When it comes to trading, there are a lot of terms and financial jargon that isn’t used all the time. If you don’t have a financial background, you might not know what they mean. This blog serves as a guide to help you learn what different trading terminology means.
How This Guide is Structured
This guide is structured in 5 sections, each one in alphabetical order. The five sections are:
- Types of Investments
- Key Trading Terminology to Know
- Strategy Terms
- Key Data Terms
- Related Market Terms
If you have a term in mind, easily find it by using a web page search. Here’s how:
- On Mac: Use keys Command and F, then type the word into the search bar that appears
- On PC: Use keys Ctrl and F, then type the word into the search bar that appears
Types of Investments
Bond: a debt investment where investors loan funds to a corporation or government for a set period of time and at a variable or fixed interest.
Cryptocurrency: a digital currency that utilizes cryptography for security and can be sent from one person to another in any place in the world.
Derivative: Securities with prices that are dependent on or derived from one or more separate underlying assets such as options or futures contracts.
ETF: Exchange Traded Fund, marketable security tracking bonds, commodities or other baskets of assets such as an index fund.
Forex: also known as a foreign exchange, involved in trading different currencies.
Mutual Fund: an investment vehicle whereby funds are pooled together with the goal of investing in securities like stocks and bonds among others.
Penny Stocks: considered to be any stock trading below $5 per share and can be a listed security or trade OTC. (Over The Counter)
Stock: type of asset that gives you ownership in a company allowing you a claim on the company’s assets and earnings.
Key Trading Terminology to Know
Bearish: the stock is expected to go down.
Bullish: the stock is expected to go up.
Buying Power: your cash balance plus your margin.
Capital Gains: a taxable event that occurs when an asset like stock or option is sold for more than the initial purchase price.
Circuit Breaker Halts: During Circuit Breaker Halts, traders cannot trade the stock.
Crossed Market: Refers to a temporary situation where bid prices associated with a particular asset or security is more than the asking price.
Dividend: money paid to shareholders who hold shares of the company through the ex-dividend date as a way of sharing the company’s success.
Earnings Per Share: EPS, a portion of a company’s profit allocated to a person’s share of the stock and is a large metric for analysts.
Equity: the ownership of assets after liabilities and debts have been settled or it can refer to stock or ownership of shares in a public company.
Ex-Dividend: a date recorded once a company announces a dividend because that is the date that you have to own the stock before in order to be eligible to receive the dividend.
Fill Price: the price the trades are executing at with your broker and eventually becomes your average cost.
FOK Order: Fill or Kill meaning you fill the entire order or none at all.
Hard to Borrow: refers to an inventory of securities the brokerage is unable to provide for short selling and would only be available for buying.
Leverage Rate: the rate that your cash deposit will be multiplied to give you total buying power.
Limit Orders: when you ask your broker to buy shares and state the most you are able to pay.
Liquidity: allows you to enter and exit a stock at a decent price.
Margin: when a trader opens a brokerage account, they are given a margin. They extend a line of credit to your account for trading and allow you to trade on borrowed money.
Margin Call: if a trader is issued a margin call, they are in debt to their broker.
Margin Rate: the percentage a trader has to pay their broker in exchange for borrowing money.
Market Orders: tells your broker to get you shares at current market prices.
One Cancels Other: two orders are made and if one of the orders is executed, the other is canceled.
One Triggers Other: contingent order where a primary and secondary order is placed. One is triggered, the other order is as well.
Partial Fill: happens when limit order is too tight and you only fill part of your entire order. The rest needs to be canceled or you continue to see if the price rises to give you the rest of your fill.
Price Average: the average price of the stock that you paid.
Price Average: the average price of the stock that you paid.
Price Target: the projected price of a financial instrument as provided by a financial analyst and is used to determine under and overvalued stocks.
Profit/Loss Ratio: a measure of the ability of a particular trading system to generate profit instead of loss and is based on a percentage basis.
Regulation T: a collection of protocols formulated by the Federal Reserve Board that governs investor margins and cash accounts.
Return on Investment (ROI): refers to a metric that measures profit or loss generated by an investment in relation to the invested funds.
Short Sale Restriction: SSR, occurs when a stock drops 10% or more in a single day.
Short Squeeze: when a stock suddenly starts moving up and traders who are holding short positions start buying to cover their position or their broker covers their position for them because they have hit a max loss on their account.
Stock Split: an issue of new shares in a company to existing shareholders in proportion to their current holdings.
Stop Limit Order: an order placed with a broker and combines the features of both stop and limit orders.
Stop Orders: versatile order that can be great for getting in and out of trades.
Slippage: the difference between the price you thought you would trade at and the price the trade actually went through at.
Smart Routing: instead of directly routing your order, a broker will choose the route they feel best.
Spread: the difference between the bid price and the ask price.
Trailing Stop: stop order that allows the setting of the value as a percentage usually below the market price and will move as prices do.
Arbitrage: Refers to buying and selling the same security on separate markets and at different price points.
Asset Allocation: a diversification strategy in which you spread your money across different investment types called asset classes.
Covering: to close a short position.
Divergence: a trading concept that forms when a stock’s price separates from a momentum oscillator which typically indicates a reversal.
Dollar-Cost Averaging: a strategy where you put a set amount of money towards an investment regardless of the share price.
Fundamental Analysis: when a trader or investor looks at the fundamental metrics of a company including Annual or Quarterly earnings per share.
Good Till Cancelled: (GTC) refers to a buy or sell request designed to last until the request is executed or canceled.
High-Frequency Trading: when a trader or institution utilizes powerful computers to automate trading and execute large orders.
Long/Long Position: if a trader is long in an asset, it means that trader has bought shares, contracts or a currency and now owns it.
Long Side Trading: trader will expect the stock to go up. They will profit when the stock moves up and will lose money when the stock falls.
Short/Short Position: meaning you sold something and will buy back later.
Swing Trading: requires overnight hold times, typically over a few days or weeks.
Technical Analysis: when a trader or investor looks solely at the price of the stock.
Key Data Terms
Ask Price: the price traders are currently asking to sell the stock at.
Average True Range: ATR, used to measure the volatility of a stock or index and describes the average price range a stock typically trades in.
Beta: a numeric value that is used to measure the fluctuation of a stock against changes happening in the stock market.
Bid Price: the price traders are currently bidding a stock at.
Bollinger Bands: averages that are offset by a standard deviation.
Dark Pools of Liquidity: the trading volume created by institutional orders executed on private exchanges.
Float: the number of outstanding shares available.
Lagging Indicator: factor known to trail the price action of an underlying security.
Leading Indicator: refers to measurable factor of economic performance that shifts ahead of the economic cycle before it begins to follow a specific pattern.
Level 1: Current Bid Price vs. Current Ask Price.
Level 2: when we see full market depth on both the bid side and the ask side, we are seeing level 2.
Market Cap: a measurement used to classify a company’s size which can be categorized between small, medium or large-cap.
Moving Averages: a technical indicator that tells us the average price of a stock over a period of time.
Oscillator: a technical indicator that is used to help determine overbought or sold conditions to confirm the strength of a trend.
Parabolic Indicator: a technical analysis strategy that utilizes trailing stop and reverse method in order to determine entry and exit points.
Relative Strength Index: (RSI) an oscillating indicator that moves between 0 and 100.
Relative Volume: how much volume a stock has compared to its average volume for the same period.
Resistance Level: the price level at which selling of a security is deemed strong enough to eliminate the increase in price.
Shares Outstanding: refers to the stock of a company that is currently being held by all shareholders including restricted and institutional shares.
Short Interest: the number of shares all traders around the world are currently holding as a short position against the stock.
Simple Moving Average: SMA, an average price calculation on the closing piece of security over a period of time and divided by the number of periods.
Support Level: the price level whereby demand of a security is strong enough that it prevents the decline in price past it.
Technical Indicators: also known as studies help you interpret the current price action.
Volume: the measure for the number of shares traded.
VWAP: Volume Weighted Average Price, a trading tool calculated by taking amount of shares bought multiplied by the share price and dividing by the total shares.
Yield: refers to the measure of the return on an investment that is received from the payment of a dividend.
Related Market Terminology
A Thick Market: many traders are actively trading a particular stock. Most times, they will have large floats, high capital and trade slowly.
A Thin Market: happens when not many traders actively trade a particular stock.
IPO: stands for initial public offering.
Merger: deals that combine two separate companies into a single new company.
OTC: a security traded in some context other than on a formal exchange such as the NYSE.
OTC Market: allows for the trading of assets without the formal structure of an official exchange and is considered a risky area to invest.
Pump and Dump: an investment scheme where untrue statements are made public about a stock with the purpose of artificially increasing the stock price.
Retirement Accounts: trading a 401k or an IRA, a reasonable amount of capital.
Roth IRA: a retirement account funded by a taxpayer using his or her post tax-income and features tax free gains even when you withdraw.
Secondary Offering: an offering that is given after the IPO.
Share Buy Back: when a company buys back shares that were sold during the IPO.
Traditional IRA: a retirement account where the individuals are allowed to direct pre-tax income which grows tax-deferred.
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