The world of stock, bonds and options is overwhelming for new traders. It can be challenging to learn the terminology of trading. Trading jargon may be difficult to comprehend, but it's essential for making informed decisions. We've put together a list of 15 trading terms that are essential for every newbie.
- Volatility
Volatility refers to the degree of price movement of a security over a particular period. Understanding volatility is essential to identify trading opportunities and manage risks.
- 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.
- Liquidity
The liquidity of a security is how easily it can be bought or resold without changing its price. Understanding liquidity is crucial to execute trades quickly and avoid price slippage.
- Swing Trading
Swing trading is the practice of holding a stock for a period between a couple of days and a couple weeks in order to profit from price fluctuations. Understanding swing trading can help traders identify potential short-term trading opportunities.
- Spread
Spread is the difference of the bid and the ask price for a stock. Understanding the spread will help traders decide when to buy or sell securities.
- Bull Market
A bull market can be defined as a market with a trend that is long-term up. The term helps traders to understand the mood of a market and help them make better trading decisions. For example, traders may look to buy stocks in a bull market and hold on to them for a longer period to benefit from the rising prices.
- Earnings per share (EPS).
The earnings per share (EPS), or profit divided by outstanding shares, is the measure of a company's financial health and growth potential. Understanding EPS is essential to evaluate a stock's financial health and potential for growth.
- Broker
Brokers are individuals or firms that purchase and sell securities on behalf traders. Understanding brokers is important for traders who want to select a reliable and trustworthy brokerage company to execute trades.
- Fundamental Analysis
Fundamental analysis is a way to evaluate securities by analyzing their financial and other economic data. Understanding fundamentals can help traders determine a stock’s financial health as well as its potential for growth.
- Take Profit Order
A take-profit is an order that sells a security for a specific price in order to lock in profits. Understanding take-profit order can help traders maximize profits and increase returns.
- Support
Support is a price level at which a stock or security tends to encounter buying pressure. Understanding support is important to identify entry points and areas for accumulation.
- Blue Chip Stock
Blue-chip stocks are large, stable and financially sound companies with a history of regular dividend payments. Understanding blue-chip stocks can help traders identify potential long-term investments.
- Bear Market
A bear-market is the opposite to a bull-market, when stock prices decline. Understanding this term can help traders identify downtrends and make more informed decisions. For instance, traders may consider selling stocks in a bear market to avoid further losses.
- Moving Average
A moving average represents the average of the price of a stock over a specific period. Understanding moving-averages can help traders identify trading trends and make informed decisions.
- Candlestick
A candlestick is an image that represents price movements in a stock. Understanding candlesticks is a great way to help traders spot patterns and take better trading decisions.
In conclusion, understanding these 15 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. It is important that new traders take the time necessary to understand these terms and succeed in the trading industry.
The Most Frequently Asked Questions
Can I begin trading without knowing these terms?
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 learn more 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 it usually take to learn these words?
Learning these terms can take anywhere from a few weeks to a few months, depending on your learning style and the amount of time you dedicate to studying.
Are these terms relevant to all types of trading?
These terms can be used to describe all forms of trading, such as stocks, options and futures.
Can I trade on my own?
Although it is possible to trade on your own, we recommend using a reputable brokerage firm in order to protect your funds and execute your trades.
FAQ
What is the purpose of the Securities and Exchange Commission
SEC regulates securities brokers, investment companies and securities exchanges. It enforces federal securities regulations.
What is the difference between the securities market and the stock market?
The whole set of companies that trade shares on an exchange is called the securities market. This includes stocks, bonds, options, futures contracts, and other financial instruments. There are two types of stock markets: primary and secondary. The NYSE (New York Stock Exchange), and NASDAQ (National Association of Securities Dealers Automated Quotations) are examples of large stock markets. Secondary stock market are smaller exchanges that allow private investors to trade. These include OTC Bulletin Board Over-the-Counter (Pink Sheets) and Nasdaq ShortCap Market.
Stock markets are important as they allow people to trade shares of businesses and buy or sell them. The value of shares depends on their price. Public companies issue new shares. These shares are issued to investors who receive dividends. Dividends can be described as payments made by corporations to shareholders.
In addition to providing a place for buyers and sellers, stock markets also serve as a tool for corporate governance. Boards of directors, elected by shareholders, oversee the management. Boards make sure managers follow ethical business practices. The government can replace a board that fails to fulfill this role if it is not performing.
What are some of the benefits of investing with a mutual-fund?
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Low cost - buying shares from companies directly is more expensive. A mutual fund can be cheaper than buying shares directly.
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Diversification is a feature of most mutual funds that includes a variety securities. If one type of security drops in value, others will rise.
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Professional management - professional managers make sure that the fund invests only in those securities that are appropriate for its objectives.
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Liquidity - mutual funds offer ready access to cash. You can withdraw money whenever you like.
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Tax efficiency – mutual funds are tax efficient. As a result, you don't have to worry about capital gains or losses until you sell your shares.
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There are no transaction fees - there are no commissions for selling or buying shares.
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Mutual funds are easy to use. All you need is a bank account and some money.
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Flexibility: You have the freedom to change your holdings at any time without additional charges.
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Access to information - you can check out what is happening inside the fund and how well it performs.
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Ask questions and get answers from fund managers about investment advice.
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Security - know what kind of security your holdings are.
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Control - you can control the way the fund makes its investment decisions.
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Portfolio tracking allows you to track the performance of your portfolio over time.
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Easy withdrawal - You can withdraw money from the fund quickly.
Investing through mutual funds has its disadvantages
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Limited choice - not every possible investment opportunity is available in a mutual fund.
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High expense ratio - the expenses associated with owning a share of a mutual fund include brokerage charges, administrative fees, and operating expenses. These expenses will reduce your returns.
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Lack of liquidity-Many mutual funds refuse to accept deposits. They can only be bought with cash. This limit the amount of money that you can invest.
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Poor customer service. There is no one point that customers can contact to report problems with mutual funds. Instead, you need to contact the fund's brokers, salespeople, and administrators.
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It is risky: If the fund goes under, you could lose all of your investments.
What is a Reit?
A real-estate investment trust (REIT), a company that owns income-producing assets such as shopping centers, office buildings and hotels, industrial parks, and other buildings is called a REIT. They are publicly traded companies that pay dividends to shareholders instead of paying corporate taxes.
They are very similar to corporations, except they own property and not produce goods.
What is security in a stock?
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 underlying asset loses its value, the issuer may promise to pay dividends to shareholders or repay creditors' debt obligations.
What is a "bond"?
A bond agreement between two parties where money changes hands for goods and services. It is also known by the term contract.
A bond is typically written on paper and signed between the parties. This document contains information such as date, amount owed and interest rate.
The bond is used when risks are involved, such as if a business fails or someone breaks a promise.
Sometimes bonds can be used with other types loans like mortgages. The borrower will have to repay the loan and pay any interest.
Bonds can also help raise money for major projects, such as the construction of roads and bridges or hospitals.
When a bond matures, it becomes due. When a bond matures, the owner receives the principal amount and any interest.
If a bond isn't paid back, the lender will lose its money.
Statistics
- 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)
- 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)
- For instance, an individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake. (investopedia.com)
- "If all of your money's in one stock, you could potentially lose 50% of it overnight," Moore says. (nerdwallet.com)
External Links
How To
How to Invest in Stock Market Online
You can make money by investing in stocks. There are many methods to invest in stocks. These include mutual funds or exchange-traded fund (ETFs), hedge money, and others. The best investment strategy is dependent on your personal investment style and risk tolerance.
You must first understand the workings of the stock market to be successful. Understanding the market, its risks and potential rewards, is key. Once you understand your goals for your portfolio, you can look into which investment type would be best.
There are three major types of investments: fixed income, equity, and alternative. Equity refers to ownership shares of companies. Fixed income refers to debt instruments such as bonds and treasury notes. Alternatives include commodities, currencies and real estate. Venture capital is also available. Each category comes with its own pros, and you have to choose which one you like best.
Two broad strategies are available once you've decided on the type of investment that you want. One strategy is called "buy-and-hold." You purchase a portion of the security and don't let go until you die or retire. Diversification refers to buying multiple securities from different categories. If you buy 10% each of Apple, Microsoft and General Motors, then you can diversify into three different industries. You can get more exposure to different sectors of the economy by buying multiple types of investments. This helps you to avoid losses in one industry because you still have something in another.
Risk management is another crucial factor in selecting an investment. Risk management can help you control volatility in your portfolio. 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.
Knowing how to manage your finances is the final step in becoming an investor. You need a plan to manage your money in the future. A good plan should include your short-term, medium and long-term goals. Retirement planning is also included. Sticking to your plan is key! Don't get distracted with market fluctuations. You will watch your wealth grow if your plan is followed.