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 can be complicated and hard to understand, but knowing the terms is essential to make informed decisions and avoiding costly mistakes. In this article, we've compiled a list of 17 common trading terms that every beginner should know.
Bull Market
A bull market is one that has a steady upward trend for stock prices. Knowing this term can help traders better understand the market mood and how they can make informed decisions. For example traders may buy stocks at a time of a bull market, and then hold on to the stock for longer to reap the benefits.
Technical Analysis
Technical analysis is an analytical method that uses price and volume information to analyze securities. Understanding technical analysis can help traders identify potential trends and patterns to make better-informed trading decisions.
Stop Loss Order
Stop-loss orders are an order to sell securities at a specific price in order to limit possible losses. Understanding stop loss order can assist traders in managing their risk, and protecting their capital.
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.
Slippage
Slippage is the gap between the expected and actual prices of a transaction. Understanding slippage is important for traders because it can help them evaluate the effectiveness and efficiency of their trading methods.
Risk Management
The process of identifying risks and managing them is known as risk management. Understanding risk management can help traders minimize potential losses and protect their capital.
Portfolio Diversification
Portfolio diversification is the process of investing in different securities to minimize risk and spread it out. Understanding portfolio diversity can help traders manage risks and increase long-term profits.
Broker
A broker is someone or a firm who buys and/or sells securities for a trader. Understanding brokers can help traders choose a reputable and trustworthy brokerage firm to execute their trades.
Limit Order
A limit order allows you to buy or sell an asset at a price that is specified or even better. Understanding limit trades can help traders achieve specific targets for their trading and increase profits.
Swing Trading
Swing trading means holding a particular security for several days or weeks to take advantage price swings. Understanding swing trading allows traders to identify trading opportunities for short-term.
Liquidity
Liquidity refers to the ease with which a security can be bought or sold without affecting its price. Understanding liquidity helps you to make trades more quickly and prevents price slippage.
Earnings Per share (EPS)
The Earnings Per Share (EPS) is the profit of a business divided by its number of outstanding shares. Understanding EPS is essential to evaluate a stock's financial health and potential for growth.
The Beta
The beta is a measure that compares the volatility of an asset to the general market. Understanding beta will help traders determine how a stock may perform under different market circumstances.
Ask Price
The ask price is defined as the lowest price at which a seller would accept a security or stock. Understanding the price at which a seller is willing to accept a stock or security as payment for it, will help you make better trading decisions.
Bid Price
The bid price is the highest price that a buyer will pay for an asset or stock. It is essential to understand the bid to be able to assess the value of the security.
Short Selling
Short selling is when a trader sells a security they don't own with the intention of buying it at a cheaper price. Understanding short sales is key to taking advantage of bearish markets and making money from falling prices.
Market Order
A market order is an order to buy or sell a security at the best available price in the market. Understanding market orders will help traders to execute trades more quickly.
In conclusion, by understanding 17 the most common trading terms, traders can build a solid base to begin their trading adventure. Understanding these terms can help traders to make better trading decisions and manage risk. They may also increase their profitability. It is important that new traders take the time necessary to understand these terms and succeed in the trading industry.
Frequently Asked Question
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.
What is the best place to learn about these terms?
There are many online resources, including trading forums, blogs, and educational websites that can provide more information on these terms.
How long does learning these terms take?
The time it takes to master these terms will vary depending on the way you learn and how much time you devote to study.
These terms are applicable to all types trading?
All types of trading are covered, including stock, options, forex, futures, etc.
Can I make a trade without a brokerage?
It's possible to trade without a broker, but it's recommended that you use a reputable and trustworthy brokerage firm to execute your trades and ensure the safety of your funds.
FAQ
What is a mutual fund?
Mutual funds are pools that hold money and invest in securities. They provide diversification so that all types of investments are represented in the pool. This reduces risk.
Professional managers oversee the investment decisions of mutual funds. Some funds permit investors to manage the portfolios they own.
Because they are less complicated and more risky, mutual funds are preferred to individual stocks.
What is a Bond?
A bond agreement between two parties where money changes hands for goods and services. It is also known to be a contract.
A bond is usually written on paper and signed by both parties. This document includes details like the date, amount due, interest rate, and so on.
A bond is used to cover risks, such as when a business goes bust or someone makes a mistake.
Bonds are often combined with other types, such as mortgages. This means that the borrower must pay back the loan plus any interest payments.
Bonds are also used to raise money for big projects like building roads, bridges, and hospitals.
A bond becomes due when it matures. This means that the bond's owner will be paid the principal and any interest.
If a bond isn't paid back, the lender will lose its money.
What is a Reit?
An entity called a real estate investment trust (REIT), is one that holds income-producing properties like apartment buildings, shopping centers and office buildings. These companies are publicly traded and pay dividends to shareholders, instead of paying corporate tax.
They are very similar to corporations, except they own property and not produce goods.
How are Share Prices Set?
The share price is set by investors who are looking for a return on investment. They want to make money from the company. So they purchase shares at a set price. Investors will earn more if the share prices rise. If the share price goes down, the investor will lose money.
An investor's primary goal is to make money. This is why investors invest in businesses. They are able to make lots of cash.
How are securities traded?
The stock market is an exchange where investors buy shares of companies for money. Investors can purchase shares of companies to raise capital. Investors then sell these shares back to the company when they decide to profit from owning the company's assets.
Supply and Demand determine the price at which stocks trade in open market. The price goes up when there are fewer sellers than buyers. Prices fall when there are many buyers.
You can trade stocks in one of two ways.
-
Directly from company
-
Through a broker
Why are marketable securities important?
A company that invests in investments is primarily designed to make investors money. It does so by investing its assets across a variety of financial instruments including stocks, bonds, and securities. These securities have certain characteristics which make them attractive to investors. They are considered safe because they are backed 100% by the issuer's faith and credit, they pay dividends or interest, offer growth potential, or they have tax advantages.
A security's "marketability" is its most important attribute. This refers to the ease with which the security is traded on the stock market. You cannot buy and sell securities that aren't marketable freely. Instead, you must have them purchased through a broker who charges a commission.
Marketable securities are government and corporate bonds, preferred stock, common stocks and convertible debentures.
These securities are a source of higher profits for investment companies than shares or equities.
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)
- 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)
- 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)
External Links
How To
How do I invest in bonds
You need to buy an investment fund called a bond. Although the interest rates are very low, they will pay you back in regular installments. This way, you make money from them over time.
There are many options for investing in bonds.
-
Directly purchasing individual bonds
-
Buy shares of a bond funds
-
Investing via a broker/bank
-
Investing through financial institutions
-
Investing in a pension.
-
Directly invest through a stockbroker
-
Investing via a mutual fund
-
Investing in unit trusts
-
Investing with a life insurance policy
-
Investing in a private capital fund
-
Investing via an index-linked fund
-
Investing via a hedge fund