As a beginner trader, navigating the world of stocks, bonds, and options can be overwhelming. One of the most challenging aspects of trading is learning the vocabulary. Trading jargon might be complex and difficult to understand, yet knowing it is important to avoid costly mistakes and make informed decisions. This article contains a list 18 of common trading terms every beginner should be familiar with.
Dividend
A dividend is an amount paid by a business to its investors from its profits. Understanding dividends will help you evaluate the potential of a stock as a long-term income and investment.
Portfolio Diversification
Portfolio diversification means investing in various securities to spread the risk and minimize possible losses. Portfolio diversification helps traders to manage their risk and increase potential long-term returns.
Leverage
Leverage refers to using borrowed money to increase potential returns on an investment. Understanding leverage is essential to take advantage of margin trading and other trading strategies.
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.
Penny Stock
A penny stock is a stock that has a low price and high risk. It's issued by a small company with a limited market capitalization. Understanding penny stock can help traders identify high-risk and high-reward investment opportunities.
Broker
A broker can be a person, or even a company that purchases and sells stocks on behalf of traders. Understanding brokers is important for traders who want to select a reliable and trustworthy brokerage company to execute trades.
Market Order
A market order refers to an order that executes immediately at the price of the current market. Knowing the term is essential for quick trading, especially on volatile markets.
Bid Price
The bid refers to the most expensive price a purchaser is willing to pay. It is essential to understand the bid to be able to assess the value of the security.
Day Trading
Day trading is defined as the purchase and sale of securities on a particular trading day. Understanding day trading can help traders take advantage of short-term price movements and volatility.
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 can help you assess a stock's potential growth and financial health.
Resistance
At a certain price, a stock or other security is likely to experience selling pressure. Understanding resistance is crucial to identifying potential areas of profit-taking and a reversal in trend.
Fundamental Analysis
Fundamental analysis is a method of analyzing securities based on their financial and economic data. Understanding fundamentals helps traders assess the health of an investment and its potential for future growth.
Bull Market
A bull market can be defined as a market with a trend that is long-term up. Knowing the term can help a trader understand the market's overall mood and how to make better-informed trading decisions. For example, traders might buy stocks and hold them for longer periods to take advantage of the rising prices.
Margin
Margin is the amount of money a trader borrows from a broker to buy securities. Understanding the terms can help traders leverage capital to increase potential profit but comes with increased risks.
Spread the word
The spread is the difference between a security's bid price and its ask price. Understanding the spread can help traders determine the best time to buy or sell a security.
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.
Bear Market
A bearish market is when stock prices drop. Understanding the term can help traders identify a downtrend and make better-informed trading decisions. In a market that is in a downward trend, traders may decide to sell their stocks and avoid more losses.
Stop Loss Order
A stop-loss or limit order is a sale of a stock at a predetermined price. This order limits potential losses. Understanding stop-loss can help traders reduce their risk and safeguard their capital.
To conclude, knowing these 18 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 learn more 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?
It can take a few weeks or even a couple of months to learn these terms, depending on how you study and your learning style.
What types of trades are covered by these terms?
These terms apply to all forms of trading including forex, stocks, futures and options.
Can I trade on my own?
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 Stock Exchange?
Companies sell shares of their company on a stock market. Investors can buy shares of the company through this stock exchange. The price of the share is set by the market. It is typically determined by the willingness of people to pay for the shares.
Stock exchanges also help companies raise money from investors. Investors give money to help companies grow. They do this by buying shares in the company. Companies use their money as capital to expand and fund their businesses.
Many types of shares can be listed on a stock exchange. Some of these shares are called ordinary shares. These are the most commonly traded shares. Ordinary shares are traded in the open stock market. Prices of shares are determined based on supply and demande.
There are also preferred shares and debt securities. Priority is given to preferred shares over other shares when dividends have been paid. These bonds are issued by the company and must be repaid.
What is the difference?
Brokers are individuals who help people and businesses to buy and sell securities and other forms. They handle all paperwork.
Financial advisors are experts in the field of personal finances. They use their expertise to help clients plan for retirement, prepare for emergencies, and achieve financial goals.
Financial advisors can be employed by banks, financial companies, and other institutions. They may also work as independent professionals for a fee.
If you want to start a career in the financial services industry, you should consider taking classes in finance, accounting, and marketing. Also, it is important to understand about the different types available in investment.
Is stock marketable security?
Stock is an investment vehicle that allows investors to purchase shares of company stock to make money. This is done through a brokerage that sells stocks and bonds.
You could also choose to invest in individual stocks or mutual funds. In fact, there are more than 50,000 mutual fund options out there.
The main difference between these two methods is the way 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.
Both of these cases are a purchase of ownership in a business. If you buy a part of a business, you become a shareholder. You receive dividends depending on the company's earnings.
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 stock trades: put, call and exchange-traded funds. Call and put options allow you to purchase or sell a stock at a fixed price within a time limit. Exchange-traded funds are similar to mutual funds except that instead of owning individual securities, ETFs track a basket 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 can be very rewarding, even though it requires a lot planning and careful study. If you decide to pursue this career path, you'll need to learn the basics of finance, accounting, and economics.
Why are marketable Securities Important?
An investment company's main goal is to generate income through investments. It does so by investing its assets across a variety of financial instruments including stocks, bonds, and securities. These securities have attractive characteristics that investors will find appealing. These securities may be considered safe as they are backed fully by the faith and credit of their issuer. They pay dividends, interest or both and offer growth potential and/or tax advantages.
What security is considered "marketable" is the most important characteristic. This is the ease at which the security can traded on the stock trade. It is not possible to buy or sell securities that are not marketable. You must obtain them through a broker who charges you a commission.
Marketable securities include corporate bonds and government bonds, preferred stocks and common stocks, convertible debts, unit trusts and real estate investment trusts. Money market funds and exchange-traded money are also available.
These securities are a source of higher profits for investment companies than shares or equities.
What is a mutual fund?
Mutual funds can be described as pools of money that invest in securities. Mutual funds provide diversification, so all types of investments can be represented in the pool. This helps reduce risk.
Professional managers oversee the investment decisions of mutual funds. Some funds also allow investors to manage their own portfolios.
Mutual funds are preferable to individual stocks for their simplicity and lower risk.
Why is a stock called security?
Security is an investment instrument whose worth depends on another company. It may be issued either by a corporation (e.g. stocks), government (e.g. bond), or any other entity (e.g. preferred stock). If the asset's value falls, the issuer will pay shareholders dividends, repay creditors' debts, or return capital.
Statistics
- The S&P 500 has grown about 10.5% per year since its establishment in the 1920s. (investopedia.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)
- 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)
- US resident who opens a new IBKR Pro individual or joint account receives a 0.25% rate reduction on margin loans. (nerdwallet.com)
External Links
How To
How to make your trading plan
A trading plan helps you manage your money effectively. It allows you to understand how much money you have available and what your goals are.
Before setting up a trading plan, you should consider what you want to achieve. You may want to save money or earn interest. Or, you might just wish to spend less. 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. And if you want to spend less, perhaps you'd like to go on holiday or buy yourself something nice.
Once you know what you want to do with your money, you'll need to work out how much you have to start with. This depends on where your home is and whether you have loans or other debts. It is also important to calculate how much you earn each week (or month). Your income is the amount you earn 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 expenses add up to your monthly total.
The last thing you need to do is figure out your net disposable income at the end. This is your net income.
Now you know how to best use your money.
Download one from the internet and you can get started with a simple trading plan. Ask someone with experience in investing for help.
Here's an example of a simple Excel spreadsheet that you can open in Microsoft Excel.
This will show all of your income and expenses so far. You will notice that this includes your current balance in the bank and your investment portfolio.
Another example. This was designed by a financial professional.
It will let you know how to calculate how much risk to take.
Don't try and predict the future. Instead, focus on using your money wisely today.