For a beginner, the worlds of stocks, options, and bonds can seem overwhelming. It can be challenging to learn the terminology 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 14 common trading terms that every beginner should know.
- Volume
The volume is the number of shares traded of a certain security in a given period. Understanding the term is essential to gauge market sentiment and identify potential trading opportunities.
- 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 will help you take advantage of bear market conditions and profit from the falling prices.
- Bull Market
Bull markets are characterized by an upward trend of stock prices over a period of time. Knowing the term can help a trader understand the market's overall mood and how to make better-informed trading decisions. In a bullish stock market, for example, investors may choose to purchase stocks and hold them on longer in order to gain from their rising price.
- Bid Price
The bid price is simply the highest price an investor will pay for a security or stock. It's crucial to understand the bid price to know the security's fair value and determine whether it's worth buying or selling.
- Broker
A broker is someone or a firm who buys and/or sells securities for a trader. Understanding brokers helps traders to choose a trustworthy and reputable brokerage firm for their trades.
- Swing Trading
Swing trading is the practice of holding a stock for a period between a couple of days and a couple weeks in order to profit from price fluctuations. Understanding swing trading will help traders identify possible short-term trade opportunities.
- Blue Chip Stock
A blue-chip share is one that belongs to a financially stable, large company. It has a solid history of paying dividends. Understanding blue-chip stocks can help traders identify potential long-term investments.
- Dividend
Dividends are payments made to shareholders by companies from their profits. Understanding dividends will help you evaluate the potential of a stock as a long-term income and investment.
- Candlestick
A candlestick shows the price change of a security. Understanding candlesticks allows traders to recognize patterns, and help them make more informed decisions.
- Portfolio Diversification
Portfolio diversification involves investing in multiple securities to spread out risk and reduce potential losses. Portfolio diversification is a way to help traders minimize risk, and perhaps increase long term returns.
- Moving Average
A moving-average is a measure of the average price for a security over a given period. Understanding moving-averages can help traders identify trading trends and make informed decisions.
- Bear Market
A bear market is the inverse of a bull, in which stock prices are falling. Understanding this term will help traders recognize a downward trend and make more informed trading decisions. In a bearish market, traders might consider selling their stocks to prevent further losses.
- Day Trading
Day trading means buying and trading securities during a single day of trading. Understanding day trade can help traders profit from price volatility and short-term movements.
- Limit Order
Limit orders are an order to purchase or sell stock at a specific price. Understanding this term can help traders determine a target price for a particular security and avoid overpaying.
In conclusion, by understanding 14 the most common trading terms, traders can build a solid base to begin their trading adventure. By understanding these terms, traders can make better-informed trading decisions, manage risk, and potentially increase profitability. It is important that new traders take the time necessary to understand these terms and succeed in the trading industry.
Frequently Asked Question
Can I start trading without knowing all these terms?
Yes, however it's important to have a basic knowledge of these terms. This will help you make better trading decisions and effectively manage your risk.
What is the best place to learn about these terms?
Online resources such as trading forums blogs and educational sites can help you learn more about these terms.
How long is it necessary to learn these terms and phrases?
You can learn these words in a matter of weeks, or months depending on your style of learning and the time you spend studying.
What types of trades are covered by these terms?
Yes, these terms are relevant to all types of trading, including stocks, options, futures, and forex.
Can I trade without using a broker or a trading platform?
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
How can someone lose money in stock markets?
The stock market isn't a place where you can make money by selling high and buying low. You lose money when you buy high and sell low.
The stock market is an arena for people who are willing to take on risks. They are willing to sell stocks when they believe they are too expensive and buy stocks at a price they don't think is fair.
They are hoping to benefit from the market's downs and ups. But if they don't watch out, they could lose all their money.
Who can trade on the stock market?
The answer is everyone. Not all people are created equal. Some people have more knowledge and skills than others. They should be rewarded for what they do.
But other factors determine whether someone succeeds or fails in trading stocks. If you don’t know the basics of financial reporting, you will not be able to make decisions based on them.
You need to know how to read these reports. You must understand what each number represents. Also, you need to understand the meaning of each number.
You will be able spot trends and patterns within the data. This will allow you to decide when to sell or buy shares.
You might even make some money if you are fortunate enough.
How does the stockmarket work?
By buying shares of stock, you're purchasing ownership rights in a part of the company. The company has some rights that a shareholder can exercise. He/she may vote on major policies or resolutions. He/she has the right to demand payment for any damages done by the company. He/she can also sue the firm for breach of contract.
A company cannot issue more shares that its total assets minus liabilities. This is called capital adequacy.
A company with a high capital sufficiency ratio is considered to be safe. Companies with low ratios are risky investments.
What's the difference between the stock market and the securities market?
The securities market is the whole group of companies that are listed on any exchange for trading shares. This includes stocks as well options, futures and other financial instruments. Stock markets are generally divided into two main categories: primary market and secondary. Large exchanges like the NYSE (New York Stock Exchange), or NASDAQ (National Association of Securities Dealers Automated Quotations), are primary stock markets. Secondary stock markets allow investors to trade privately on smaller exchanges. These include OTC Bulletin Board Over-the-Counter, Pink Sheets, Nasdaq SmalCap Market.
Stock markets are important for their ability to allow individuals to purchase and sell shares of businesses. The value of shares depends on their price. The company will issue new shares to the general population when it goes public. These shares are issued to investors who receive dividends. Dividends can be described as payments made by corporations to shareholders.
Stock markets serve not only as a place for buyers or sellers but also as a tool for corporate governance. Boards of Directors are elected by shareholders and oversee management. Boards make sure managers follow ethical business practices. If a board fails to perform this function, the government may step in and replace the board.
What is security on the stock market?
Security is an asset that produces income for its owner. Shares in companies are the most popular type of security.
One company might issue different types, such as bonds, preferred shares, 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 your shares at any time.
What are the advantages to owning stocks?
Stocks are more volatile than bonds. When a company goes bankrupt, the value of its shares will fall dramatically.
However, if a company grows, then the share price will rise.
For capital raising, companies will often issue new shares. This allows investors the opportunity to purchase more shares.
Companies borrow money using debt finance. This gives them cheap credit and allows them grow faster.
When a company has a good product, then people tend to buy it. The stock will become more expensive as there is more demand.
As long as the company continues to produce products that people want, then the stock price should continue to increase.
Stock marketable security or not?
Stock is an investment vehicle where you can buy shares of companies to make money. You do this through a brokerage company that purchases stocks and bonds.
You could also invest directly in individual stocks or even mutual funds. There are more mutual fund options than you might think.
The key difference between these methods is how you make money. With direct investment, you earn income from dividends paid by the company, while with stock trading, you actually trade stocks or bonds in order to profit.
In both cases, ownership is purchased in a corporation or company. But, you can become a shareholder by purchasing a portion of a company. This allows you to receive dividends according to how much the company makes.
Stock trading allows you to either short-sell or borrow stock in the hope that its price will drop below your cost. Or you can hold on to the stock long-term, hoping it increases in value.
There are three types for stock trades. They are called, put and exchange-traded. Call and put options allow you to purchase or sell a stock at a fixed price within a time limit. ETFs, which track a collection of stocks, are very similar to mutual funds.
Stock trading is a popular way for investors to be involved in the growth of their company without having daily operations.
Stock trading is a complex business that requires planning and a lot of research. However, the rewards can be great if you do it right. You will need to know the basics of accounting, finance, and economics if you want to follow this career path.
Statistics
- 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)
- "If all of your money's in one stock, you could potentially lose 50% of it overnight," Moore says. (nerdwallet.com)
- Ratchet down that 10% if you don't yet have a healthy emergency fund and 10% to 15% of your income funneled into a retirement savings account. (nerdwallet.com)
External Links
How To
How to make a trading plan
A trading plan helps you manage your money effectively. It helps you understand your financial situation and goals.
Before you create a trading program, consider your goals. It may be to earn more, save money, or reduce your spending. You may decide to invest in stocks or bonds if you're trying to save money. You could save some interest or purchase a home if you are earning it. You might also want to save money by going on vacation or buying yourself something nice.
Once you know your financial goals, you will need to figure out how much you can afford to start. It depends on where you live, and whether or not you have debts. It's also important to think about how much you make every week or month. Income is the sum of all your earnings after taxes.
Next, you will need to have enough money saved to pay for your expenses. These include bills, rent, food, travel costs, and anything else you need to pay. These all add up to your monthly expense.
You'll also need to determine how much you still have at the end the month. This is your net income.
Now you've got everything you need to work out how to use your money most efficiently.
To get started with a basic trading strategy, you can download one from the Internet. Ask someone with experience in investing for help.
Here's an example.
This is a summary of all your income so far. It also includes your current bank balance as well as your investment portfolio.
And here's a second example. This was designed by a financial professional.
It will allow you to calculate the risk that you are able to afford.
Don't attempt to predict the past. Instead, put your focus on the present and how you can use it wisely.