For a beginner, the worlds of stocks, options, and bonds can seem overwhelming. Learning the trading vocabulary is one of the hardest aspects of trading. Trading jargon, while difficult to grasp and understand, is necessary to make informed choices and avoid costly mistakes. In this article, we've compiled a list of 18 common trading terms that every beginner should know.
Blue Chip Stock
A blue-chip share is one that belongs to a financially stable, large company. It has a solid history of paying dividends. Understanding blue-chip stocks can help traders identify potential long-term investments.
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.
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.
Earnings per share (EPS).
Earnings per share (EPS) is a company's profit divided by the number of outstanding shares. Understanding EPS is essential to evaluate a stock's financial health and potential for growth.
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.
Support
Support is an important price level where stocks or securities tend to face buying pressure. Understanding support will help you identify possible entry or accumulation points.
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.
Swing Trading
Swing trading refers to holding a security for a few days to a few weeks to take advantage of price swings. Understanding swing trades can help traders identify short-term opportunities.
Commission
A commission is an amount charged by a brokerage firm for executing transactions on behalf of traders. Understanding commissions will help traders minimize their trading costs and evaluate the cost.
Spread
Spread is the difference in price between the ask and bid of a stock. Understanding the difference between the bid and ask price can help traders to determine the best time for buying or selling a security.
Bull Market
A bull market is a market that is characterized by a long-term upward trend in stock prices. Knowing this term can help traders better understand the market mood and how they can make informed 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.
Bid Price
The bid price refers to the highest price a buyer is willing to pay for a stock or security. Understanding the bid price is crucial for determining the fair value of a security and deciding whether to buy or sell it.
Technical Analysis
The technical analysis method is used to analyze the performance of securities using their volume and price data. Understanding technical analysis will help traders to identify possible trends and patterns, allowing them to make better trading decisions.
Fundamental Analysis
Fundamental analysis involves analyzing securities using their economic and financial data. Understanding fundamentals can help traders determine a stock’s financial health as well as its potential for growth.
Candlestick
A candlestick shows the price change of a security. Understanding candlesticks helps traders to identify patterns and make more informed trading decisions.
Position Trading
Position trading refers to holding a security for several months to years to take advantage of long-term price movements. Understanding position trading will help traders to identify long-term investing opportunities.
Market Capitalization
Market capitalization is the total value for all of a firm's outstanding stock. Understanding market capitulation can help traders assess the size and growth potential of a company.
Margin
The margin is the money that a trader borrows to purchase securities from a broker. Understanding the terms can help traders leverage capital to increase potential profit but comes with increased risks.
In conclusion, understanding these 18 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. For new traders, it is crucial to take time to learn these trading terms.
Frequently Asked Question
Do I need to know these terms before trading?
Yes, however it's important to have a basic knowledge of these terms. This will help you make better trading decisions and effectively manage your risk.
Where can I find out more about these words?
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?
This can range from a week to several months depending on what you are studying and your preferred learning style.
These terms are applicable to all types trading?
Yes, this terminology is applicable to all trading types, including stocks and options, futures contracts, forex, and foreign exchange.
Can I make a trade without a brokerage?
It is possible to make trades without a professional broker. However, it's best to use a reliable and trusted brokerage to execute trades.
FAQ
How can people lose money in the stock market?
The stock market isn't a place where you can make money by selling high and buying low. It is a place where you can make money by selling high and buying low.
The stock market is an arena for people who are willing to take on risks. They are willing to sell stocks when they believe they are too expensive and buy stocks at a price they don't think is fair.
They expect to make money from the market's fluctuations. They could lose their entire investment if they fail to be vigilant.
Why are marketable Securities Important?
An investment company's primary purpose is to earn income from investments. This is done by investing in different types of financial instruments, such as bonds and stocks. These securities have attractive characteristics that investors will find appealing. They may be safe because they are backed with the full faith of the issuer.
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 can be government or corporate bonds, preferred and common stocks as well as convertible debentures, convertible and ordinary debentures, unit and real estate trusts, money markets funds and exchange traded funds.
These securities are a source of higher profits for investment companies than shares or equities.
What is the trading of securities?
The stock exchange is a place where investors can buy shares of companies in return for 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 the company
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Through a broker
Statistics
- 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)
- The S&P 500 has grown about 10.5% per year since its establishment in the 1920s. (investopedia.com)
- US resident who opens a new IBKR Pro individual or joint account receives a 0.25% rate reduction on margin loans. (nerdwallet.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 an account for trading
To open a brokerage bank account, the first step is to register. There are many brokers out there, and they all offer different services. There are some that charge fees, while others don't. Etrade, TD Ameritrade Fidelity Schwab Scottrade Interactive Brokers are some of the most popular brokerages.
Once your account has been opened, you will need to choose which type of account to open. One of these options should be chosen:
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Individual Retirement Accounts (IRAs).
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Roth Individual Retirement Accounts (RIRAs)
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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).
Each option has different benefits. IRA accounts have tax advantages but require more paperwork than other options. Roth IRAs allow investors deductions from their taxable income. However, they can't be used to withdraw funds. SIMPLE IRAs can be funded with employer matching funds. SEP IRAs work in the same way as SIMPLE IRAs. SIMPLE IRAs have a simple setup and are easy to maintain. They allow employees and employers to contribute pretax dollars, as well as receive matching contributions.
The final step is to decide how much money you wish to invest. This is also known as your first deposit. A majority of brokers will offer you a range depending on the return you desire. Based on your desired return, you could receive between $5,000 and $10,000. This range includes a conservative approach and a risky one.
After you've decided which type of account you want you will need to choose how much money to invest. Each broker has minimum amounts that you must invest. These minimums vary between brokers, so check with each one to determine their minimums.
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 the fee structure is clear and affordable. Many brokers will try to hide fees by offering free trades or rebates. However, some brokers raise their fees after you place your first order. Be cautious of brokers who try to scam you into paying additional fees.
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Customer service – Look for customer service representatives that are knowledgeable about the products they sell and can answer your questions quickly.
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Security – Choose a broker offering security features like multisignature technology and 2-factor authentication.
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Mobile apps - Check if the broker offers mobile apps that let you access your portfolio anywhere via your smartphone.
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Social media presence – Find out if your broker is active on social media. It might be time for them to leave if they don't.
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Technology - Does the broker use cutting-edge technology? Is the trading platform simple to use? Are there any issues with the system?
After choosing a broker you will need to sign up for an Account. Some brokers offer free trials. Others charge a small amount to get started. Once you sign up, confirm your email address, telephone number, and password. 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.
After your verification, you will receive emails from the new brokerage firm. You should carefully read the emails as they contain important information regarding your account. This will include information such as which assets can be bought and sold, what types of transactions are available and the associated fees. Be sure to keep track any special promotions that your broker sends. These promotions could include contests, free trades, and referral bonuses.
Next is opening 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. When you open an account, you will usually need to provide your full address, telephone number, email address, as well as other information. Once this information is submitted, you'll receive an activation code. This code is used to log into your account and complete this process.
Now that you've opened an account, you can start investing!