As a beginner trader, navigating the world of stocks, bonds, and options can be overwhelming. It can be challenging to learn the terminology of trading. Trading jargon can be complicated and hard to understand, but knowing the terms is essential to make informed decisions and avoiding costly mistakes. We've put together a list of 16 trading terms that are essential for every newbie.
- Margin
Margin is money a trader lends to a broker in order to buy securities. Understanding the term helps traders to leverage their capital, increase potential profits and also comes with an increased risk.
- Price-to - Earnings (P/E), Ratio
The price-to earnings (P/E), also known as a valuation ratio, compares a stock's price with its earnings per unit. Understanding the ratio helps traders to determine if a stock has been overvalued.
- Position Trading
In position trading, a security is held for several months or even years in order to profit from long-term price fluctuations. Understanding position trading will help traders to identify long-term investing opportunities.
- Market Capitalization
Market capitalization refers to the total value of a company's outstanding shares of stock. Understanding market capitalization helps traders to evaluate the size of a business and its potential growth.
- Take Profit Order
Take-profit orders allow you to sell an asset at a predetermined price and lock in your profits. Understanding take-profit order can help traders maximize profits and increase returns.
- Candlestick
A candlestick is an image that represents price movements in a stock. Understanding candlesticks can help traders identify patterns and make better-informed trading decisions.
- Limit Order
A limit order allows you to buy or sell an asset at a price that is specified or even better. Understanding limit orders helps traders set price targets to increase profitability and help them achieve their goals.
- Bull Market
Bull markets are characterized by an upward trend of stock prices over a period of time. 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.
- Swing Trading
Swing trading means holding a particular security for several days or weeks to take advantage price swings. Swing trading helps traders to identify short-term trading possibilities.
- Resistance
Resistance is a price level at which a stock or security tends to encounter selling pressure. Understanding resistance helps identify areas where profit-taking or a trend reversal may occur.
- Technical Analysis
Technical analysis is the process of analyzing a security based on its price and volume. Understanding technical analysis can help traders identify potential trends and patterns to make better-informed trading decisions.
- Margin Call
A margin call is a demand by a broker for a trader to deposit more money to maintain their margin account's minimum balance. Understanding margin calls will help traders to avoid forced liquidation.
- 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.
- 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.
- 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.
- Support
Support is the price at which an asset or stock tends to be under pressure from buyers. Understanding support is crucial to identify potential entry points or areas of accumulation.
In conclusion, by understanding 16 the most common trading terms, traders can build a solid base to begin their trading adventure. Understanding these terms will help traders make more informed trading decisions, reduce risk and increase profits. It's crucial for beginner traders to take the time to learn and understand these terms to succeed in the trading world.
FAQs
Can I start trading if I don't know all these terms and phrases?
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?
Many online resources can provide you with more information about these terms, such as blogs, trading forums and educational websites.
How long will it take me to learn all these terms?
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.
What types of trades are covered by these terms?
All types of trading are covered, including stock, options, forex, futures, etc.
Can I make a trade without a brokerage?
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
Who can trade on the stock exchange?
The answer is yes. There are many differences in the world. Some have better skills and knowledge than others. They should be rewarded for what they do.
Trading stocks is not easy. There are many other factors that influence whether you succeed or fail. If you don't understand financial reports, you won’t be able take any decisions.
Learn how to read these reports. You need to know what each number means. Also, you need to understand the meaning of each number.
You'll see patterns and trends in your data if you do this. This will help you decide when to buy and sell shares.
This could lead to you becoming wealthy if you're fortunate enough.
What is the working of the stock market?
By buying shares of stock, you're purchasing ownership rights in a part of the company. The company has some rights that a shareholder can exercise. A shareholder can vote on major decisions and policies. He/she has the right to demand payment for any damages done by the company. He/she may also sue for breach of contract.
A company cannot issue more shares that its total assets minus liabilities. It's called 'capital adequacy.'
Companies with high capital adequacy rates are considered safe. Companies with low ratios are risky investments.
What is the trading of securities?
Stock market: Investors buy shares of companies to make money. To raise capital, companies issue shares and then sell them to investors. These shares are then sold to investors to make a profit on the company's assets.
The price at which stocks trade on the open market is determined by supply and demand. When there are fewer buyers than sellers, the price goes up; when there are more buyers than sellers, the prices go down.
Stocks can be traded in two ways.
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Directly from the company
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Through a broker
What is a bond?
A bond agreement between two people where money is transferred to purchase goods or services. Also known as a contract, it is also called a bond agreement.
A bond is typically written on paper, signed by both parties. The document contains details such as the date, amount owed, interest rate, etc.
The bond is used when risks are involved, such as if a business fails or someone breaks a promise.
Bonds are often combined with other types, such as mortgages. This means that the borrower must pay back the loan plus any interest payments.
Bonds are also used to raise money for big projects like building roads, bridges, and hospitals.
A bond becomes due when it matures. This means that the bond's owner will be paid the principal and any interest.
Lenders can lose their money if they fail to pay back a bond.
How does inflation affect the stock market?
Inflation has an impact on the stock market as investors have to spend less dollars each year in order to purchase goods and services. As prices rise, stocks fall. That's why you should always buy shares when they're cheap.
What is a mutual fund?
Mutual funds consist of pools of money investing in securities. Mutual funds offer diversification and allow for all types investments to be represented. This reduces risk.
Managers who oversee mutual funds' investment decisions are professionals. Some funds also allow investors to manage their own portfolios.
Because they are less complicated and more risky, mutual funds are preferred to individual stocks.
How do I invest on the stock market
You can buy or sell securities through brokers. Brokers can buy or sell securities on your behalf. Brokerage commissions are charged when you trade securities.
Banks typically charge higher fees for brokers. Because they don't make money selling securities, banks often offer higher rates.
A bank account or broker is required to open an account if you are interested in investing in stocks.
Brokers will let you know how much it costs for you to sell or buy securities. Based on the amount of each transaction, he will calculate this fee.
Ask your broker questions about:
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To trade, you must first deposit a minimum amount
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What additional fees might apply if your position is closed before expiration?
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what happens if you lose more than $5,000 in one day
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how many days can you hold positions without paying taxes
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What you can borrow from your portfolio
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Transfer funds between accounts
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How long it takes for transactions to be settled
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The best way buy or sell securities
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How to avoid fraud
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How to get help for those who need it
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How you can stop trading at anytime
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If you must report trades directly to the government
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If you have to file reports with SEC
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Whether you need to keep records of transactions
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What requirements are there to register with SEC
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What is registration?
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How does it affect me?
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Who should be registered?
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What are the requirements to register?
Can bonds be traded
The answer is yes, they are! As shares, bonds can also be traded on exchanges. They have been doing so for many decades.
You cannot purchase a bond directly through an issuer. You must go through a broker who buys them on your behalf.
Because there are less intermediaries, buying bonds is easier. This means that selling bonds is easier if someone is interested in buying them.
There are many kinds of bonds. Different bonds pay different interest rates.
Some pay quarterly, while others pay interest each year. These differences make it possible to compare bonds.
Bonds are a great way to invest money. Savings accounts earn 0.75 percent interest each year, for example. You would earn 12.5% per annum if you put the same amount into a 10-year government bond.
You could get a higher return if you invested all these investments in a portfolio.
Statistics
- 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)
- 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)
- "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 create a trading strategy
A trading plan helps you manage your money effectively. It helps you identify your financial goals and how much you have.
Before you create a trading program, consider your goals. 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 have an idea of your goals for your money, you can calculate how much money you will need to get there. It depends on where you live, and whether or not you have debts. You also need to consider how much you earn every month (or week). Income is the sum of all your earnings after taxes.
Next, save enough money for your expenses. These expenses include rent, food, travel, bills and any other costs you may have to pay. All these things add up to your total monthly expenditure.
You'll also need to determine how much you still have at the end the month. This is your net discretionary income.
This information will help you make smarter decisions about how you spend your money.
You can download one from the internet to get started with a basic trading plan. Or ask someone who knows about investing to show you how to build one.
Here's an example.
This is a summary of all your income so far. This includes your current bank balance, as well an investment portfolio.
And here's another example. A financial planner has designed this one.
It shows you how to calculate the amount of risk you can afford to take.
Don't try and predict the future. Instead, you should be focusing on how to use your money today.