Navigating the world of options, stocks and bonds can be confusing for a novice trader. It can be challenging to learn the terminology of trading. Trading jargon can be complicated and hard to understand, but knowing the terms is essential to make informed decisions and avoiding costly mistakes. We've put together a list of 16 trading terms that are essential for every newbie.
- Portfolio Diversification
Portfolio diversification is investing in a wide range of securities, to spread risks and minimize losses. Understanding portfolio diversification can help traders manage risk and potentially increase long-term returns.
- Position Trading
Position trading is the practice of holding a financial instrument for a period of time, usually months or years, to benefit from price movements over a long period. Understanding position trading can help traders identify potential long-term investment opportunities.
- Liquidity
The liquidity of a security is how easily it can be bought or resold without changing its price. Understanding liquidity allows you to trade quickly and avoid slippage.
- There are many ways to get in touch with each other.
Beta is a measure for the volatility of a particular security in comparison to the entire market. Understanding beta will help traders determine how a stock may perform under different market circumstances.
- Margin
The margin is the money that a trader borrows to purchase securities from a broker. Understanding the terms can help traders leverage capital to increase potential profit but comes with increased risks.
- Stop Loss
A stop loss order is a sale of a security at a specific price. Understanding this term is important to protect capital and limit losses.
- Dividend
A dividend payment is made by an organization to its shareholders. Understanding dividends will help you evaluate the potential of a stock as a long-term income and investment.
- Candlestick
A candlestick is a visual representation of price movement in a security. Understanding candlesticks allows traders to recognize patterns, and help them make more informed decisions.
- Moving Average
A moving-average is a measure of the average price for a security over a given period. Understanding moving averages helps traders to identify trends and make better trading decisions.
- Penny Stock
A penny stock refers to a low-priced, high-risk stock issued by a company with a small market capitalization. Understanding penny shares can help traders identify potentially high-risk, highly-rewarding investments.
- Volume
The volume is the number of shares traded of a certain security in a given period. Understanding this term is crucial to gauge the market's sentiment and identify trading opportunities.
- Limit Order
A limit orders is an order that buys or sells a stock for a set price. Understanding this term can help traders determine a target price for a particular security and avoid overpaying.
- Blue Chip Stock
A blue-chip company is a large and stable financial firm with a strong dividend history. Understanding blue-chip stocks can help traders identify potential long-term investments.
- Support
Support is a price level at which a stock or security tends to encounter buying pressure. Understanding support is crucial to identify potential entry points or areas of accumulation.
- Stop Loss Order
Stop-loss orders are an order to sell securities at a specific price in order to limit possible losses. Understanding stop loss order can assist traders in managing their risk, and protecting their capital.
- Bear Market
A bear-market is the opposite to a bull-market, when stock prices decline. Understanding the term helps traders to identify a downtrend, and help them make better trading decisions. In a bearish market, traders might consider selling their stocks to prevent further losses.
To conclude, knowing these 16 commonly used trading terms gives beginner traders the foundation they need to start trading. Understanding these terms will help traders make more informed trading decisions, reduce risk and increase profits. It's crucial for beginner traders to take the time to learn and understand these terms to succeed in the trading world.
Frequently Asked Question
Can I begin trading without knowing these terms?
Yes, but it's recommended that you have a basic understanding of these terms to make informed trading decisions and manage your risk effectively.
Where can I get more information about these terms and their meanings?
You can find more information online about these terms in many places, including blogs, educational websites, trading forums, and other resources.
How long does it usually take to learn these words?
The time it takes to master these terms will vary depending on the way you learn and how much time you devote to study.
Are these terms relevant to all types of trading?
These terms apply to all forms of trading including forex, stocks, futures and options.
Can I trade on my own?
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
What are the advantages to owning stocks?
Stocks have a higher volatility than bonds. If a company goes under, its shares' value will drop dramatically.
However, share prices will rise if a company is growing.
Companies often issue new stock to raise capital. Investors can then purchase more shares of the company.
To borrow money, companies use debt financing. This gives them access to cheap credit, which enables them to grow faster.
When a company has a good product, then people tend to buy it. The stock's price will rise as more people demand it.
The stock price should increase as long the company produces the products people want.
What are some of the benefits of investing with a mutual-fund?
-
Low cost - buying shares directly from a company is expensive. Purchase of shares through a mutual funds is more affordable.
-
Diversification - most mutual funds contain a variety of different securities. The value of one security type will drop, while the value of others will rise.
-
Professional management - professional managers make sure that the fund invests only in those securities that are appropriate for its objectives.
-
Liquidity - mutual funds offer ready access to cash. You can withdraw your money whenever you want.
-
Tax efficiency- Mutual funds can be tax efficient. So, your capital gains and losses are not a concern until you sell the shares.
-
No transaction costs - no commissions are charged for buying and selling shares.
-
Mutual funds are simple to use. All you need is a bank account and some money.
-
Flexibility - you can change your holdings as often as possible without incurring additional fees.
-
Access to information – You can access the fund's activities and monitor its performance.
-
Investment advice - ask questions and get the answers you need from the fund manager.
-
Security - know what kind of security your holdings are.
-
Control - You can have full control over the investment decisions made by the fund.
-
Portfolio tracking – You can track the performance and evolution of your portfolio over time.
-
Easy withdrawal - it is easy to withdraw funds.
Disadvantages of investing through mutual funds:
-
Limited selection - A mutual fund may not offer every investment opportunity.
-
High expense ratio - Brokerage charges, administrative fees and operating expenses are some of the costs associated with owning shares in a mutual fund. These expenses will reduce your returns.
-
Lack of liquidity - many mutual fund do not accept deposits. They can only be bought with cash. This restricts the amount you can invest.
-
Poor customer service. There is no one point that customers can contact to report problems with mutual funds. Instead, you need to contact the fund's brokers, salespeople, and administrators.
-
It is risky: If the fund goes under, you could lose all of your investments.
What is the difference in a broker and financial advisor?
Brokers are specialists in the sale and purchase of stocks and other securities for individuals and companies. They manage all paperwork.
Financial advisors are experts on personal finances. They help clients plan for retirement and prepare for emergency situations to reach their financial goals.
Banks, insurers and other institutions can employ financial advisors. You can also find them working independently as professionals who charge a fee.
Take classes in accounting, marketing, and finance if you're looking to get a job in the financial industry. It is also important to understand the various types of investments that are available.
How can people lose money in the stock market?
The stock market isn't a place where you can make money by selling high and buying low. It's a place where you lose money by buying high and selling low.
The stock market is for those who are willing to take chances. They will buy stocks at too low prices and then sell them when they feel they are too high.
They believe they will gain from the market's volatility. If they aren't careful, they might lose all of their money.
Statistics
- 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)
- 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)
- "If all of your money's in one stock, you could potentially lose 50% of it overnight," Moore says. (nerdwallet.com)
External Links
How To
How to create a trading plan
A trading plan helps you manage your money effectively. It helps you understand your financial situation and goals.
Before setting up a trading plan, you should consider what you want to achieve. You may want to make more money, earn more interest, or save money. You may decide to invest in stocks or bonds if you're trying to save money. You could save some interest or purchase a home if you are earning it. Maybe you'd rather spend less and go on holiday, or buy something nice.
Once you have a clear idea of what you want with your money, it's time to determine how much you need to start. It depends on where you live, and whether or not you have debts. You also need to consider how much you earn every month (or week). Income is what you get after taxes.
Next, you will need to have enough money saved to pay for your expenses. These expenses include rent, food, travel, bills and any other costs you may have to pay. These all add up to your monthly expense.
The last thing you need to do is figure out your net disposable income at the end. This is your net disposable income.
You're now able to determine how to spend your money the most efficiently.
To get started with a basic trading strategy, you can download one from the Internet. Ask an investor to teach you how to create one.
For example, here's a simple spreadsheet you can open in Microsoft Excel.
This graph shows your total income and expenditures so far. This includes your current bank balance, as well an investment portfolio.
Here's another example. This was created by a financial advisor.
It shows you how to calculate the amount of risk you can afford to take.
Remember: don't try to predict the future. Instead, you should be focusing on how to use your money today.