The world of stock, bonds and options is overwhelming for new traders. The vocabulary of trading can be one of the most difficult aspects of trading. Trading jargon may be difficult to comprehend, but it's essential for making informed decisions. This article includes a comprehensive list of 16 terms used in trading that every novice should understand.
- Volume
Volume is defined as the number or shares of an asset that are traded over a period of time. Understanding this term is crucial to gauge the market's sentiment and identify trading opportunities.
- Broker
Brokers are individuals or firms that purchase and sell securities on behalf traders. Understanding brokers will help traders select a brokerage firm that is reputable and reliable to execute their trades.
- Technical Analysis
Technical analysis is an analytical method that uses price and volume information to analyze securities. Understanding technical analysis can help traders identify potential trends and patterns to make better-informed trading decisions.
- Risk Management
Risk management is a process that involves identifying, assessing, managing, and minimizing the risks involved in trading. Understanding risk management can help traders minimize potential losses and protect their capital.
- Portfolio Diversification
Portfolio diversification means investing in various securities to spread the risk and minimize possible losses. Understanding portfolio diversity can help traders manage risks and increase long-term profits.
- Bull Market
Bull markets are characterized by an upward trend of stock prices over a period of time. The term helps traders to understand the mood of a market and help them make better trading decisions. For example traders may buy stocks at a time of a bull market, and then hold on to the stock for longer to reap the benefits.
- Day Trading
The term day trading refers the buying and sale of securities within one trading day. Understanding day trade can help traders profit from price volatility and short-term movements.
- Stop Loss
A stop loss is an order to sell a security when it reaches a specified price. Understanding stop loss is vital to protecting the capital of the trader and limiting losses.
- Limit Order
A limit order is a purchase or sale order at a price that has been specified or higher. Knowing the term allows traders to determine their target price, and can prevent them from overpaying.
- Dividend
Dividends are payments made to shareholders by companies from their profits. Understanding dividends allows you to assess a company's long-term potential and income.
- Earnings Shares (EPS),
The earning per share is calculated by dividing the company's profits by the number outstanding shares. Understanding EPS allows you to assess a stock’s financial health as well as its potential for growth.
- Slippage
Slippage is the difference in price between the anticipated price and the actual price. Understanding slippage allows traders to assess the effectiveness of trading strategies as well as reduce trading costs.
- 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 margins calls can help traders avoid being forced to liquidate their positions.
- Margin
Margin refers to the money that traders borrow from brokers in order buy securities. Understanding this term will help traders increase profits and leverage their capital.
- Market Order
A market order is a purchase or sale order at the best price available on the market. Understanding market orders can help traders execute trades quickly and efficiently.
- 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 trades can help traders identify short-term opportunities.
In conclusion, understanding these 16 common trading terms can give beginner traders a solid foundation to start their trading journey. By understanding these terms, traders can make better-informed trading decisions, manage risk, and potentially increase profitability. Beginner traders must take the time to understand and learn these terms in order to be successful.
Frequently Asked Questions
Can I start trading if I don't know all these terms and phrases?
You can, but it is recommended that you understand these terms so that you can make informed decisions when trading and manage risk effectively.
What is the best place to learn about these terms?
There are many online resources, including trading forums, blogs, and educational websites that can provide more information on these terms.
How long does it usually take to learn these words?
You can learn these words in a matter of weeks, or months depending on your style of learning and the time you spend studying.
Do these terms apply to all forms of trading?
These terms can be used to describe all forms of trading, such as stocks, options and futures.
Can I buy and sell without a broker?
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
Who can trade in stock markets?
The answer is everyone. There are many differences in the world. Some people are more skilled and knowledgeable than others. They should be rewarded for what they do.
However, there are other factors that can determine whether or not a person succeeds in trading stocks. If you don’t have the ability to read financial reports, it will be difficult to make decisions.
This is why you should learn how to read reports. It is important to understand the meaning of each number. It is important to be able correctly interpret numbers.
Doing this will help you spot patterns and trends in the data. This will allow you to decide when to sell or buy shares.
This could lead to you becoming wealthy if you're fortunate enough.
How does the stock market work?
Shares of stock are a way to acquire ownership rights. A shareholder has certain rights over the company. He/she may vote on major policies or resolutions. He/she may demand damages compensation from the company. He/she also has the right to sue the company for breaching a contract.
A company cannot issue any more shares than its total assets, minus liabilities. It is known as capital adequacy.
Companies with high capital adequacy rates are considered safe. Companies with low capital adequacy ratios are considered risky investments.
How do you invest in the stock exchange?
Brokers allow you to buy or sell securities. A broker sells or buys securities for clients. When you trade securities, you pay brokerage commissions.
Brokers often charge higher fees than banks. Banks will often offer higher rates, as they don’t make money selling securities.
If you want to invest in stocks, you must open an account with a bank or broker.
If you are using a broker to help you buy and sell securities, he will give you an estimate of how much it would cost. This fee is based upon the size of each transaction.
Ask your broker about:
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To trade, you must first deposit a minimum amount
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Are there any additional charges for closing your position before expiration?
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What happens when you lose more $5,000 in a day?
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How long can you hold positions while not paying taxes?
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How much you are allowed to borrow against 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 if needed
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If you are able to stop trading at any moment
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If you must report trades directly to the government
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whether you need to file reports with the SEC
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How important it is to keep track of transactions
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Whether you are required by the SEC to register
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What is registration?
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What does it mean for me?
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Who should be registered?
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What time do I need register?
What are the advantages of investing through a mutual fund?
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Low cost - buying shares directly from a company is expensive. It is cheaper to buy shares via a mutual fund.
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Diversification - most mutual funds contain a variety of different securities. The value of one security type will drop, while the value of others will rise.
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Professional management - professional mangers ensure that the fund only holds securities that are compatible with its objectives.
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Liquidity- Mutual funds give you instant access to cash. You can withdraw money whenever you like.
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Tax efficiency - mutual funds are tax efficient. You don't need to worry about capital gains and losses until you sell your shares.
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Buy and sell of shares are free from transaction costs.
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Easy to use - mutual funds are easy to invest in. All you need is money and a bank card.
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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 view the fund's performance and see its current status.
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You can ask questions of the fund manager and receive investment advice.
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Security - Know exactly what security you have.
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Control - you can control the way the fund makes its investment decisions.
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Portfolio tracking: You can track your portfolio's performance over time.
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Easy withdrawal: You can easily withdraw funds.
There are some disadvantages to investing in mutual funds
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Limited investment opportunities - mutual funds may not offer all investment opportunities.
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High expense ratio. The expenses associated with owning mutual fund shares include brokerage fees, administrative costs, and operating charges. These expenses will reduce your returns.
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Lack of liquidity-Many mutual funds refuse to accept deposits. They must be bought using cash. This limits the amount that you can put into investments.
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Poor customer support - customers cannot complain to a single person about issues with mutual funds. Instead, you must deal with the fund's salespeople, brokers, and administrators.
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Risky - if the fund becomes insolvent, you could lose everything.
Statistics
- The S&P 500 has grown about 10.5% per year since its establishment in the 1920s. (investopedia.com)
- "If all of your money's in one stock, you could potentially lose 50% of it overnight," Moore says. (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)
- US resident who opens a new IBKR Pro individual or joint account receives a 0.25% rate reduction on margin loans. (nerdwallet.com)
External Links
How To
How to open and manage a trading account
Opening a brokerage account is the first step. There are many brokers that provide 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 you've opened your account, you need to decide which type of account you want to open. These are the options you should choose:
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Individual Retirement Accounts (IRAs).
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Roth Individual Retirement Accounts
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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)s
Each option offers different advantages. IRA accounts provide tax advantages, however they are more complex than other options. Roth IRAs are a way for investors to deduct their contributions from their taxable income. However they cannot be used as a source or funds for withdrawals. SIMPLE IRAs and SEP IRAs can both be funded using employer matching money. SIMPLE IRAs can be set up in minutes. Employers can contribute pre-tax dollars to SIMPLE IRAs and they will match the contributions.
Finally, you need to determine how much money you want to invest. This is known as your initial deposit. Most brokers will give you a range of deposits based on your desired return. For example, you may be offered $5,000-$10,000 depending on your desired rate of return. This range includes a conservative approach and a risky one.
After deciding on the type of account you want, you need to decide how much money you want to be invested. Each broker will require you to invest minimum amounts. These minimum amounts can vary from broker to broker, so make sure you check with each one.
After deciding the type of account and the amount of money you want to invest, you must select a broker. Before choosing a broker, you should consider these factors:
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Fees - Make sure that the fee structure is transparent and reasonable. Many brokers will try to hide fees by offering free trades or rebates. Some brokers will increase their fees once you have made your first trade. Be wary of any broker who tries to trick you into paying extra fees.
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Customer service: Look out for customer service representatives with knowledge about the product and who can answer questions quickly.
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Security - Look for a broker who offers security features like multi-signature technology or two-factor authentication.
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Mobile apps - Find out if your broker offers mobile apps to allow you to view your portfolio anywhere, anytime from your smartphone.
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Social media presence: Find out if the broker has a social media presence. If they don’t have one, it could be time to move.
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Technology - Does this broker use the most cutting-edge technology available? Is it easy to use the trading platform? Are there any issues when using the platform?
After choosing a broker you will need to sign up for an Account. Some brokers offer free trials while others require you to pay a fee. After signing up, you will need to confirm email address, phone number and password. You will then be asked to enter personal information, such as your name and date of birth. You'll need to provide proof of identity to verify your identity.
After you have been verified, you will start receiving emails from your brokerage firm. These emails will contain important information about the account. It is crucial that you read them carefully. You'll find information about which assets you can purchase and sell, as well as the types of transactions and fees. Track any special promotions your broker sends. These could be referral bonuses, contests or even free trades.
Next, you will need to open an account online. Opening an online account is usually done through a third-party website like TradeStation or Interactive Brokers. Both sites are great for beginners. To open an account, you will typically need to give your full name and address. You may also need to include your phone number, email address, and telephone number. After all this information is submitted, an activation code will be sent to you. This code will allow you to log in to your account and complete the process.
Now that you have an account, you can begin investing.