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 may be difficult to comprehend, but it's essential for making informed decisions. In this article, we've compiled a list of 15 common trading terms that every beginner should know.
- Earnings Shares (EPS),
The earning per share is calculated by dividing the company's profits by the number outstanding shares. Understanding EPS helps you evaluate a company's financial strength and growth potential.
- Market Order
A market order refers to an order that executes immediately at the price of the current market. This is a term that you need to be familiar with to trade quickly, especially when markets are volatile.
- Bull Market
Bull markets are characterized by an upward trend of stock prices over a period of time. The term helps traders to understand the mood of a market and help them make better 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.
- Volatility
Volatility can be defined as the degree of change in price of a financial instrument over a specified period. Understanding volatility can help you identify potential trading options and manage your risk.
- 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.
- Blue Chip Stock
Blue-chip stocks are large, stable and financially sound companies with a history of regular dividend payments. Understanding blue-chip stocks can help traders identify potential long-term investments.
- Volume
Volume is the number shares of a stock that have been traded during a specific period. Understanding this term helps you to assess market sentiment and identify possible trading opportunities.
- 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.
- Market Capitalization
The total value of the outstanding shares of a corporation is called market capitalization. Understanding market value can help traders determine the potential growth and size of a firm.
- Technical Analysis
Technical analysis is the process of analyzing a security based on its price and volume. Understanding technical analysis helps traders to identify trends and patterns that can lead them to better trading decisions.
- Risk Management
Risk management is a process that involves identifying, assessing, managing, and minimizing the risks involved in trading. Understanding risk-management can help traders protect and minimize their capital.
- Day Trading
Day trading is defined as the purchase and sale of securities on a particular trading day. Understanding day trading will help traders to take advantage of price fluctuations and short-term volatility.
- Broker
A broker is an individual or company who purchases and sells securities in the name of a trader. Understanding brokers is important for traders who want to select a reliable and trustworthy brokerage company to execute trades.
- Price-to Earnings Ratio (P/E).
The price-to earnings (P/E), also known as a valuation ratio, compares a stock's price with its earnings per unit. Understanding the P/E ratio can help traders evaluate whether a stock is overvalued or undervalued.
- 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 is crucial to profiting from bear markets.
To conclude, knowing these 15 commonly used trading terms gives beginner traders the foundation they need to start trading. Understanding these terms helps traders make better decisions when trading, reduce their risk and possibly increase their profits. Beginner traders must take the time to understand and learn these terms in order to be successful.
Common Questions
Do I need to know these terms before trading?
You can, but it is recommended that you understand these terms so that you can make informed decisions when trading and manage risk effectively.
Where can I get more information about these terms and their meanings?
You can find more information online about these terms in many places, including blogs, educational websites, trading forums, and other resources.
How long does it take to learn these terms?
The time it takes to master these terms will vary depending on the way you learn and how much time you devote to study.
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 trade without a broker?
Trading without a broker is possible, but you should use a trusted brokerage firm that has a good reputation to execute your trades. This will ensure your money's safety.
FAQ
What is security at the stock market and what does it mean?
Security is an asset that generates income. Shares in companies is the most common form of security.
One company might issue different types, such as bonds, preferred shares, and common stocks.
The earnings per share (EPS), and the dividends paid by the company determine the value of a share.
If you purchase shares, you become a shareholder in the business. You also have a right to future profits. If the company pays a payout, you get money from them.
Your shares may be sold at anytime.
What is the difference in a broker and financial advisor?
Brokers are people who specialize in helping individuals and businesses buy and sell stocks and other forms of securities. They take care all of the paperwork.
Financial advisors are experts on personal finances. They use their expertise to help clients plan for retirement, prepare for emergencies, and achieve financial goals.
Banks, insurance companies or other institutions might employ financial advisors. They may also work as independent professionals for a fee.
Consider taking courses in marketing, accounting, or finance to begin a career as a financial advisor. Also, you'll need to learn about different types of investments.
Why is a stock called security.
Security refers to an investment instrument whose price is dependent 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 are some advantages of owning stocks?
Stocks are more volatile that bonds. If a company goes under, its shares' value will drop dramatically.
However, if a company grows, then the share price will rise.
To raise capital, companies often issue new shares. Investors can then purchase more shares of the company.
To borrow money, companies use debt financing. This allows them to get cheap credit that will allow them to grow faster.
When a company has a good product, then people tend to buy it. The stock price rises as the demand for it increases.
Stock prices should rise as long as the company produces products people want.
How are securities traded?
The stock market allows investors to buy shares of companies and receive money. In order to raise capital, companies will issue shares. Investors then purchase them. Investors then resell these shares to the company when they want to gain from the company's assets.
Supply and demand determine the price stocks trade on open markets. The price of stocks goes up if there are less buyers than sellers. Conversely, if there are more sellers than buyers, prices will fall.
There are two options for trading stocks.
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Directly from company
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Through a broker
Can bonds be traded
Yes, they do! They can be traded on the same exchanges as shares. They have been traded on exchanges for many years.
They are different in that you can't buy bonds directly from the issuer. You will need to go through a broker to purchase them.
Because there are fewer intermediaries involved, it makes buying bonds much simpler. This means you need to find someone willing and able to buy your bonds.
There are different types of bonds available. There are many types of bonds. Some pay regular interest while others don't.
Some pay interest quarterly while others pay an annual rate. These differences make it easy compare bonds.
Bonds can be very useful for investing your money. If you put PS10,000 into a savings account, you'd earn 0.75% per year. If you were to invest the same amount in a 10-year Government Bond, you would get 12.5% interest every year.
If you were to put all of these investments into a portfolio, then the total return over ten years would be higher using the bond investment.
Is stock marketable security?
Stock is an investment vehicle which allows you to purchase company shares to make your money. This is done by a brokerage, where you can purchase stocks or bonds.
You could also invest directly in individual stocks or even mutual funds. There are actually more than 50,000 mutual funds available.
There is one major difference between the two: how you make money. Direct investment is where you receive income from dividends, while stock trading allows you to trade stocks and bonds for profit.
In both cases you're buying ownership of a corporation or business. 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: put, call, and exchange-traded. Call and put options let you buy or sell any stock at a predetermined price and within a prescribed time. ETFs can be compared to mutual funds in that they do not own individual securities but instead track a set number of stocks.
Stock trading is very popular because investors can participate in the growth of a business without having to manage 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. If you decide to pursue this career path, you'll need to learn the basics of finance, accounting, and economics.
Statistics
- 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)
- 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)
- The S&P 500 has grown about 10.5% per year since its establishment in the 1920s. (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)
External Links
How To
How to open and manage a trading account
First, open a brokerage account. There are many brokers available, each offering different services. There are some that charge fees, while others don't. Etrade is the most well-known brokerage.
After opening your account, decide the type you want. These are the options you should choose:
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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 401(k)s
Each option has different benefits. IRA accounts provide tax advantages, however they are more complex than other options. Roth IRAs allow investors deductions from their taxable income. However, they can't be used to withdraw funds. SIMPLE IRAs are similar to SEP IRAs except that they can be funded with matching funds from employers. SIMPLE IRAs are very simple and easy to set up. Employers can contribute pre-tax dollars to SIMPLE IRAs and they will match the contributions.
Finally, you need to determine how much money you want to invest. This is also known as your first deposit. You will be offered a range of deposits, depending on how much you are willing to earn. You might receive $5,000-$10,000 depending upon your return rate. The lower end of this range represents a conservative approach, and the upper end represents a risky approach.
After deciding on the type of account you want, you need to decide how much money you want to be invested. You must invest a minimum amount with each broker. The minimum amounts you must invest vary among brokers. Make sure to check with each broker.
After you've decided the type and amount of money that you want to put into an account, you will need to find a broker. Before selecting a brokerage, you need to consider the following.
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Fees: Make sure your fees are clear and fair. Many brokers will try to hide fees by offering free trades or rebates. However, some brokers charge more for your first trade. Avoid any broker that tries to get you to pay extra fees.
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Customer service: Look out for customer service representatives with knowledge about the product and who can answer questions quickly.
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Security - Select a broker with multi-signature technology for two-factor authentication.
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Mobile apps - Make sure you check if your broker has mobile apps that allow you to access your portfolio from anywhere with your smartphone.
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Social media presence - Check to see if they have a active social media account. If they don't, then it might be time to move on.
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Technology - Does the broker use cutting-edge technology? Is it easy to use the trading platform? Are there any issues with the system?
After you have chosen a broker, sign up for an account. Some brokers offer free trials while others require you to pay a fee. After signing up you will need confirmation of your email address. Then, you'll be asked to provide personal information such as your name, date of birth, and social security number. Finally, you'll have to verify your identity by providing proof of identification.
Once verified, you'll start receiving emails form your brokerage firm. You should carefully read the emails as they contain important information regarding your account. You'll find information about which assets you can purchase and sell, as well as the types of transactions and fees. Be sure to keep track any special promotions that your broker sends. These could be referral bonuses, contests or even free trades.
The next step is to 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. To open an account, you will typically need to give your full name and address. You may also need to include your phone number, email address, and telephone number. After all this information is submitted, an activation code will be sent to you. Use this code to log onto your account and complete the process.
You can now start investing once you have opened an account!