Every Trader's Must Know Trading Terms

Every Trader’s Must Know Trading Terms

Listed in alphabetical order.

Ask – the ask price refers to the lowest price a seller will accept for a security.

Averaging Down – purchasing additional shares of a previously initiated investment after the price has dropped.

Bid – the bid price refers to the highest price a buyer will pay for a security.

Bid Ask Spread – the difference between the highest price that a buyer is willing to pay and the lowest price a seller will accept.

Bearish – being bearish in trading means you believe that a market, asset or financial instrument is going to have a downward trajectory, the opposite of being bullish.

Blue Chip Stocks – huge companies with excellent reputations. Well-established and financially sound companies that have operated for many years and that have dependable earnings, often paying dividends to investors. Typically they have a market capitalization in the billions, generally the market leader or among the top three companies in its sector.

Broker –  an individual or firm that acts as an intermediary between an investor and a securities exchange.

BTFD – stands for Buy The Fucking Dip. BFD is also an acronym for the much kinder, Buy The Dip.

Bullish – being bullish in trading means you believe that a market, asset or financial instrument is going to have a upward trajectory, the opposite of being bearish.

Buying Power – money a trader has available to buy securities. Buying power equals the total cash held in a brokerage account plus all available margin.

Candlestick – a type of price chart used in technical analysis that shows the high, low, open, and closing prices of a security for a specific time.

Call – a call contract provides the right to buy shares of a security at a given price by a set date.

Cash Account – a cash account requires that all transactions must be made with available cash or long positions.

Charting – used to track market prices over time with key information traders use to help determine the direction of various stocks, markets & indices.

Day Trade – buy and sell a stock / option in the same trading day.

Dividends – is the distribution of some of a company’s earnings to a class of its shareholders, the amount is determined by the company’s board of directors. 

Earnings Per Share – the net income divided by the number of shares of common stock outstanding.

Equity – stocks or shares in the ownership of a company. Equity equals assets minus liability.

FAANG – the publicly traded stocks of US tech giants Facebook, Amazon, Apple, Netflix and Google. These companies trade on the NASDAQ and are a part of the S&P 500 Index.

Float – the number of shares that are available for trading of a particular stock.

GTC Order – Good-Til-Canceled orders are limit orders that will stay in place until the order is canceled or filled at a specific price.

Hedge – strategy used to offset or balance the risk of any adverse price movements in an asset.

Indicator – statistics used to measure current conditions and can be used as tools to forecast financial or economic trends.

In-The-Money – a contract that has a favorable value in its strike price and possesses intrinsic value.

Intrinsic Value – the amount difference between the share price and strike price.

Large Cap – refers to a company with a market capitalization value of more than $10 billion. Sometimes referred to as Big Cap.

Limit Order – use a limit order to sell a stock at any price you specify, the stock must reach the set limit price to sell.

Liquidity – the ease of which an asset or security can be turned into ready cash without affecting its market price.

Long – buying of a stock, commodity, or currency with the expectation that it will rise in value.

Margin – the money borrowed from a brokerage firm to purchase an investment. It is the difference between the total value of securities held in an investor’s account and the loan amount from the broker.

Market Order – use a market order to sell stock at the current market price.

Moving Average – (MA) is a stock indicator that is frequently used in technical analysis. The moving average of a stock helps smooth out the price data by creating a constantly updated average price.

Option Contract – agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike price, prior to the expiration date.

Out-The-Money – a contract that only contains extrinsic value and a Delta of less than 50.

PDT Rule – (Pattern Day Trader Rule) a regulatory rule for those traders or investors that execute four or more day trades over the span of five business days using a margin account. Pattern day traders must hold $25K in their margin accounts. If the account dips under $25K the trader will be prohibited from making any more day trades until the balance is brought back up.

Penny Stock – general term for cheaper stocks priced from $0.01 to $5.00

Position Trader – holds trades for multiple weeks, months or years.

Premium – or option premium is the current market price of an option contract. It is thus the income received by the seller (writer) of an option contract to another party.

Pump & Dump – a trading scheme that attempts to boost the price of a stock through recommendations based on untrue, misleading or greatly exaggerated statements.

Put – a put options contract gives a buyer the right to sell the stock a a strike price by a specific date.

Risk Reward – ratio used by traders as a measure to manage their capital and risk of loss while trading. The ratio helps assess the expected return and risk of any given trade.

Scalping – a quick and rapid trading strategy geared towards profiting from minor price changes in a stocks price. 

Short Selling – is when an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender. Short sellers are betting that the stock they sell will drop in price when in a short position.

Small Cap – generally a company with a market capitalization of between $300 million and $2 billion.

Stock Split – an action where a company’s outstanding shares are divided into multiple shares.

Stop Order – an order to buy or sell a security when its price moves past a certain point, can be used to limit the investor’s loss or locking in a profit.

Strike – the price at which a contract can be exercised, and the price at which the underlying asset will be bought or sold, also known as Strike Price.

Swing Trade – buy and hold for days, weeks, and then sell a stock / option

Ticker Symbol – an arrangement of characters representing particular securities listed and publicly traded. Examples: Netflix is NFLX. Tesla is TSLA. Microsoft is MSFT. DraftKings is DKNG.

Time Decay – a measure of the rate of decline in the value of an options contract due to time. Time decay increases as an option’s expiration date becomes closer. This is because there’s less time to realize a profit from the trade.

Volatile Stocks – stocks with extreme up and down movements with wide intraday trading ranges.

Volume – or volume of trade is the total quantity of shares or contracts traded for a security. Volume is measured on any type of security traded in a trading day including stocks, bonds, options contracts, futures contracts and all other kinds of commodities.

Yield – the measure of return on an investment that has received from dividend payments.

52 Week High/Low – is the highest and lowest price at which a security has traded during the time period that equals one year.

Do you have any questions about the definitions listed here? Or if you would like us to add a term, fill out the form and submit a message letting us know. We’ll be happy to respond.

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