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Stock Trading Basics
Terms Every Trader Should Know
Terms Every Trader Should Know
Ryan Faloona avatar
Written by Ryan Faloona
Updated over a week ago

401(k): an employer-sponsored retirement plan that is available to employees where they can make salary reduction contributions.

Arbitrage: refers to buying and selling the same security on separate markets and at different price points. 

Ask Price: the price traders are currently asking to sell the stock at. 

Asset Allocation: a diversification strategy in which you spread your money across different investment types called asset classes. 

A Thick Market: many traders are actively trading a particular stock. Most times, they will have large floats, high capital, and trade slowly. 

A Thin Market: happens when not many traders actively trade a particular stock.

Average True Range: ATR, used to measure the volatility of a stock or index and describes the average price range a stock typically trades in.

Bearish: the stock is expected to go down.

Beta: a numeric value that is used to measure the fluctuation of a stock against changes happening in the stock market.

Bid Price: the price traders are currently bidding a stock at. 

Binary Options Accounts: a way of betting against a stock price. Often unregulated and illegal.

Block Trade: a large lot of shares being traded all at once or within milliseconds. Block trades can help a trader figure out if there is a lot of buying or selling pressure. This is a zero-sum market, so for every buyer, there must also be a seller and vice versa. We use the proximity to the bid and ask to determine bullish or bearishness.

Bollinger Bands: averages that are offset by a standard deviation.

Bond: a debt investment where investors loan funds to a corporation or government for a set period of time and at a variable or fixed interest. 

Bullish: the stock is expected to go up. 

Buying Power: your cash balance plus your margin. 

Capital Gains: a taxable event that occurs when an asset like stock or option is sold for more than the initial purchase price.

CFD Accounts: Contract For Difference accounts. Illegal in the United States, offered by international brokers and for non-US residents. You are buying a contract to buy a share of stock. 

Circuit Breaker Halts: during Circuit Breaker Halts, traders cannot trade the stock.

Covering: to close a short position.

Crossed Market: refers to a temporary situation where bid prices associated with a particular asset or security is more than the asking price.

Cryptocurrency: a digital currency that utilizes cryptography for security and can be sent from one person to another any place in the world. 

Custodial Account: an account type for minors where all contributions to the account will be theirs when they turn 18. 

Dark Pools of Liquidity: the trading volume created by institutional orders executed on private exchanges.

Dead Cat Bounce: a temporary recovery in share prices after a substantial fall, caused by speculators buying in order to cover their positions.

Derivative: securities with prices that are dependent on or derived from one or more separate underlying assets such as options or futures contracts.

Divergence: the trading concept that forms when a stock’s price separates from a momentum oscillator which typically indicates a reversal.

Dividend: money paid to shareholders who hold shares of the company through the ex-dividend date as a way of sharing the company’s success. 

Dollar-Cost Averaging: a strategy where you put a set amount of money towards an investment regardless of the share price. 

DTE: This stands for Days Till Expiration. This is how many days left before an option contract expires.

Earnings Per Share (EPS): a portion of a company’s profit allocated to a person’s share of the stock and is a large metric for analysts. 

ECN’s: Electronic Communication Network. 

Equity: The ownership of assets after liabilities and debts have been settled or it can refer to stock or ownership of shares in a public company.

ETF: Exchange Traded Fund, marketable security tracking bonds, commodities, or other baskets of assets such as an index fund.

ESPP: Employee Stock Purchase Program. Some companies allow their employees to buy stock in the company on a discounted basis. This is sometimes referred to as a "lookback period."

Ex-Dividend: a date recorded once a company announces a dividend because that is the date that you have to own the stock before in order to be eligible to receive the dividend. 

Fill Price: the price the trades are executing at with your broker and eventually becomes your average cost.

Flat/Neutral: means they have no positions or are even for the day-no profits, no losses. 

Float: the number of outstanding shares available. 

FOK Order: Fill or Kill meaning you fill the entire order or none at all. 

Forex: also known as a foreign exchange, involved in trading different currencies. 

Freeriding: an instance where an investor purchases a security and sells it before settling the initial purchase. 

Fundamental Analysis: when a trader or investor looks at the fundamental metrics of a company including Annual or Quarterly earnings per share.

Good Till Cancelled: (GTC) refers to a buy or sell request designed to last until the request is executed or canceled.

Hard to Borrow: refers to an inventory of securities the brokerage is unable to provide for short selling and would only be available for buying. 

High-Frequency Trading: when a trader or institution utilizes powerful computers to automate trading and execute large orders. 

IPO: stands for initial public offering. 

Joint Account: a type of brokerage account shared between two or more people who include relatives, business colleagues or partners, and significant others.

Lagging Indicator: factor is known to trail the price action of the underlying security.

Leading Indicator: refers to a measurable factor of economic performance that shifts ahead of the economic cycle before it begins to follow a specific pattern.

Level 1: Current Bid Price vs. Current Ask Price.

Level 2: when we see full market depth on both the bid side and the ask side, we are seeing level 2.

Leverage Rate: the rate that your cash deposit will be multiplied to give you total buying power. 

Limit Orders: when you ask your broker to buy shares and state the most you are able to pay.

Long/Long Position: if a trader is long in an asset, it means that the trader has bought shares, contracts, or a currency and now owns it.

Liquidity: allows you to enter and exit a stock at a decent price. 

Long Side Trading: trader will expect the stock to go up. They will profit when the stock moves up and will lose money when the stock falls.

Margin: when a trader opens a brokerage account, they are given a margin. They extend a line of credit to your account for trading and allow you to trade on borrowed money.

Margin Account: requires a margin agreement, account trades will still take T+2, but instead of requiring you to wait two days before you can trade with that money, the broker gives you credit to trade with.

Margin Call: if a trader is issued a margin call, they are in debt to their broker. 

Margin Rate: the percentage a trader has to pay their broker in exchange for borrowing money. 

Market Cap: a measurement used to classify a company’s size which can be categorized between small, medium, or large-cap. 

Market Makers: the large institutional banks are both buyers and sellers of a stock. 

Market Orders: tells your broker to get you shares at current market prices.

Market Trend: represents the general direction in a market or security over a given period of time which can last from a couple of days to months to years.

Merger: deals that combine two separate companies into a single new company. 

Moving Averages: a technical indicator that tells us the average price of a stock over a period of time. 

Mutual Fund: An investment vehicle whereby funds are pooled together with the goal of investing into securities like stocks and bonds among others.

NYSE Tick Index: calculated by taking the stocks on the NYSE that had an uptick subtracted from the stocks that had a downtick and then the result is displayed on a visual chart.

One Cancels Other: two orders are made and if one of the orders is executed, the other is canceled.

One Triggers Other: contingent order where a primary and secondary order is placed. One is triggered, the other order is as well.

Oscillator: a technical indicator that is used to help determine overbought or sold conditions to confirm the strength of a trend. 

OTC: a security traded in some context other than on a formal exchange such as the NYSE.

OTC Market: allows for the trading of assets without the formal structure of an official exchange and is considered a risky area to invest.

Overnight Leverage: most brokers reduce overnight leverage to 2x cash balance.

Parabolic Indicator: a technical analysis strategy that utilizes the trailing stop and reverses method in order to determine entry and exit points. 

Partial Fill: This happens when the limit order is too tight and you only fill part of your entire order. The rest needs to be canceled or you continue to see if the price rises to give you the rest of your fill.

Penny Stocks: considered to be any stock trading below $5 per share and can be a listed security or trade OTC. (Over The Counter) 

Price Average: the average price of the stock that you paid. 

Price Target: the projected price of a financial instrument as provided by a financial analyst and is used to determine under and overvalued stocks.

Prime rate: the lowest interest rate banks will charge their customers. 

Profit/Loss Ratio: a measure of the ability of a particular trading system to generate profit instead of loss and is based on a percentage basis.

Proprietary Firm Accounts: originally regulated trading firms. 

Pump and Dump: an investment scheme where untrue statements are made public about a stock with the purpose of artificially increasing the stock price. 

Recession: the moment when a country’s economy experiences decline as a result of different factors over a specific period of time. 

Regulation T: a collection of protocols formulated by the Federal Reserve Board that governs investor margins and cash accounts.

Relative Strength Index: (RSI) an oscillating indicator that moves between 0 and 100. 

Relative Volume: how much volume a stock has compared to its average volume for the same period. 

Resistance Level: the price level at which selling of a security is deemed strong enough to eliminate the increase in price.

Retirement Accounts: trading a 401k or an IRA, a reasonable amount of capital.

Retracement/Pullback: when the price makes a move in the opposite direction of the trend.

Return on Investment (ROI): refers to a metric that measures profit or loss generated by an investment in relation to the invested funds.

Roth IRA: a retirement account funded by a taxpayer using his or her post tax-income and features tax free gains even when you withdraw. 

Routes: Market Makers offer a route that connects individual traders to the market. This may increase order speed.

Secondary Offering: an offering that is given after the IPO.

Share Buy Back: when a company buys back shares that were sold during the IPO.

Shares Outstanding: refers to the stock of a company that is currently being held by all shareholders including restricted and institutional shares.

Short/Short Position: meaning you sold something and will buy back later. 

Short Interest: the number of shares all traders around the world are currently holding as a short position against the stock.

Short Sale Restriction: SSR, occurs when a stock drops 10% or more in a single day. 

Short Squeeze: when a stock suddenly starts moving up and traders who are holding short positions start buying to cover their position or their broker covers their position for them because they have hit a max loss on their account. 

Simple Moving Average: SMA, an average price calculation on the closing piece of a security over a period of time and divided by the amount of periods.

Slippage: the difference between the price you thought you would trade at and the price the trade actually went through at. 

Smart Routing: instead of directly routing your order, a broker will choose the route they feel best.

Spread: the difference between the bid price and the ask price.

Stock: type of asset that gives you ownership in a company allowing you a claim on the company’s assets and earnings. 

Stock Split: an issue of new shares in a company to existing shareholders in proportion to their current holdings. 

Stop Limit Order: an order placed with a broker and combines the features of both stop and limit orders.

Stop Orders: versatile order that can be great for getting in and out of trades. 

Support Level: the price level whereby demand of a security is strong enough that it prevents the decline in price past it.

Swing Trading: requires overnight hold times. 

Tax Deferred: refers to delaying taxes on your income until later.

Technical Analysis: when a trader or investor looks solely at the price of the stock. 

Technical Indicators: also known as studies help you interpret the current price action. 

Time & Sales: this will show every transaction that occurs and will list the price, shares, route and time. 

Traditional IRA: a retirement account where the individuals are allowed to direct pre-tax income which grows tax-deferred. 

Trailing Stop: stop order that allows the setting of the value as a percentage usually below the market price and will move as prices do. 

Volatility: a measure of the security’s stability and is usually calculated as the standard deviation over a given period of time. 

Volume: the measure for the number of shares traded.

VWAP: Volume Weighted Average Price, a trading took calculated by taking amount of shares bought multiplied by the share price and dividing by the total shares.

Yield: refers to the measure of the return on an investment that is received from the payment of a dividend. 

Chat Abbreviations:

GM = Good morning

WW = Worth Watching

HOD = High of day

NHOD = New high of day

LOD = Low of day

NLOD = New low of day

PT = Price target

PR = Press release/news

PS = Price spike

ER = Earnings release

SUP = Support

RES = Resistance

EOD = End of day

LF = Low float

SL = Stop loss

SI = Short interest

PM = Pre-market 4Am-9:30Am

AH = After-hours 4Pm-8Pm

DD = Due Diligence

LV = Low volume

GV = Getting volume

BO = Breaking out

NP = No position

PS = Penny stock

IPO = Initial Public Offering

DPO = Direct Public Offering aka “Offering”

VWAP = Volume weighted average price

RSI = Relative Strength Index

MACD = Moving Average Convergence/Divergence

EMA = Exponential Moving Average

SMA = Simple Moving Average

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