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 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.
- 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.
- Margin
Margin is money a trader lends to a broker in order to buy securities. Understanding the term helps traders to leverage their capital, increase potential profits and also comes with an increased risk.
- 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.
- Beta
Beta is the measure of volatility for a security compared to that of the market. Understanding beta can assist traders in identifying how a particular security might perform under various market conditions.
- Portfolio Diversification
Portfolio diversification involves investing in multiple securities to spread out risk and reduce potential losses. Understanding portfolio diversification can help traders manage risk and potentially increase long-term returns.
- Bear Market
A bear market occurs when the stock market falls. Understanding the term helps traders to identify a downtrend, and help them make better trading decisions. To avoid further losses, traders could sell stocks during a bearish trend.
- Fundamental Analysis
Fundamental analysis is a method of analyzing securities based on their financial and economic data. Understanding fundamental analysis can help traders evaluate a stock's financial health and potential for growth.
- Liquidity
Liquidity is defined as the ease of buying or selling a particular security without it affecting its value. Understanding liquidity helps you to make trades more quickly and prevents price slippage.
- Market Capitalization
Market capitalization is a measure of the total market value of an organization's outstanding stocks. Understanding market capitalization helps traders to evaluate the size of a business and its potential growth.
- Swing Trading
Swing trading involves holding a financial instrument for a short period of time, usually a week or two, to capitalize on price fluctuations. Swing trading helps traders to identify short-term trading possibilities.
- Take Profit Order
A take-profit order is an order to sell a security at a specified price to lock in profits. Understanding take-profit orders can help traders maximize their profitability and potentially increase their returns.
- Dividend
A dividend is a payment made by a company to its shareholders from its profits. Understanding dividends can help you determine if a stock is a good long-term investment or income.
- Margin Call
A margin order is a requirement by the broker that a trader deposit more money so as to maintain his margin account's minimal balance. Understanding margin call can help traders prevent forced liquidation.
- 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.
- Earnings Per share (EPS)
The number of shares outstanding is divided by the profit made by a firm to get its earnings per share. Understanding EPS allows you to assess a stock’s financial health as well as its potential for growth.
- Bull Market
Bull markets are characterized by an upward trend of stock prices over a period of time. 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.
To conclude, knowing these 16 commonly used trading terms gives beginner traders the foundation they need to start trading. 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.
FAQs
Can I start trading without knowing all these terms?
It is possible, but you should have a good understanding of the terms in order to make well-informed decisions about trading and manage your risks effectively.
What is the best place to learn 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 learning these terms take?
You can learn these words in a matter of weeks, or months depending on your style of learning and the time you spend studying.
Does this apply to all kinds of trading?
These terms can be used to describe all forms of trading, such as stocks, options and futures.
Can I trade without using a broker or a trading platform?
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 a REIT?
An REIT (real estate investment trust) is an entity that has income-producing properties, such as apartments, shopping centers, office building, hotels, and industrial parks. These companies are publicly traded and pay dividends to shareholders, instead of paying corporate tax.
They are similar in nature to corporations except that they do not own any goods but property.
What is the main difference between the stock exchange and the securities marketplace?
The entire list of companies listed on a stock exchange to trade shares is known as the securities market. This includes stocks, bonds, options, futures contracts, 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 let investors trade privately and are smaller than the NYSE (New York Stock Exchange). These include OTC Bulletin Board (Over-the-Counter), Pink Sheets, and Nasdaq SmallCap Market.
Stock markets are important because they provide a place where people can buy and sell shares of businesses. The price at which shares are traded determines their value. When a company goes public, it issues new shares to the general public. Dividends are paid to investors who buy these shares. Dividends are payments made by a corporation to shareholders.
Stock markets not only provide a marketplace for buyers and sellers but also act as a tool to promote corporate governance. Shareholders elect boards of directors that oversee management. The boards ensure that managers are following ethical business practices. If the board is unable to fulfill its duties, the government could replace it.
What is the role of the Securities and Exchange Commission?
SEC regulates the securities exchanges and broker-dealers as well as investment companies involved in the distribution securities. It also enforces federal securities law.
Statistics
- US resident who opens a new IBKR Pro individual or joint account receives a 0.25% rate reduction on margin loans. (nerdwallet.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)
- 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 Invest in Stock Market Online
You can make money by investing in stocks. There are many ways to do this, such as investing through mutual funds, exchange-traded funds (ETFs), hedge funds, etc. The best investment strategy depends on your risk tolerance, financial goals, personal investment style, and overall knowledge of the markets.
First, you need to understand how the stock exchange works in order to succeed. This includes understanding the different investment options, their risks and the potential benefits. Once you've decided what you want out your investment portfolio, you can begin looking at which type would be most effective for you.
There are three main categories of investments: equity, fixed income, and alternatives. Equity refers to ownership shares of companies. Fixed income can be defined as debt instruments such bonds and Treasury bills. Alternatives include commodities like currencies, real-estate, private equity, venture capital, and commodities. Each category has its pros and disadvantages, so it is up to you which one is best for you.
There are two main strategies that you can use once you have decided what type of investment you want. The first is "buy and keep." This means that you buy a certain amount of security and then you hold it for a set period of time. The second strategy is "diversification". Diversification means buying securities from different classes. For example, if you bought 10% of Apple, Microsoft, and General Motors, you would diversify into three industries. Multiplying your investments will give you more exposure to many sectors of the economy. You can protect yourself against losses in one sector by still owning something in the other sector.
Risk management is another key aspect when selecting an investment. You can control the volatility of your portfolio through risk management. A low-risk fund could be a good option if you are willing to accept a 1% chance. However, if a 5% risk is acceptable, you might choose a higher-risk option.
The final step in becoming a successful investor is learning how to manage your money. You need a plan to manage your money 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. You will watch your wealth grow if your plan is followed.