Navigating the world of options, stocks and bonds can be confusing for a novice trader. 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. This article contains a list 16 of common trading terms every beginner should be familiar with.
- Margin
Margin refers to the money that traders borrow from brokers in order buy securities. Understanding the term helps traders to leverage their capital, increase potential profits and also comes with an increased risk.
- Support
Support is the level of a stock's or security's price at which it tends encounter buying pressure. Understanding support is crucial to identify potential entry points or areas of accumulation.
- Earnings Shares (EPS),
The Earnings Per Share (EPS) is the profit of a business divided by its number of outstanding shares. Understanding EPS helps you evaluate a company's financial strength and growth potential.
- 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.
- Technical Analysis
Technical analysis involves analyzing the price and volume of securities. Understanding technical indicators can help traders make better decisions by identifying potential patterns and trends.
- Spread
Spread is the difference in price between the ask and bid of a stock. Understanding the Spread can help traders determine whether it's the right time to sell or buy a particular security.
- Risk Management
Risk management is the act of identifying, assessing and managing risks in trading. Understanding risk can help traders reduce potential losses and protect capital.
- Penny Stock
A penny stock refers to a low-priced, high-risk stock issued by a company with a small market capitalization. Understanding penny stocks will help traders to identify potential high risk, high reward investments.
- Bear Market
A bearish market is when stock prices drop. Understanding the term can help traders identify a downtrend and make better-informed trading decisions. In a bearish market, traders might consider selling their stocks to prevent further losses.
- Liquidity
Liquidity is defined as the ease of buying or selling a particular security without it affecting its value. Understanding liquidity will help you execute trades faster and prevent price slippage.
- Volatility
Volatility describes the level of price fluctuation of a specific security over a period of time. Understanding volatility is crucial to identify potential trading opportunities and manage risk.
- 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.
- Limit Order
A limit orders is an order that buys or sells a security for a set price. Understanding limit orders can help traders set specific price targets for their trades and potentially increase their profitability.
- 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 will help traders to avoid forced liquidation.
- Candlestick
A candlestick represents the price movement of a particular security visually. Understanding candlesticks can help traders identify patterns and make better-informed trading decisions.
- Take Profit Order
A take-profit order is an order to sell a security at a specified price to lock in profits. Understanding take-profit order can help traders maximize profits and increase returns.
In conclusion, understanding these 16 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.
Frequently Asked Questions
Can I start trading without knowing all these terms?
It is possible, but you should have a good understanding of the terms in order to make well-informed decisions about trading and manage your risks effectively.
Where can i learn more about the terms?
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.
Are these terms relevant to all types of trading?
Yes, this terminology is applicable to all trading types, including stocks and options, futures contracts, forex, and foreign exchange.
Can I trade on my own?
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
What is a "bond"?
A bond agreement is a contract between two parties that allows money to be transferred for goods or services. Also known as a contract, it is also called a bond agreement.
A bond is typically written on paper and signed between the parties. The bond document will include details such as the date, amount due and interest rate.
When there are risks involved, like a company going bankrupt or a person breaking a promise, the bond is used.
Many bonds are used in conjunction with mortgages and other types of loans. This means that the borrower must pay back the loan plus any interest payments.
Bonds can also be used to raise funds for large projects such as building roads, bridges and hospitals.
A bond becomes due upon maturity. When a bond matures, the owner receives the principal amount and any interest.
Lenders lose their money if a bond is not paid back.
Are bonds tradeable
The answer is yes, they are! You can trade bonds on exchanges like shares. They have been trading on exchanges for years.
You cannot purchase a bond directly through an issuer. You will need to go through a broker to purchase them.
This makes it easier to purchase bonds as there are fewer intermediaries. This means you need to find someone willing and able to buy your bonds.
There are several types of bonds. Different bonds pay different interest rates.
Some pay interest every quarter, while some pay it annually. These differences make it easy to compare bonds against each other.
Bonds are a great way to invest money. For example, if you invest PS10,000 in a savings account, you would earn 0.75% interest per year. If you invested this same amount in a 10-year government bond, you would receive 12.5% interest per year.
If you put all these investments into one portfolio, then your total return over ten-years would be higher using bond investment.
What is security?
Security is an asset which generates income for its owners. Shares in companies is the most common form of security.
A company could issue bonds, preferred stocks or common stocks.
The earnings per share (EPS), as well as the dividends that the company pays, determine the share's value.
A share is a piece of the business that you own and you have a claim to future profits. If the company pays a dividend, you receive money from the company.
You can sell your shares at any time.
How are securities traded?
The stock market allows investors to buy shares of companies and receive money. To raise capital, companies issue shares and then sell them to investors. Investors then sell these shares back to the company when they decide to profit from owning the company's assets.
Supply and demand determine the price stocks trade on open markets. The price rises if there is less demand than buyers. If there are more buyers than seller, the prices fall.
There are two methods to trade stocks.
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Directly from your company
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Through a broker
Statistics
- US resident who opens a new IBKR Pro individual or joint account receives a 0.25% rate reduction on margin loans. (nerdwallet.com)
- 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)
External Links
How To
How to Invest Online in Stock Market
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.
First, you need to understand how the stock exchange works in order to succeed. Understanding the market, its risks and potential rewards, is key. Once you know what you want out of your investment portfolio, then you can start looking at which type of investment would work best for you.
There are three types of investments available: equity, fixed-income, and options. 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 option has its pros and cons so you can decide which one suits you best.
There are two main strategies that you can use once you have decided what type of investment you want. The first is "buy and keep." This means that you buy a certain amount of security and then you hold it for a set period of time. Diversification refers to buying multiple securities from different categories. By buying 10% of Apple, Microsoft, or General Motors you could diversify into different industries. The best way to get exposure to all sectors of an economy is by purchasing multiple investments. It helps protect against losses in one sector because you still own something else in another sector.
Risk management is another important factor in choosing an investment. Risk management allows you to control the level of volatility in your portfolio. A low-risk fund would be the best option for you if you only want to take on a 1 percent risk. A higher-risk fund could be chosen if you're willing to accept a risk of 5%.
Your money management skills are the last step to becoming a successful investment investor. You need a plan to manage your money in the future. Your short-term, medium-term, and long-term goals should all be covered in a good plan. You must stick to your plan. Do not let market fluctuations distract you. Keep to your plan and you will see your wealth grow.