.com)
- Individuals with very limited financial experience are either terrified by horror stories of average investors losing 50% of their portfolio value or are beguiled by "hot tips" that bear the promise of huge rewards but seldom pay off. (investopedia.com)
External Links
How To
How to open and manage a trading account
It is important to open a brokerage accounts. There are many brokers on the market, all offering different services. There are some that charge fees, while others don't. Etrade, TD Ameritrade Fidelity Schwab Scottrade Interactive Brokers are some of the most popular brokerages.
After opening your account, decide the type you want. You should choose one of these options:
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Individual Retirement Accounts (IRAs).
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Roth Individual Retirement Accounts
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401(k)s
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403(b)s
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SIMPLE IRAs
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SEP IRAs
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SIMPLE SIMPLE401(k)s
Each option offers different benefits. IRA accounts are more complicated than other options, but have more tax benefits. Roth IRAs are a way for investors to deduct their contributions from their taxable income. However they cannot be used as a source or funds for withdrawals. SIMPLE IRAs and SEP IRAs can both be funded using employer matching money. SIMPLE IRAs are simple to set-up and very easy to use. They allow employees and employers to contribute pretax dollars, as well as receive matching contributions.
You must decide how much you are willing to invest. This is also known as your first deposit. Many brokers will offer a variety of deposits depending on what you want to return. For example, you may be offered $5,000-$10,000 depending on your desired rate of return. The lower end of this range represents a conservative approach, and the upper end represents a risky approach.
After choosing the type of account that you would like, decide how much money. Each broker sets minimum amounts you can invest. These minimums can differ between brokers so it is important to confirm with each one.
After choosing the type account that suits your needs and the amount you are willing to invest, you can choose a broker. Before choosing a broker, you should consider these factors:
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Fees - Be sure to understand and be reasonable with the fees. Brokers often try to conceal fees by offering rebates and free trades. However, some brokers actually increase their fees after you make your first trade. Do not fall for any broker who promises extra fees.
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Customer service – You want customer service representatives who know their products well and can quickly answer your questions.
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Security - Look for a broker who offers security features like multi-signature technology or two-factor authentication.
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Mobile apps – Check to see if the broker provides mobile apps that enable you to access your portfolio wherever you are using your smartphone.
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Social media presence - Find out if the broker has an active social media presence. It might be time for them to leave if they don't.
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Technology - Does it use cutting-edge technology Is the trading platform intuitive? Are there any issues when using the platform?
Once you've selected a broker, you must sign up for an account. Some brokers offer free trials, while others charge a small fee to get started. After signing up you will need confirmation of your email address. Next, you'll need to confirm your email address, phone number, and password. Finally, you will need to prove that you are who you say they are.
After your verification, you will receive emails from the new brokerage firm. It's important to read these emails carefully because they contain important information about your account. This will include information such as which assets can be bought and sold, what types of transactions are available and the associated fees. Keep track of any promotions your broker offers. You might be eligible for contests, referral bonuses, or even free trades.
Next, open an online account. An online account is typically opened via a third-party site like TradeStation and Interactive Brokers. Both sites are great for beginners. When you open an account, you will usually need to provide your full address, telephone number, email address, as well as other information. Once this information is submitted, you'll receive an activation code. You can use this code to log on to your account, and complete the process.
After opening an account, it's time to invest!