For a beginner, the worlds of stocks, options, and bonds can seem overwhelming. Learning the trading vocabulary is one of the hardest aspects of trading. Trading jargon may be difficult to comprehend, but it's essential for making informed decisions. In this article, we've compiled a list of 16 common trading terms that every beginner should know.
- Penny Stock
A penny-stock is a very low-priced stock with high risks, issued by an organization that has a relatively small market cap. Understanding penny stocks will help traders to identify potential high risk, high reward investments.
- 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.
- Spread
The spread is the difference between a security's bid price and its ask price. Understanding the spread helps traders determine when it is best to buy or sale a security.
- Stop Loss Order
A stop loss order is an instruction to sell a particular security at a set price in order limit losses. Understanding stop loss orders can help traders to manage risk and protect capital.
- Limit Order
A limit orders is an order that buys or sells a security for a set price. Understanding limit trades can help traders achieve specific targets for their trading and increase profits.
- Candlestick
A candlestick can be used to represent the price of a specific security. Understanding candlesticks allows traders to recognize patterns, and help them make more informed decisions.
- Market Order
Market orders are an order to purchase or sell securities at the current market price. Understanding market orders can help traders execute trades quickly and efficiently.
- Broker
A broker is an individual or company who purchases and sells securities in the name of a trader. Understanding brokers will help traders select a brokerage firm that is reputable and reliable to execute their trades.
- 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 helps you evaluate a company's financial strength and growth potential.
- Stop Loss
A stop loss is an order to sell a security when it reaches a specified price. Understanding the term is crucial to limit losses and protect the trader's capital.
- Commission
A commission is a fee charged by a broker for executing trades on behalf of a trader. Understanding commissions can help traders evaluate the cost of trading and minimize their expenses.
- 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.
- Bear Market
A bearish market is when stock prices drop. Understanding the term is important for traders who want to recognize a downtrend or make better decisions. To avoid further losses, traders could sell stocks during a bearish trend.
- Margin Call
A margin call is when a broker asks a trader for more money in order to maintain the minimum balance on their margin account. Understanding margin calls can help traders avoid potential forced liquidation of their positions.
- Day Trading
The term day trading refers the buying and sale of securities within one trading day. Understanding day trading can help traders take advantage of short-term price movements and volatility.
- Beta
Beta is an indicator of a stock's volatility in relation to the market as a whole. Understanding beta will help traders determine how a stock may perform under different market circumstances.
In conclusion, understanding these 16 common trading terms can give beginner traders a solid foundation to start their trading journey. Understanding these terms will help traders make more informed trading decisions, reduce risk and increase profits. For new traders, it is crucial to take time to learn these trading terms.
Frequently Asked Questions
Can I start trading without knowing all these terms?
You can, but it is recommended that you understand these terms so that you can make informed decisions when trading and manage risk effectively.
Where can I get more information about these terms and their meanings?
Online resources such as trading forums blogs and educational sites can help you learn more about 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?
Yes, this terminology is applicable to all trading types, including stocks and options, futures contracts, forex, and foreign exchange.
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
Why is marketable security important?
An investment company's main goal is to generate income through investments. It does this by investing its assets into various financial instruments like stocks, bonds, or other securities. These securities are attractive to investors because of their unique characteristics. They may be considered to be safe because they are backed by the full faith and credit of the issuer, they pay dividends, interest, or both, they offer growth potential, and/or they carry tax advantages.
It is important to know whether a security is "marketable". This refers primarily to whether the security can be traded on a stock exchange. It is not possible to buy or sell securities that are not marketable. You must obtain them through a broker who charges you a commission.
Marketable securities can be government or corporate bonds, preferred and common stocks as well as convertible debentures, convertible and ordinary debentures, unit and real estate trusts, money markets funds and exchange traded funds.
Investment companies invest in these securities because they believe they will generate higher profits than if they invested in more risky securities like equities (shares).
What is a Stock Exchange, and how does it work?
Companies sell shares of their company on a stock market. This allows investors the opportunity to invest in the company. The market sets the price of the share. The market usually determines the price of the share based on what people will pay for it.
Investors can also make money by investing in the stock exchange. Investors invest in companies to support their growth. This is done by purchasing shares in the company. Companies use their money for expansion and funding of their projects.
Stock exchanges can offer many types of shares. Some are known simply as ordinary shares. These shares are the most widely traded. Ordinary shares can be traded on the open markets. Stocks can be traded at prices that are determined according to supply and demand.
Preferred shares and debt securities are other types of shares. When dividends become due, preferred shares will be given preference over other shares. If a company issues bonds, they must repay them.
What is the distinction between marketable and not-marketable securities
The main differences are that non-marketable securities have less liquidity, lower trading volumes, and higher transaction costs. Marketable securities are traded on exchanges, and have higher liquidity and trading volumes. Because they trade 24/7, they offer better price discovery and liquidity. But, this is not the only exception. Some mutual funds are not open to public trading and are therefore only available to institutional investors.
Non-marketable security tend to be more risky then marketable. They generally have lower yields, and require greater initial capital deposits. Marketable securities are usually safer and more manageable than non-marketable securities.
For example, a bond issued by a large corporation has a much higher chance of repaying than a bond issued by a small business. The reason is that the former will likely have a strong financial position, while the latter may not.
Marketable securities are preferred by investment companies because they offer higher portfolio returns.
What is a REIT?
A real estate investment Trust (REIT), or real estate trust, is an entity which owns income-producing property such as office buildings, shopping centres, offices buildings, hotels and industrial parks. These companies are publicly traded and pay dividends to shareholders, instead of paying corporate tax.
They are very similar to corporations, except they own property and not produce goods.
What are the benefits to owning stocks
Stocks can be more volatile than bonds. The value of shares that are bankrupted will plummet dramatically.
However, if a company grows, then the share price will rise.
Companies usually issue new shares to raise capital. This allows investors the opportunity to purchase more shares.
Companies borrow money using debt finance. This allows them to access cheap credit which allows them to grow quicker.
A company that makes a good product is more likely to be bought by people. The stock's price will rise as more people demand it.
Stock prices should rise as long as the company produces products people want.
Statistics
- Our focus on Main Street investors reflects the fact that American households own $38 trillion worth of equities, more than 59 percent of the U.S. equity market either directly or indirectly through mutual funds, retirement accounts, and other investments. (sec.gov)
- The S&P 500 has grown about 10.5% per year since its establishment in the 1920s. (investopedia.com)
- Even if you find talent for trading stocks, allocating more than 10% of your portfolio to an individual stock can expose your savings to too much volatility. (nerdwallet.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)
External Links
How To
How do I invest in bonds
You need to buy an investment fund called a bond. They pay you back at regular intervals, despite the low interest rates. These interest rates are low, but you can make money with them over time.
There are many different ways to invest your bonds.
-
Directly buying individual bonds.
-
Buying shares of a bond fund.
-
Investing through an investment bank or broker
-
Investing through financial institutions
-
Investing through a pension plan.
-
Invest directly with a stockbroker
-
Investing through a mutual fund.
-
Investing with a unit trust
-
Investing in a policy of life insurance
-
Investing via a private equity fund
-
Investing via an index-linked fund
-
Investing in a hedge-fund.