The world of stock, bonds and options is overwhelming for new traders. Learning the trading vocabulary is one of the hardest aspects of trading. Trading jargon is often difficult to understand and can be confusing, but understanding it is crucial to making informed decisions and avoiding costly errors. We've put together a list of 16 trading terms that are essential for every newbie.
- 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.
- Bid Price
The bid price is simply the highest price an investor will pay for a security or stock. Understanding the bid price is crucial for determining the fair value of a security and deciding whether to buy or sell it.
- Day Trading
Day trading is defined as the purchase and sale of securities on a particular trading day. Understanding day-trading can help traders make the most of short-term fluctuations in price and volatility.
- Volatility
Volatility is a measure of the price change of a stock over a given period. Understanding volatility is crucial to identify potential trading opportunities and manage risk.
- Dividend
Dividends are payments made to shareholders by companies from their profits. Understanding dividends is crucial to evaluate a stock's potential for long-term investment and income.
- Earnings Per share (EPS)
Earnings per share (EPS) is a company's profit divided by the number of outstanding shares. Understanding EPS helps you evaluate a company's financial strength and growth potential.
- Moving Average
A moving median is an average over a period of time. Understanding moving averages can help traders identify trends and make informed trading decisions.
- Slippage
The term slippage is used to describe the difference between an expected price and the price at which a trade was actually executed. Understanding slippage can help traders evaluate the effectiveness of their trading strategies and potentially reduce their trading costs.
- Stop Loss Order
A stop-loss or limit order is a sale of a stock at a predetermined price. This order limits potential losses. Understanding stop-loss orders can help traders manage their risk and protect their capital.
- Position Trading
Position trading involves holding securities for several weeks to years in order take advantage of price movements that are long-term. Understanding positional trading can help traders identify possible long-term investments.
- Short Selling
Short selling is a practice where a trader will sell a stock that they do not own in hopes of repurchasing it at a lower cost. Understanding short-selling is crucial to profiting from bear markets.
- 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.
- Candlestick
A candlestick can be used to represent the price of a specific security. Understanding candlesticks is a great way to help traders spot patterns and take better trading decisions.
- Fundamental Analysis
Fundamental analysis is a method of analyzing securities based on their financial and economic data. Understanding fundamental analysis helps traders assess a stock's potential growth and financial health.
- Technical Analysis
The technical analysis method is used to analyze the performance of securities using their volume and price data. Understanding technical indicators can help traders make better decisions by identifying potential patterns and trends.
- Penny Stock
A penny-stock is a very low-priced stock with high risks, issued by an organization that has a relatively small market cap. Understanding penny stocks helps traders identify high-risk investments with high rewards.
Conclusion: Understanding 16 is a great way for new traders to begin their trading journey. By understanding these terms, traders can make better-informed trading decisions, manage risk, and potentially increase profitability. It's crucial for beginner traders to take the time to learn and understand these terms to succeed in the trading world.
Common Questions
Do I need to know these terms before trading?
Yes, but it's recommended that you have a basic understanding of these terms to make informed trading decisions and manage your risk effectively.
Where can i learn more about the terms?
These terms can be found in many online resources including trading forums. blogs, and educational web sites.
How long does learning these terms take?
Learning these terms can take anywhere from a few weeks to a few months, depending on your learning style and the amount of time you dedicate to studying.
Do these terms apply to all forms of trading?
These terms apply to all forms of trading including forex, stocks, futures and options.
Can I buy and sell without a broker?
You can trade without a brokerage, but we recommend that you work with a trustworthy and reputable firm to ensure the safety of all your funds.
FAQ
What is security in the stock market?
Security is an asset which generates income for its owners. Shares in companies is the most common form of security.
There are many types of securities that a company can issue, such as common stocks, preferred stocks and bonds.
The value of a share depends on the earnings per share (EPS) and dividends the company pays.
If you purchase shares, you become a shareholder in the business. You also have a right to future profits. If the company pays you a dividend, it will pay you money.
You can always sell your shares.
Why is a stock called security.
Security is an investment instrument whose value depends on another company. It may be issued by a corporation (e.g., shares), government (e.g., bonds), or other entity (e.g., preferred stocks). If the underlying asset loses its value, the issuer may promise to pay dividends to shareholders or repay creditors' debt obligations.
What is the distinction between marketable and not-marketable securities
The main differences are that non-marketable securities have less liquidity, lower trading volumes, and higher transaction costs. Marketable securities, however, can be traded on an exchange and offer greater liquidity and trading volume. They also offer better price discovery mechanisms as they trade at all times. However, there are many exceptions to this rule. There are exceptions to this rule, such as mutual funds that are only available for institutional investors and do not trade on public exchanges.
Marketable securities are more risky than non-marketable securities. They are generally lower yielding and require higher initial capital deposits. Marketable securities tend to be safer and easier than non-marketable securities.
For example, a bond issued by a large corporation has a much higher chance of repaying than a bond issued by a small business. The reason is that the former is likely to have a strong balance sheet while the latter may not.
Marketable securities are preferred by investment companies because they offer higher portfolio returns.
Statistics
- US resident who opens a new IBKR Pro individual or joint account receives a 0.25% rate reduction on margin loans. (nerdwallet.com)
- 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)
- "If all of your money's in one stock, you could potentially lose 50% of it overnight," Moore says. (nerdwallet.com)
- 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)
External Links
How To
How to trade in the Stock Market
Stock trading involves the purchase and sale of stocks, bonds, commodities or currencies as well as derivatives. The word "trading" comes from the French term traiteur (someone who buys and sells). Traders buy and sell securities in order to make money through the difference between what they pay and what they receive. This type of investment is the oldest.
There are many different ways to invest on the stock market. There are three basic types: active, passive and hybrid. Passive investors only watch their investments grow. Actively traded investors seek out winning companies and make money from them. Hybrid investors combine both of these approaches.
Index funds track broad indices, such as S&P 500 or Dow Jones Industrial Average. Passive investment is achieved through index funds. This method is popular as it offers diversification and minimizes risk. You can simply relax and let the investments work for yourself.
Active investing involves picking specific companies and analyzing their performance. The factors that active investors consider include earnings growth, return of equity, debt ratios and P/E ratios, cash flow, book values, dividend payout, management, share price history, and more. They will then decide whether or no to buy shares in the company. If they feel that the company's value is low, they will buy shares hoping that it goes up. However, if they feel that the company is too valuable, they will wait for it to drop before they buy stock.
Hybrid investing is a combination of passive and active investing. You might choose a fund that tracks multiple stocks but also wish to pick several companies. In this case, you would put part of your portfolio into a passively managed fund and another part into a collection of actively managed funds.