25 Basic Stock Market Trading Terms You Should Know

trading

Basic but great and important guest post from a fresh student of mine:

You learn the fundamentals first and then continue to expand on that knowledge throughout the program. Here are a few terms that you need to find out if you want to be a profitable trader.

Averaging Down: This is when an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases.

Bear Market: This is trading talk for the stock market being in a downtrend or a period of falling stock prices. This is the opposite of a bull market.

Beta: A measurement of the connection between the cost of a stock and also the movement of the whole market. If stock XYZ has a beta of 1.5, that means that for every 1 point move in the marketplace, stock XYZ moves 1.5 points and vice versa.

Blue Chip Stocks: These are the large, industry leading firms. They offer a stable record of essential dividend payments and have a reputation of sound fiscal management. The expression is believed to have been derived from blue gaming chips, which is the highest denomination of chips used in casinos.

Bull Market: This really is when the stock market as a whole is in a prolonged period of rising stock prices. Opposite of a bear market.

Broker: A person who purchases or sells an investment for you in exchange for a fee (a commission).

Day Trading: The practice of buying and selling within exactly the same trading day, before the close of the markets on that day. This is what Tim commonly does, although he does have a long-term portfolio too. Traders that participate in day trading are often called “active traders” or “day traders.”

Dividend: this is a portion of a company’s earnings that is paid to shareholders, or individuals that own hat business’s stock, on a quarterly or annual basis. Not all company’s do this.

Exchange: An exchange is a place in which different investments are traded. The most well-known in America are the New York Stock Exchange and the Nasdaq.

Execution: When an order to buy or sell has been completed. This means that all 100 shares have been sold in case you put in an order to sell 100 shares.

Hedge: This really is used to limit your losses. You can do this by taking an offsetting position. For example, should you hold 100 shares of XYZ, you may short the stock or futures positions on the stock.

Index: An index is a benchmark which is used as a reference marker for dealers and portfolio managers. A 10% may sound good, but if the market index returned 12%, then you didn’t do very well since you could have just invested in an index fund and saved time by not trading frequently. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500.

Initial Public Offering (IPO): The first sale or offering of a stock by an organization to the people, rather than just being owned by private or inside investors.

Margin: A margin account lets an individual borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan and the price of the securities is called the margin.

Moving Average: A stock’s average cost-per-share during a specified amount of time. Some time frames are 50 and 200 -day moving averages.

Order: An investor’s bid to purchase or sell a certain quantity of stock or options contracts. You have to place an order in to buy or sell 100 shares of stock.

Portfolio: A group of investments owned by an investor. You can have as little as one stock in a portfolio to an unlimited amount of stocks.

Quote: Information on a stock’s latest trading price. Unless you are utilizing an actual brokerage trading platform this is sometimes delayed by 20 minutes.

Rally: A rapid increase in the typical price level of the market or of the cost of a stock.

Sector: A group of stocks that are in the same business. An example would be the “Technology” sector including companies like Apple and Microsoft.

Spread: This is the difference between the bid and the ask prices of a stock, or the amount someone is willing to purchase it and someone is willing to sell it.

Stock Symbol: A one-character to three-character, alphabetic root symbol, which represents a publically traded company on a stock exchange. Apple’s stock symbol is AAPL.

Volatility: This refers to the price movements of a stock or the stock exchange as a whole. Highly volatile stocks are ones with extreme daily up and down motions and broad intraday trading ranges. This really is often common with stocks which are thinly traded, or have low trading volumes. Additionally, this is common with the stocks that Tim trades.

Volume: The number of shares of the stock traded during a particular period of time, normally measured in average daily trading volume.

Yield: This usually refers to the measure of the return on an investment that’s received from the payment of a dividend. This is determined by dividing the annual dividend amount by the cost paid for the stock. In the event, you bought stock XYZ for $40-a-share and it pays a $1.00-per-year dividend, you have a “yield” of 2.5%.