Know that feeling of being in a company of people, and they start using terms you don’t understand? Well, every industry has its jargon, and the stock trading industry is no different. So, you must know some basic stock market terms before starting your trading journey.
But as we said before, we are here to guide you through the stock markets every step of the way, big or small. So, from one trader to another, here are 45 key stock trading terms for beginners. We will be using these stock terms for beginners in the levels to come, so feel free to bookmark this page or print them out so you can always have them on hand!
Without further ado, let’s get started!
Let’s take a look at some of the most common and vital stock market terms every trader must know.
To ‘buy’ something in the stock market means to take a long position or buy shares in a company.
To ‘sell’ something in the stock market means to sell your shares in a company. This could refer to stocks you already own, or, alternatively, selling stocks can be done in other forms – one way is to sell stocks you borrow from a brokerage firm, and then when you buy the stocks, you bring them back to your brokerage firm – this is called a short sell position. Another way is to sell shares when trading CFDs. This way, you do not own shares of the company, and you refer to selling as predicting that the stock price will fall.
The bid is the stock price one is willing to pay for a stock.
The ask is the stock price for which people are willing to sell their stock.
The difference between the bid and the ask price is called the spread. It represents the difference between the price one is willing to buy a stock and the price another is willing to sell the stock.
A bull market refers to a market on the rise; therefore, stock prices are also expected to rise. A bull market is called as such due to how a bull lifts its horns when fighting.
A bear market refers to the market where stock indices or stock prices decline for a sustained period. It is the opposite of a bull market. A bear market is called such due to how a bear attacks by swiping its paws downwards.
A market order is an instruction from a trader to a broker to buy a stock immediately at the current market price.
A day order in the stock market is an instruction from a trader to the broker to buy or sell a security by the end of the day. The order is canceled if there is no execution by the end of the trading day.
A limit order is a type of order to buy or sell a stock for a specified price or better.
Volatility refers to the rate at which a particular stock moves up and down. For example, if the stock’s price fluctuates from side to side in a short period, it is considered to be a volatile stock.
Liquidity is how fast the shares of a specific stock can be bought or sold without impacting the price. When there are many buyers and sellers in the market, it means there is high liquidity and vice versa.
Trading volume refers to the total number of stocks, or shares, traded over a specified period.
An uptrend describes the movement of a stock or any other asset when the overall direction is upward and getting higher.
A downtrend describes the movement of a particular stock when the overall direction is downward and getting lower.
If you go long on a stock, it means you are buying your share in the company and speculating that the price is expected to rise.
If you go short on a stock, you are selling your shares in the company with the expectation that the price will fall. A trader taking a short-sell position typically borrows the stocks from the broker, sells them to another market participant, and sends them back to the broker once the transaction is completed.
Day trading refers to buying and selling shares on the same day, meaning day traders close all their positions before the market closes.
A broker is a licensed person or an organization that buys and sells stocks via the stock exchange on behalf of its clients in exchange for a fee.
Averaging down means buying more shares in a stock you already own after its price has declined. By doing so, the trader can lower the price at which the position will be profitable.
Market cap refers to the total value of all of the company’s shares, and it is, therefore, represents its total market value.
Public floating stock is the number of shares available for the public on a stock exchange to buy or sell on any given day.
A company’s outstanding shares are the total number of a publicly traded company currently held by its shareholders.
IPO, or an initial public offering, refers to the process of shares in a privately held company being listed on the stock exchange for the first time.
A secondary offering is the process of large numbers of shares being sold from one investor to another on the secondary market after the company goes public through an Initial Public Offering (IPO).
Dividends are earnings a publicly traded company pays out to its shareholders. Dividend payments are usually paid once a quarter or a year, enabling investors to get a fixed return by holding the company’s stocks.
Dividend yield refers to the returns on investment on any given Stock. It is basically all annual dividend payments as a percentage of the stock’s current price. For example, if a company’s annual dividend payment is $2 and the stock price trades at $50, the annual dividend yield is 4%.
A stock exchange is a centralized location where people can buy or sell Stocks or shares of companies along with other securities like Exchange Traded Funds (ETFs), mutual funds, bonds, options, etc. For example, the New York stock exchange is the largest and most well-known stock exchange where traders can buy and sell shares of publicly traded companies.
Margin refers to the process of traders borrowing money from a broker to buy and sell stocks. Traders use margin to increase their purchasing power, which allows them to buy more shares than they could afford with the initial capital they have deposited.
A stock portfolio is a collection of stocks owned by an investor. By building a stock investment portfolio with various financial assets, investors can diversify their investments and reduce risk.
Authorized Shares refer to the total number of shares a company is legally allowed to issue to investors.
Blue-chip stocks are the shares of well-known, well-established, and profitable companies. These are usually part of the largest stock market indexes like the Dow Jones Industrial Average, S&P500, Nasdaq, DAX, FTSE100, CAC 400, Nikkei 225, etc. Additionally, a blue chip stock is typically a company that has a large market capitalization (over $10 billion).
Hedge funds are an alternative form of investment using pooled funds. A hedge fund is essentially a limited financial partnership of investors that aims to make high returns in the stock market for its clients by applying different trading strategies.
A stock quote is the price of a stock as quoted on the stock exchange market.
A price rally in the stock market refers to a period in which a stock sees a continuous increase.
A sector is a group of stocks in the same business type. For example, some sectors include technology, healthcare, financials, energy, communication, utilities, real estate, etc.
Stock symbols are a unique series of one to four letters assigned to stock for trading purposes. For example, the stock symbol of Apple corporation is AAPL and for Tesla corporation is TSLA.
Arbitrage is the process of simultaneously buying and selling assets in different markets (or stock exchanges) to profit from minor differences in the asset’s listed price.
Beta is a measure of a stock’s volatility in relation to the overall market. For example, if a particular stock has a beta of 1.2 and the stock market index has a beta of 1, then the stock is 20% more volatile than the market in which it trades.
Rebalancing means buying or selling a share in an organization to bring your asset allocation back in line with your original targets.
An annual report is a financial report that provides information on the company’s activities throughout the year. Investors use these annual reports to better understand the company’s financial situation, which ultimately helps them make trading decisions.
That’s it; you have completed the first stock trading course. Now, you can pretty much understand the basics of the stock market, which means you are ready to move on to the next step – starting your journey as a stock trader.
In the following lessons, we will teach you about the different types of stocks, why stock prices fluctuate, how to calculate returns on stock investments, the different types of stock market analyses, and more.
Additionally, we recommend you read one of the most popular trading books and join our trading room, where you can discuss with our trading mentors and get access to daily live streams. See you there.
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