15 Terms Every Successful Trader Knows
I’m big on making sure you know the basics before you start trading.
Here are some stock market terms that you must know if you want to be a profitable trader.
I’ll also provide brief definitions of each to help you become familiar with them. Learn them all.
What Is the Stock Market?
The stock market is any exchange that allows people to buy and sell stocks and companies to issue stocks. A stock represents the company’s equity, and shares are pieces of the company.
When people talk about buying and selling stock, they mean that they’ve bought or sold one or more shares of a particular stock. The purpose for the trader is to make money.
For instance, if I buy 2,000 shares of Apple stock at $190 and sell it six months later for $210 per share, I’ll make money.
If Apple tanks (which isn’t likely), I could lose money, in which case I’d want to sell quickly to limit my losses.
What Do Stock Trading Terms Mean?
Stock market terms are industry-specific jargon for the securities industry.
When experts and amateurs talk about trading stocks, they use these stock market terms to speak specifically about strategies, charts, patterns, indices, and other elements of the stock trading industry.
Learning stock market terms will allow you to accelerate the learning process.
I tell my students over and over again to do their research first.
If you’re knowledgeable about the stock market, you stand to profit far more than if you trade based on instinct or “hot picks.”
Some stock market terms — such as bull and bear, which I’ll cover below — also apply to other investment vehicles, such as real estate.
I’m only going to cover their relationship to stocks, but you might see them pop up in other conversations.
Key Basic Stock Market Terms
Let’s look at some of the most important stock market terms you’ll encounter as you learn how to trade stocks.
There are a total of 37 terms you need to know.
Now, I realize 37 is a hefty number.
So, today we’ll cover the first 15. Then in tomorrow’s issue I’ll go into the rest.
Feel free to print this page so you can return to it later as a handy reference.
1. Annual Report
An annual report is a report prepared by a company that’s intended to impress shareholders.
It contains tons of information about the company, from its cash flow to its management strategy.
When you read an annual report, you’re judging the company’s solvency and financial situation.
Arbitrage refers to buying and selling the same security on different markets and at different price points.
For instance, if stock XYZ is trading at $10 on one market and $10.50 on another, the trader could buy X shares for $10 and sell them for $10.50 on the other market, pocketing the difference.
3. Averaging Down
When an investor buys more of a stock as the price goes down.
This makes it so your average purchase price decreases. You might use this strategy if you believe that the general consensus about a company is wrong, so you expect the stock price to rebound later.
4. Bear Market
Trading talk for the stock market being in a downward trend, or a period of falling stock prices.
This is the opposite of a bull market. If a stock price plummets, it’s very bearish.
A measurement of the relationship between the price of a stock and the movement of the whole market.
If stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points, and vice versa.
6. Blue Chip Stocks
The stocks behind large, industry-leading companies.
They offer a stable record of significant dividend payments and have a reputation of sound fiscal management.
The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
This stock market term is a little murky.
Technically, it’s just another name for the stock market and originates from a house in which wealthy men gathered to trade shares.
However, when you hear it in today’s conversations about the stock market, it usually either refers to the Paris stock exchange or to a non-U.S. stock exchange.
8. Bull Market
When the stock market as a whole is in a prolonged period of increasing stock prices. It’s the opposite of a bear market.
A single stock can be bullish or bearish too, as can a sector, which I’ll describe later on.
A person who buys or sells an investment for you in exchange for a fee (a commission).
The bid is the amount of money a trader is willing to pay per share for a given stock.
It’s balanced against the ask price, which is what a seller wants per share of that same stock, and the spread is the difference between those two prices.
The NYSE and Nasdaq close at 4 p.m., with after-hours trading continuing until 8 p.m.
The close simply refers to the time at which a stock exchange closes to trading.
12. Day Trading
The practice of buying and selling within the same trading day, before the close of the markets on that day, is called day trading.
This is my primary trading strategy, although I have a long-term portfolio, as well. Traders who participate in day trading are often called “active traders” or “day traders.”
A portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock, on a quarterly or annual basis.
Not all companies pay dividends.
For instance, if you trade penny stocks, you’re likely not after dividends.
A place in which different investments are traded.
When an order to buy or sell has been completed, the trader has executed the transaction.
If you put in an order to sell 100 shares, this means that all 100 shares have been sold.
Above are just 15 of the 37 terms you need to know in order to be a successful trader.
I urge you to print these out, make note cards — whatever study method works best for you.
Knowing and understanding the basics is the first step on the road to mastery.
Check in tomorrow for the other 22 terms you need in your word bank.
— Tim Sykes
Editor, Penny Stock Millionaires