If you’re new to the world of trading, understanding the trading terminology is like learning a new language. Here’s a guide to some of the key terms you’ll encounter.
General Terms:
- Asset class: A category of investments, such as stocks, bonds, commodities, or real estate.
- Bull market: A market condition where prices are rising or expected to rise.
- Bear market: A market condition where prices are falling or expected to fall.
- Bid: The price at which a buyer is willing to purchase an asset.
- Ask: The price at which a seller is willing to sell an asset.
- Spread: The difference between the bid and ask prices.
- Volume: The number of shares or contracts traded in a particular period.
- Open interest: The total number of outstanding contracts in a futures or options market.
Order Types:
- Market order: An order to buy or sell an asset at the current market price.
- Limit order: An order to buy or sell an asset at a specific price or better.
- Stop order: An order to buy or sell an asset when it reaches a certain price.
- Stop-limit order: A combination of a stop order and a limit order.
- Trailing stop order: An order that follows the price of an asset by a certain amount.
Technical Analysis Terms:
- Chart patterns: Visual representations of price movements, such as head and shoulders, double tops/bottoms, triangles, etc.
- Oscillators: Technical indicators that oscillate between two extreme values, such as the Relative Strength Index (RSI) and Stochastic Oscillator.
- Moving averages: Averages of prices over a specific period of time, used to smooth out price fluctuations and identify trends.
- Fibonacci retracement: Levels based on Fibonacci ratios that are used to identify potential support and resistance levels.
Fundamental Analysis Terms:
- Earnings report: A company’s financial report that shows its revenue, earnings, and other financial metrics.
- Balance sheet: A statement of a company’s assets, liabilities, and equity.
- Income statement: A statement of a company’s revenue and expenses over a specific period of time.
- Cash flow statement: A statement of a company’s cash inflows and outflows over a specific period of time.
- P/E ratio (Price-to-Earnings ratio): The ratio of a company’s stock price to its earnings per share.
- PEG ratio (Price/Earnings to Growth ratio): A ratio that takes into account a company’s earnings growth rate.
- Dividend yield: The ratio of a company’s dividend per share to its stock price.
Risk Management Terms:
- Stop-loss: An order to sell an asset when it reaches a certain price, used to limit losses.
- Take-profit: An order to sell an asset when it reaches a certain price, used to lock in profits.
- Risk tolerance: The amount of risk an investor is willing to take on.
- Diversification: Spreading investments across different asset classes or securities to reduce risk.
Derivatives Terms:
- Futures contract: An agreement to buy or sell an asset at a specific price on a future date.
- Options contract: A contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a specific price within a specific period of time.
- Call option: An option to buy an asset.
- Put option: An option to sell an asset.
- Strike price: The price at which an option can be exercised.
- Premium: The price paid for an options contract.
Other Terms:
- Short selling: The act of selling an asset that the seller does not own, with the intention of buying it back later at a lower price.
- Long position: A position in which an investor buys an asset with the expectation that its price will rise.
- Margin trading: Borrowing money from a broker to buy more assets than can be purchased with one’s own funds.
- Leverage: The use of borrowed money to increase the potential return on an investment.
- Liquidation: The process of selling assets to pay off debts or meet margin requirements.
Reproduction Notes：InvestFancy » Trading Terminology for Beginners