100 Stock Market Terms Every Beginner Investor Should Know
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Learning to profit from the stock market as a beginner investor or trader can be intimidating, but knowing basic trading and stock market terms can boost your learning curve.
Understanding stock market fundamentals is essential to making clever investing decisions and developing more complex trading strategies to increase profitability. Use the terms below to get a leap on learning basic stock market terminology and create a strong foundation for your investment goals.
What Is The Stock Market?
The stock market helps companies to raise money by offering shares of their company as tradeable assets to investors. Investors can buy and sell stock shares on exchanges like the New York Stock Exchange and Nasdaq.
As part of a free market economy, the stock market helps evaluate a company’s real value based on supply and demand from investors.
Stock Market Terms for Beginners
The stock market terms below are an excellent starting point if you begin trading stocks. Get used to the terms to familiarize yourself with the typical vocabulary to grasp the stock market lingo experienced traders and investors use.
52-week range
The 52-week range is the price span of the highest high to the lowest low of the previous 52 weeks. A breakout of the 52-week high is a bullish sign that frequently leads to further upside momentum.
Algorithmic trading
In algorithmic trading, buy and sell orders are transmitted and executed with the help of using computer programs. Algo trading makes high-speed trading possible and needs high-end infrastructure, coding knowledge and computer hardware.
Arbitrage Trading
What is arbitrage trading? It typically refers to a trading style where a buy and sell order gets transmitted simultaneously across multiple exchanges by using price discrepancies between them. The profits per asset are typically small, but high-frequency trading algorithms help to improve profitability by frequently trading enormous trading sizes.
Ask
The Ask is the lowest price a seller of an asset (stock, ETF, mutual fund, etc.) is willing to sell it for. The counterpart of the Ask is the Bid, and the price difference between Bid and Ask is called Bid-Ask spread.
Asset allocation
Asset allocation involves diversifying investments among different assets, such as cash, stocks, bonds and mutual funds. The decision about the asset allocation into the best income producing assets is a personal one, and preferences might change according to various times in your life.
Asset classes
Asset classes group various investment types which have similar characteristics together. The most popular asset classes are equities, fixed income and cash, while commodities, futures, real estate and financial derivates and crypto are also asset classes investors frequently use.
Auction market theory
The auction market theory describes a market interpretation, whereas the imbalances between buyer and seller activity lead to a fair value price level – the point of control. The theory is that markets always return to a fair price level after momentum moves.
Automated Trading
Automated trading refers to a technology-focused trading approach where buy and sell orders are routed automatically to a specific stock exchange and via a specific order type. Automated trading replaces manual trading that traders usually utilize, with the main benefit, that emotions and human error can be kept out of trading activities.
Averaging down
Averaging down is a practice that investors use to reduce the average price of an asset in a portfolio. For example, if an investor bought 100 shares of Apple Inc. for $200 and bought 100 more for $100, he then averaged his price per share from 100 shares for $200 down to 200 shares for an average of $150.
Bear market
A bear market is a market phase where prices of assets like stocks typically fall in the mid-term without expecting new all-time highs to be seen anytime soon. A bear market happens when the broad market index (e.g., S&P 500 for U.S. stocks) falls by 20%, measured from its all-time highs. As long the market remains below this level, it’s a bear market. During bear markets, investors typically experience a draw down in their portfolio. However, as soon the prices are back in the upper 20% range of all time, it is a bull market again.
See Also: What Does DD Mean In Stocks
Beta
In finance, the beta measures the systematic risk of a security relative to the broad market (e.g., S&P 500 in the U.S.) and is mainly used for capital asset pricing models. The broad market is the reference point with a beta of 1. A stock can be above 1, which signals higher bullish momentum, while below 1, the stock signals weakness. Calculation of the Beta: Covariance(return of the individual stock, return on the overall market) divided by variance return on the overall market.
Bid
The bid is the highest price a buyer is currently willing to pay for an asset (stock, mutual fund, ETF, etc.). The counterpart of the Bid is the Ask. The price difference between the bid and ask is called Bid-ask spread.
Bid-ask spread
The bid-ask spread reflects the price difference between the best bid and the best ask. For example, if a buyer is willing to buy a stock for $100.50 and a seller is willing to sell the stock for $101.00, the bid-ask spread is $0.50.
Blockchain
Blockchain is a shared database that stores data in blocks linked together via cryptography, which can store different types of information. Unlike other databases, the blockchain is a decentralized system where all users collectively retain control.
Blue-chip stocks
Shares of large well-known companies with high reputations are called blue-chip stocks. Those stocks are frequently part of portfolios since their track record with earnings results, and forecasts is stable, and investors expect further good average returns in the long term.
Bond
Bonds, by definition, are debt securities that entitle the bondholder to receive interest payments from the borrower who issued the bond. A bond is typically a fixed-income instrument since the issuer pays the debtholder a fixed interest rate.
Bull market
A bull market in investing refers to a financial market where investors expect the prices to rise. From a %-standpoint, a bull market is a bull market when prices of the main index (S&P 500 in the U.S.) are in the upper 20% range of all-time prices.
Buy Order
An investor uses a buy order to buy an asset like stocks or exchange-traded funds. The buy order can be transmitted as a buy market order, where the fill is immediately, or as a buy limit order, where the order only gets filled if sellers want to sell it at or below the limit the buyer defined. In addition, there are more complex buy order types.
Buyback
A buyback is when companies buy back their own shares. They do so to reduce the number of shares in circulation, for example, to reduce the overall exposure of dividend payments to shareholders. The announcements of buybacks frequently cause bullish momentum since buyers interpret such a move in a way that the company believes in its story.
Candlestick charts
Prices and investors frequently use candlestick charts to visually determine possible price movements following a specific candlestick or candlestick pattern. Candlesticks visualize the open, high, low and close of each period chosen within the selected charting time frame.
Capital gains
Capital gains are typically taxed and occur when an investor makes a profit with a tradeable asset like stocks, bonds, homes, crypto etc. The capital gains fall under the capital gains tax. However, depending on the regulation, the investor can deduct losses from gains.
Common stock
A common stock is a class representing ownership of equity in a corporation. The shareholder, who owns the common stock, has voting rights and receives parts of the company’s asset value if a liquidation happens. The opposite of a common stock is the preferred stock.
Current ratio
The current ratio is a value measured to evaluate the ability of a company to pay for short-term obligations within a year. The ratio compares the current assets of a company to its liabilities. However, regulatory differences across nations and industries make it difficult to use the ratio to directly compare all companies.
Day Order
The day order is an order type that limits how long an order remains active on the day it was transmitted. For example, a trader sends a buy limit order to buy 100 shares of XYZ. If the order does not get filled or is only partially filled until the end of the regular trading hours, the system automatically cancels the order.
Day trading
Day trading is a short-term investment approach where day traders try to profit from small gains per asset (stocks, futures, options, forex etc.) but trade with a high number of shares/contracts on high momentum and volatility. The holding time of a day trade is limited to the end of the trading day since day traders, per definition, never hold positions overnight.
Debt-to-equity ratio
The debt-to-equity ratio indicates how much debt a specific company has relative to its assets. The D/E ratio is quickly calculated by dividing the total debt by the total shareholder equity of a company. The higher the debt-to-equity ratio, the more difficult it is for a company to cover its liabilities.
Deflation
Declining prices for goods and services characterize deflation due to the contraction of the money supply within an economy. Deflation is the opposite of inflation and occurs when the inflation rate goes below 0%.
Diversification
Diversification stands for splitting the risk across multiple asset classes and components. For example, a portfolio gets diversified by investing 20% in bonds, 30% in ETFs and 50% in stocks, where the holding of 50% in stocks gets diversified by investing in 10 different stocks. This way, if one company within the portfolio fails, the portfolio’s overall performance is moderately impacted.
Dividend
A company pays a dividend to eligible shareholders as a distribution of corporate earnings. The dividend yield reflects the percentage ratio of the dividend paid relative to the share price. On the day when the dividend gets paid, the stock trades ex-dividend.
Dividend yield
The dividend yield is calculated by dividing the paid dividend in $ by the share price in $ by the last closing date before the dividend payment. For example, on Thursday, company XYZ pays a dividend of $5, and the closing price on Wednesday was $100, then the dividend yield is 5/100 = 5%. The opening price on Thursday is ex-dividend, so $95 +- the new impacts independently of the dividend payment.
Dollar-cost averaging
Dollar-cost averaging is an often underestimated yet powerful method to improve long-term returns. Instead of significant one-up investments, investors continuously invest a smaller amount monthly and benefit from averaging the costs of the overall position in the portfolio. In addition, this investment approach is used to manage risk. Example: Invest $100 monthly in the preferred ETF instead of investing $10,000 once.
Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average is a stock market index, one of the most commonly followed equity indexes worldwide and was incepted on February 16, 1885. The trading symbol is DJ. The price-weighted index is based on the 30 most prominent companies listed on U.S. stock exchanges.
Earnings per share (EPS)
A company’s net profit gets divided by the number of common shares outstanding in evaluating the earnings per share. The metric updates after every EPS announcement and indicates how much the company makes per share.
Economic bubble
An economic bubble exists when an asset’s intrinsic valuation (fair value) is greatly exceeded by its current price. The bubble often bursts once the euphoria stage is over, and investors realize that the respective market is far overvalued and begin selling, often leading to more selling pressure.
Equal weight rating
When equity analysts believe a company’s stock price will perform relatively similarly to its primary benchmark, they provide an equal weight rating. Therefore, if a U.S. company’s stock gets an equal weight rating, analysts believe it will perform equally to the S&P 500.
Equity income
The term equity income describes the income received through stock dividends, which is a reward paid by a company to its shareholders. The more dividend-paying stocks or funds an investor has, the more equity income he can generate.
Exchange
An exchange in finance are marketplaces where securities, derivates, commodities, and other financial instruments, such as cryptocurrencies, are traded. The biggest stock exchange in the U.S. is the New York Stock Exchange (NYSE), the biggest derivatives exchange is The National Stock Exchange (NSE), and the biggest commodities exchange is the Chicago Mercantile Exchange (CME).
Exchange-traded funds (ETFs)
ETF stands for the exchange-traded fund and reflects a pooled investment of various securities. In many cases, an ETF represents 1:1 the same components as a particular underlying index, such as ETFs on Nasdaq 100 or specific sector ETFs. ETFs can be bought and sold cost-efficiently and often have exceptionally low management fees. The best performing ETFs frequently beat the reference indices (e.g., the S&P 500.) The main benefit for the investor is that he can invest diversified by buying one ETF instead of buying and selling dedicated shares of a company.
Expense ratio
Dividing the operating expenses by the average value of assets under management results in the expense ratio of a mutual fund. Low expense ratios are beneficial for investors who benefit from lower costs for holding a fund. Expense ratios below 1% are considered reasonable, but even 1% can be expensive for investors. Therefore, in some instances, building a portfolio with multiple stocks can be beneficial as an alternative to paying the fund for managing the investments.
Futures
The futures market is frequently used by futures traders who want to trade financial derivative contracts (e.g., Crude Oil, S&P mini, Corn) that obligate parties (buyers and sellers) to buy and sell the underlying asset at a predetermined price and date. Most traders use future contracts for speculation purposes and sell the contracts before expiration. However, businesses often use futures to hedge their business risks.
Gap
A gap in trading refers to a price gap, where the difference in price between the previous period’s close and the current period’s open defines the gap. For example, after earnings announcements, a significant price gap can appear, and traders frequently use on speculating on gap fills, or try to use the momentum with the gap and go strategy.
Good Till Canceled Order
The Good Till Canceled Order is an order type used by investors who want to keep their buy and sell orders active until they actively cancel them. If that order type is used, the order gets filled at some point or canceled by the investor.
Growth funds
Growth funds invest in stocks with mainly capital appreciation as the goal, which results in no dividend payouts, but focus on company growth. Google is a popular example of a company that never pays dividends to its shareholder, focusing on ultimate growth.
Growth stocks
Growth stocks are typically stocks of a company with positive cash flow that does not pay dividends but instead invests all earnings into further growth. A company that practices this a lot is Amazon.com Inc., which frequently invested earnings in further market expansion, resulting in reporting losses quarter by quarter. Such companies aim to grow so strong that the profits grow exceptionally at some point in the future.
Head and shoulders pattern
The head and shoulders pattern is a chart formation and trading pattern. It consists of a high in prices, followed by a consolidation, then a move to a new high which is higher than the previous high, then a consolidation to the area of the previous consolidation follows before another up move happens that goes to the price level of the first high before it consolidates back to the so-called neck-line – the price level of the previous consolidations.
Income funds
Income funds (ETFs or mutual funds) focus on high immediate income through dividends or interest. Those funds and ETFs often invest in dividend stocks, fixed-income securities and bonds to archive their goal.
Index funds
The index fund is a type of exchange-traded fund (ETF) or mutual fund that seeks to archive similar returns as the underlying indices, such as the S&P 500 or Russel 2000. To archive this goal, the index fund invests and rebalances its portfolio based on the % of each company listed in the respective index.
Inflation
Inflation is defined as the general upward movement of prices for goods and services within an economy over a given period. Various indexes of the U.S. Department of Labor’s Bureau of Labor Statistics measure multiple aspects of inflation.
Initial public offering (IPO)
IPO stands for initial publish offering and refers to the firstly offered shares of a private corporation in conjunction with their going public initiative. Investors can buy IPO stock for the official IPO price, while chances are minimal that the private investor gets the number of shares he wants. Most of the IPO shares are brought to the market with the help of companies that help the specific new company in their going public process and institutional investors.
Level 2
Level 2 in trading references to in-depth real-time quotes and market data that includes the bid and ask prices for a given security. The depth of the book is frequently used by day traders for tape reading, trying to identify opportunities of going long or short.
Limit order
A limit order is used by investors who want to buy or sell an asset only if a specific price level is reached. The buyer places his order on the Bid-side of the order book, while the seller places the order on the Ask-side of the order book. Once the bid and ask match, the order gets executed. The order remains open until filled or canceled unless the limit price is reached.
Liquidity
The ease with which security or asset can be converted into ready cash refers to market and accounting liquidity. The so-called Current Ratio, which divides the current assets by current liabilities, is the least strict and most straightforward way to evaluate the Current Ratio, which financial analysts use to assess a company’s ability to use their liquid assets to cover obligations.
Long
Long or Going Long refers to buying assets for a specific price. For example, if an investor buys a company’s stock, he goes long and sells at some time in the future. The opposite of Long is Short.
See Also: Best Time of Day to Buy Stocks
Low float stocks
Low float stocks have only a low number of shares in the float, and day traders frequently trade them due to their volatile nature. A stock’s float is evaluated by taking the total outstanding shares and subtracting the closely-held shares owned by insiders, employees and shareholders and restricted stock.
Margin
A margin in trading reflects the money a trader borrows from the broker, enabling the trader to invest. The broker uses the margin as collateral to cover the credit risk. Using borrowed funds requires the investor to pay interest to the broker. As a result, the margin often enables traders to speculate with much more money than they have, which can result in excessive profits or losses.
Market capitalization
Market capitalization (market cap) measures a company’s size. It reflects the total value of a company’s outstanding shares of stock (publicly traded + restricted shares) multiplied by its current stock price. In short, the market cap reflects the amount the company is worth.
Market index
Market indexes reflect a hypothetical portfolio or grouped assets listed under a specific index name. The most famous market indices in the U.S. are the S& 500, Dow Jones Industrial Average, and Nasdaq Composite. Smaller indices are the Russel Midcap or S&P 100. Index fund mirror such market indexes and invest in the contained companies in similar %-proportions.
Market order
A market order is a stock order type used when an investor wants to execute an order immediately without taking care of the price to which the order gets filled. The main benefit of a market order is the speed of execution, while the main disadvantage is that the price at which the order gets filled is entirely uncertain when the order gets transmitted, especially with assets having big bid-ask spreads.
Momentum trading
Momentum trading refers to buying and selling underlying assets based on the recent strength of price trends. Momo-stocks are typically volatile but tend to trend with high momentum to the upside or downside, which traders use for going long or short. Momentum indicators are used to identify stocks having a specific momentum.
Moving average
A moving average reflects the average of the price of an asset over a certain period. For example, the 20-day moving average based on closing prices equally weights the closing prices of the 20 most recent closes to evaluate the current moving average. The 20 MA and 50 MA, and 200 MA are the most frequently used moving averages.
Mutual funds
Mutual funds pool investors’ money and invest the money in securities such as stocks and bonds. Investors can buy stakes in those created portfolios. Mutual funds are popular in the U.S. but have significant disadvantages, such as high fees and tax inefficiency. ETFs are typically the better investment vehicle.
NASDAQ
The Nasdaq is the second-biggest stock exchange in the world, based in New York City. Based on trading volume, the Nasdaq is even the most active stock trading venue in the United States. The stock exchange was founded in 1971 and currently lists 3,554 companies.
Net Worth
Net worth gets calculated by subtracting the liabilities from assets, which has a higher informative value than looking at income singularly. In other words, net worth is what you own minus what you don’t. As a result, people often seek information about the net worth figures of celebrities and well-known people.
Non-fungible token (NFT)
NFTs, aka non-fungible tokens, are digital assets that use the blockchain to certify authenticity and ownership. NFTs can be created and sold by anybody on exchanges such as OpenSea.
Order imbalance
An order imbalance gets triggered if buy and sell orders for securities listed on an exchange aren’t match due to a surplus of buy or sell orders. Those situations mainly occur around market close. The New York Stock Exchange provides real-time feeds for imbalances. A buy-side imbalance occurs when the buyer demand for a stock is strong, while a sell-side imbalance occurs when a selling supply gains the upper hand. During the day, market makers manage imbalances, but when the situation becomes too obscure, trading can be halted.
OTC stocks
The term OTC stands for over-the-counter. U.S. Over the counter stocks are listed on the OTCM, where over 10,000 OTC securities are listed. Investors must be cautious about buying such stocks since the trading volume, and liquidity can be exceptionally low. Especially shorting OTC stocks can end badly if the short seller can’t close the position.
Outstanding shares
Outstanding shares are those held by individual shareholders, company officers and institutional investors on the open market, while total shares are the total number of issued shares of a company.
Overweight Rating
The overweight stock rating is a form of guidance on a stock’s performance potential issued by institutions such as JP Morgan, Goldman, Deutsche Bank or Wells Fargo. The overweight rating indicates that the analyst expects the stock with the rating performs better than the benchmark index.
P/E ratio
The P/E ratio stands for the price-to-earnings ratio. The ratio is used to value a company by comparing the price (P) with the earnings (E) of a company. It indicates how much an investor pays for each dollar of earnings.
Paper Trading
Paper trading is a risk-free trading method used by traders who want to test new trading strategies in a development environment before going live.
Pattern Day Trader
A pattern day trader is a regulatory designation defined by the SEC within the United States. The PDT rule defines a trader who trades more than 3 times within 5 business days as a day trader. Various pattern day trader workarounds exist, but having an account with a U.S. broker directly ties traders to that rule.
Penny stocks
Penny stocks include all stocks trading for less than $5 per share, listed on Nasdaq and NYSE. Still, once penny stocks fall below the $1 level for a longer time, they get de-listed from Nasdaq and NYSE and become OTC stocks, which typically leads to even more selling pressure by holders of the stock, which then leads to reduced interest, trading volume and potential. Day trading penny stocks is popular amongst day traders who don’t hold positions overnight.
Preferred stock
Preferred stock is a type of stock that grants specific rights like higher dividend payments or higher claims to assets in case of a liquidation of a company. Yet, preferred stockholders frequently have no vote in company elections.
Profit margin
The profit margin measures the degree to which a company or business makes money. The net profit margin is calculated by subtracting the cost from revenue and dividing the result by revenue. Net Profit Margin = ((Revenue – Cost) : Revenue)
Profit target
The profit target refers to a specific price where a trader wants to close an open position. The trader holding a long position tries to archive a positive return and uses a profit target price higher than his purchasing price. The short-seller who went short sets the profit target at a price level below the purchasing price.
Quote
A quoted price in finance is the most recent price recorded as bid or ask for an asset traded. Such assets include stocks, mutual funds, commodities and other financial instruments. If a trader submits an order to the stock exchange, his order becomes a quote. If quotes on the bid and ask side match, a trade is made and the order executed.
Recession
A recession is entered when a significant decline in economic activity spreads across the economy and lasts at least two months. A recession often leads to a shrinking profit margin, resulting in layoffs and job losses, which then leads to reduces consumer spending.
Risk tolerance
Risk tolerance defines the acceptance of the potential risk of an investment by investors. The three main levels are aggressive, moderate and conservative risk tolerance. Conservative risk tolerance refers to the lowest risk tolerance level. The risk is affected by stock market swings, economic news, stock volatility, etc.
Roth IRA
The Roth IRA is an Individual Retirement Account in the U.S. that offers tax-free withdrawals in retirement if the account owner holds the accounts for a minimum of 5 years and with a minimum age of 59.5. Day trading in a Roth IRA is possible as long the trades are executed in the approved manner.
Scalping
Scalping in trading refers to a trading strategy where traders buy large quantities of an asset, intending to hold it for a few seconds, making a small profit per share. Stocks are one of the most frequently used assets used for scalping.
Sector
A sector reflects a broad range of specific industries. Examples are the banking, consumer electronics, technology and real estate sector. Each stock belongs to at least one sector.
Sell order
A sell order is used to initiate either closing an existing long position of an asset an investor already has or to initiate a new short position. The sell order will directly go to the order book on the Ask side if a limit order is used and gets executed once a buyer is willing to purchase the asset for the price the seller wants. If a market sell order is used, the order also reflects the ask side but gets immediately matched with the best bid available in the order book.
Shares
Shares of stock represent the ownership of a company. Individuals and businesses can own shares as they become shareholders of the respective company. Having shares is not limited to shares of stock. It can also be shares of mutual funds, real estate or other instruments.
Short
Going short refers to an investment practice where traders and investors sell an asset they don’t have by borrowing them to buy back the assets at a lower price at some point in the future. The opposite of short is long. Shorting penny stocks is more challenging than shorting large-cap stocks to the limited availability of easy-to-borrow shares.
Stockbroker
A stockbroker is a broker-dealer, regulated broker or registered investment advisor that may provide investment management services and financial advice. In addition, the stockbroker acts as a middleman when the client sends a buy or sell order to the stock exchange via the broker.
Stock charts
Stock charts are price visualizations as graphs with additional price-based indicators and various annotations. Reading stock charts is a skill that takes time to develop. Popular stock chart types are the candlestick chart and line chart. Frequently used stock chart intervals are the daily and 15-minute chart time frames.
Stock exchange
A stock exchange is the marketplace where buy and sell orders for securities traded by investors get exchanged. Most stock exchanges work full electronic, and market makers help to execute orders. Traded securities include stocks, bonds and other financial instruments. The largest stock exchange in the world is the New York Stock Exchange.
Stock market holidays
Stock exchanges are closed during stock market holidays, or the trading time is reduced. U.S. holidays are News Years’ Day, Martin Luther King Jr. Day, Washington’s Birthday, Good Friday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
See Also: Stock Market Hours and Holidays in the United States
Stock option
Stock options are options contracts in the form of call and put options that give the trader the right, but not the obligation, to buy or sell the stock at the expiration date for the specific strike price traded. Stock options belong to its underlying asset, and day trading options are popular amongst retail traders.
Stock portfolio
A stock portfolio consists of various stocks an investor (private or institutional) holds. The stock portfolio is typically diversified and holds multiple types of stocks, ETFs, etc. A stock portfolio is held with a stockbroker.
Stock split
Companies use a stock split to reduce or increase the number of outstanding shares on the market. At the same time, the price per share changes in the equal ratio while the overall value of the stake remains unchanged. For example, with a 2:1 split, the investor receives 1 additional share per share he holds, and the price per share get’s divided by 2. Let’s say an investor has 50 shares of a company worth $100 per share before the stock split ($5,000 value). After the 2:1 stock split, he owns 100 shares with $500 per share ($5,000 value). With a reverse stock split, the opposite happens, and the price per share goes up while the number of shares decreases (value keeps the same).
Stock symbol
The stock symbol is a unique identifier. For example, Apple has the stock symbol AAPL, Amazon = AMZN, and Netflix = NFLX. Those stock symbols can be used to find company insights quicker. Instead of writing the company’s name, investors type the stock symbol into a stock screener, news software or trading platform and immediately see the quotes related to the stock.
Swing Trading
Swing trading is a trading style where investors hold positions between a couple of hours and multiple days. Swing trading strategies are less active than day trading, but require more position management efforts than buy-and-hold investing.
Technical analysis
Technical analysis uses data from the underlying asset analyzed (price, volume etc.) and displays the data visually on a chart. Technical analysis includes trendlines, multi-timeframe-analysis, trading indicators, chart patterns and more.
Time horizon
The time horizon in investing describes how long an investor expects to hold an investment. The time horizon can be ultra-short for high-frequency trading or scalping, but also day trading, swing trading or, on the longer end, the buy and hold investments.
Trading book
The term trading book refers to financial institutions that use it as an accounting ledger to keep track of all tradeable financial assets. In contrast, traders use a trading book to document all their strategies, trades and notes.
Trading volume
Trading volume reflects the number of shares, contracts, etc., traded for a specific asset (stocks, futures, options, etc). Day traders frequently filter for high relative volume, where the trading volume of today is relatively higher compared to the average of the previous days.
Volatility
The market volatility in the U.S. is measured by the Chicago Board Options Exchange’s CBOE Volatility Index (VIX). The VIX indicates the volatility of the broad market. Yet, day traders use highly volatile stocks with high momentum to generate income quickly.
Volume-weighted average price (VWAP)
The volume-weighted average price is a trading indicator that considers volume and price to calculate the value. The indicator indicates the average price adjusted for its volume by dividing the total dollar value by trading volume. VWAP trading is popular amongst day traders.
Yield
Yield in finance refers to earnings archived on an investment over a specific period. It is a percentage value calculated by dividing the return by the investment amount, considering the time. For example, an investor archived a gain of $1,000 within 12 months on a $100,000 investment. In this case, the investor has archived a yield of 1% within 12 months.
FAQ
Why is it helpful to know stock market terms?
Knowing the basic stock market terms sets the foundation for success in investing in stocks. Knowing the lingo and vocabulary is a clear benefit and enables investors to make well-informed investment decisions.
What are the most frequently used stock market terms?
The most frequently used stock market terms are bull market, bear market, bid, ask, day trading, and algorithmic trading.
