For a beginner, the worlds of stocks, options, and bonds can seem overwhelming. One of the most challenging aspects of trading is learning the vocabulary. 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 17 trading terms that are essential for every newbie.
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 trends and make informed trading decisions.
Day Trading
Day trading means buying and trading securities during a single day of trading. Understanding day trading allows traders to profit from short-term price changes and volatility.
Broker
A broker is a person or firm that buys and sells securities on behalf of a trader. Understanding brokers helps traders to choose a trustworthy and reputable brokerage firm for their trades.
Slippage
Slippage is a difference between a trade's expected price and its actual price. Understanding slippage helps traders to evaluate their trading strategies, and reduce trading costs.
Bear Market
A bearish market is when stock prices drop. Understanding this term can help traders identify downtrends and make more informed decisions. In a bearish market, traders might consider selling their stocks to prevent further losses.
Volatility
Volatility describes the level of price fluctuation of a specific security over a period of time. Understanding volatility can help you identify potential trading options and manage your risk.
Dividend
A dividend is a payment made by a company to its shareholders from its profits. Understanding dividends helps you assess the long-term earning potential of an investment.
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 is crucial to evaluating a stock’s health and growth potential.
Market Capitalization
The market capitalization is the value of all outstanding shares in a company. Understanding market capitalization can help traders evaluate the size and potential growth of a company.
Portfolio Diversification
Portfolio diversification involves investing in multiple securities to spread out risk and reduce potential losses. Understanding portfolio diversity can help traders manage risks and increase long-term profits.
Resistance
At a certain price, a stock or other security is likely to experience selling pressure. Understanding resistance helps identify areas where profit-taking or a trend reversal may occur.
Commission
A commission is the fee that a broker charges for executing trades in a trader's name. Understanding commissions will help traders minimize their trading costs and evaluate the cost.
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.
Liquidity
Liquidity describes the ease in which a stock can be bought and sold without impacting its price. Understanding liquidity will help you execute trades faster and prevent price slippage.
Margin
Margin is the amount of money a trader borrows from a broker to buy securities. Understanding the term helps traders to leverage their capital, increase potential profits and also comes with an increased risk.
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 can help traders determine whether a particular stock is undervalued or overvalued.
Swing Trading
Swing Trading is when you hold a security from a few days up to a few week to benefit from price fluctuations. Understanding swing trading will help traders identify possible short-term trade opportunities.
In conclusion, understanding these 17 common trading terms can give beginner traders a solid foundation to start their trading journey. 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.
Frequently Asked Question
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 these terms?
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?
You can learn these words in a matter of weeks, or months depending on your style of learning and the time you spend studying.
These terms are applicable to all types trading?
These terms can be used to describe all forms of trading, such as stocks, options and futures.
Can I make a trade without a brokerage?
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
Can you trade on the stock-market?
The answer is yes. There are many differences in the world. Some have better skills and knowledge than others. They should be rewarded.
There are many factors that 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.
This is why you should learn how to read reports. You need to know what each number means. You must also be able to correctly interpret the numbers.
If you do this, you'll be able to spot trends and patterns in the data. This will help you decide when to buy and sell shares.
This could lead to you becoming wealthy if you're fortunate enough.
How does the stock market work?
You are purchasing ownership rights to a portion of the company when you purchase a share of stock. The company has some rights that a shareholder can exercise. He/she may vote on major policies or resolutions. He/she can seek compensation for the damages caused by company. He/she also has the right to sue the company for breaching a contract.
A company cannot issue more shares than its total assets minus liabilities. This is called "capital adequacy."
Companies with high capital adequacy rates are considered safe. Low ratios can be risky investments.
How are securities traded?
The stock market lets investors purchase shares of companies for cash. Shares are issued by companies to raise capital and sold to investors. These shares are then sold to investors to make a profit on 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.
There are two options for trading stocks.
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Directly from company
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Through a broker
Why is a stock security?
Security is an investment instrument whose worth 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). The issuer promises to pay dividends to shareholders, repay debt obligations to creditors, or return capital to investors if the underlying asset declines in value.
What is a mutual-fund?
Mutual funds consist of pools of money investing in securities. They provide diversification so that all types of investments are represented in the pool. This helps reduce risk.
Professional managers are responsible for managing mutual funds. They also make sure that the fund's investments are made correctly. 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.
Statistics
- 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)
- 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)
- "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 to Invest in Stock Market Online
The stock market is one way you can make money investing in stocks. There are many methods to invest in stocks. These include mutual funds or exchange-traded fund (ETFs), hedge money, and others. The best investment strategy depends on your risk tolerance, financial goals, personal investment style, and overall knowledge of the markets.
Understanding the market is key to success in the stock market. Understanding the market and its potential rewards is essential. Once you know what you want out of your investment portfolio, then you can start looking at which type of investment would work best for you.
There are three main categories of investments: equity, fixed income, and alternatives. Equity is the ownership of shares in companies. Fixed income can be defined as debt instruments such bonds and Treasury bills. Alternatives include commodities and currencies, real property, private equity and venture capital. Each option comes with its own pros and con, so you'll have to decide which one works best for you.
Two broad strategies are available once you've decided on the type of investment that you want. One strategy is "buy & hold". You purchase some of the security, but you don’t sell it until you die. Diversification, on the other hand, involves diversifying your portfolio by buying securities of different classes. If you purchased 10% of Apple or Microsoft, and General Motors respectively, you could diversify your portfolio into three different industries. Multiplying your investments will give you more exposure to many sectors of the economy. It helps protect against losses in one sector because you still own something else in another sector.
Another key factor when choosing an investment is risk management. Risk management allows you to control the level of volatility in your portfolio. You could choose a low risk fund if you're willing to take on only 1% of the risk. On the other hand, if you were willing to accept a 5% risk, you could choose a higher-risk fund.
Knowing how to manage your finances is the final step in becoming an investor. Managing your money means having a plan for where you want to go financially in the future. A good plan should cover your short-term goals, medium-term goals, long-term goals, and retirement planning. That plan must be followed! Don't get distracted by day-to-day fluctuations in the market. Keep to your plan and you will see your wealth grow.