The stock market has its own language. Learn it before you put money to work, or expect to make expensive decisions based on half-understood concepts. This guide covers the terms that come up constantly, organized by category so the definitions build on each other rather than dropping you into an alphabetical list.
Market Structure Basics
Stock (also: share, equity) A stock represents partial ownership of a company. Buy shares of a company and you hold a claim on a proportional slice of its earnings and assets. Common stock is what most traders buy and sell. It comes with voting rights but no guaranteed dividend. Preferred stock carries priority on dividend payments and gets paid ahead of common shareholders if the company distributes assets, but preferred holders typically have no voting rights.
Stock exchange The marketplace where buying and selling of securities happens. The New York Stock Exchange and Nasdaq are the two dominant US exchanges. Stocks listed on these exchanges trade during official market hours: 9:30am to 4:00pm ET. Pre-market and after-hours sessions exist, but volume drops significantly outside regular hours, and spreads widen.
Ticker symbol The short alphanumeric code that identifies a specific stock on an exchange. AAPL is Apple. TSLA is Tesla. Every publicly traded company has one.
Market capitalization The total market value of a company’s outstanding shares. Calculated by multiplying the current share price by the number of shares outstanding. A stock trading at $50 per share with 100 million shares outstanding has a market cap of $5 billion. Companies are generally grouped as large-cap (above $10 billion), mid-cap ($2 billion to $10 billion), and small-cap (under $2 billion). Size affects how a stock moves. Small-cap stocks with limited float can double or drop 50% in a single session. That rarely happens to a $500 billion company.
Float The number of shares actually available to trade on the open market. Not the same as shares outstanding. Shares held by insiders, institutional lockups, or corporate buybacks reduce the float. A small float means limited supply. When demand spikes on news, a small-float stock can move violently in either direction.
Index A collection of stocks representing a segment of the market, used as a benchmark for performance. The S&P 500 tracks 500 large US companies and is the most widely used benchmark. The Nasdaq Composite skews heavily toward technology. The Russell 2000 covers small-cap stocks. When traders say “the market is up,” they usually mean one of these indexes moved.
Volume The number of shares traded during a given period. High volume signals active interest. A stock trading at 10x its average volume on a given day is drawing unusual attention, usually because of news or a significant price move.
Price and Order Mechanics
Bid and ask The bid is the highest price a buyer is willing to pay for a share. The ask is the lowest price a seller will accept. These two numbers define the current trading range. A trade executes when a buyer’s bid matches a seller’s ask.
Spread The difference between the bid price and the ask price. A stock with a $0.01 spread is liquid and easy to trade cheaply. A stock with a $0.50 spread on a $3 share is expensive to trade, since that spread is 17% of the share price. Active traders pay close attention to spreads, especially in thinly traded or low-priced stocks.
Market order An order to buy or sell immediately at the best available price. Guarantees execution. Does not guarantee price. In a fast-moving or thinly traded stock, a market order can fill at a significantly different price than expected.
Limit order An order to buy or sell at a specified price or better. Controls the execution price. Does not guarantee the order fills if the stock never reaches the target price. The default order type for most active traders.
Stop order An order that becomes active when a stock reaches a specified price, then executes as a market or limit order. Used primarily to manage risk. A stop-loss order set below a position automatically exits the trade if the stock drops to that level.
Slippage The difference between the price a trader expected and the price the order actually filled at. Common in fast markets, wide-spread stocks, and any situation where a market order runs into thin liquidity.
Pattern day trader (PDT) A FINRA designation that applies to any margin account that makes 4 or more day trades within a 5 business day period, provided those trades represent more than 6% of the account’s total trading activity during that period. PDT accounts must maintain a minimum equity balance of $25,000. Traders who fall below that threshold lose access to intraday leverage. This rule specifically applies to US margin accounts. Cash accounts are not subject to PDT rules.
Market Conditions and Cycles
Bull market A period of rising stock prices, typically defined as a 20% or greater increase from a recent low, sustained over time. Bull markets tend to coincide with economic expansion, rising corporate earnings, and investor confidence.
Bear market A decline of 20% or more in a broad market index from a recent high. Bear markets are driven by economic slowdowns, rising interest rates, financial disruptions, or a combination. They are a normal part of market cycles, not an anomaly.
Correction A shorter-term pullback of roughly 10% from a recent market peak. Corrections happen more frequently than bear markets and do not necessarily signal a prolonged decline. They are sometimes the setup for the next leg higher.
Volatility The degree to which a security or market fluctuates in price over a given period. High volatility means large, fast price swings. Low volatility means steady, gradual movement. Volatility is not inherently good or bad. Active traders often seek volatile stocks because that movement creates trading opportunity. Long-term investors typically prefer lower volatility.
VIX (Cboe Volatility Index) Measures the implied volatility of S&P 500 index options. Often called the “fear index.” A rising VIX signals that options buyers are paying more for protection, which generally reflects increasing uncertainty or fear in the market. A VIX reading above 30 is typically associated with significant market stress.
Market correction vs. bear market The distinction matters. A correction is a 10% pullback. A bear market is 20% or more. Both involve falling prices, but the duration and severity differ. Not every correction becomes a bear market.
Dead cat bounce A temporary price spike in a stock or index following a significant decline. The name captures the dynamic: even a dead cat bounces if dropped from high enough. The bounce does not indicate a genuine recovery. Active traders are cautious about mistaking a dead cat bounce for a reversal.
Panic selling When investors offload large quantities of shares rapidly out of fear, without thoughtful analysis. The act of widespread panic selling tends to become self-fulfilling: the selling itself drives prices lower, which triggers more selling.
Overbought / oversold Descriptors used to characterize when a stock or market has moved so far in one direction that a reversal may be near. A stock is considered overbought after a sharp run-up. Oversold describes a stock that has sold off aggressively and may be due for a rebound. Neither term guarantees anything. They are conditions, not predictions.
Fundamental Analysis Terms
Revenue The total income a company generates from sales before any expenses are deducted. Revenue growth indicates the business is expanding its top line.
Net income What remains after all expenses, interest, taxes, and other costs are subtracted from revenue. The “bottom line.” Net income is used to calculate earnings per share.
Earnings per share (EPS) Net income divided by the number of outstanding shares. A company earning $100 million with 50 million shares outstanding has an EPS of $2.00. EPS is one of the most widely used metrics for evaluating company profitability.
Price-to-earnings ratio (P/E) The current share price divided by earnings per share. A stock trading at $40 with an EPS of $2.00 has a P/E of 20. The P/E ratio provides a quick way to assess whether a stock is priced expensively or cheaply relative to its earnings. A high P/E suggests investors expect significant future growth. A low P/E may indicate undervaluation or a business in decline. Context determines which.
Dividend A portion of a company’s earnings distributed to shareholders, usually in cash. Not all companies pay dividends. Those that do are typically mature, profitable businesses that generate more cash than they can profitably reinvest. Growth stocks often pay no dividend, preferring to reinvest earnings.
Dividend yield Annual dividends per share divided by the current share price, expressed as a percentage. A stock paying $2.00 per share annually, trading at $40, has a dividend yield of 5%.
Free cash flow The cash a company generates after accounting for capital expenditures required to maintain or expand its operations. Free cash flow is what the business actually has available for dividends, buybacks, debt repayment, or reinvestment. A company can show positive net income while generating negative free cash flow, which is a meaningful distinction.
Market trend The general direction in which a security or market is moving. Trends are characterized as upward (uptrend), downward (downtrend), or sideways (ranging). Technical traders spend most of their time identifying and trading with prevailing trends rather than against them.
Technical Analysis Terms
Support and resistance Support is a price level where buying interest has historically emerged and prevented further declines. Resistance is a price level where selling pressure has capped upward movement. These levels often develop at prior highs and lows. Once a resistance level is broken, it frequently becomes new support.
Moving average An average of a stock’s closing prices over a specified number of periods, recalculated with each new session. Moving averages smooth out short-term fluctuations to reveal the underlying trend direction. The most commonly referenced by active traders are the 9 EMA, 20 EMA, and 200 EMA (exponential moving averages). The 200 EMA is widely watched as a dividing line between long-term uptrend and downtrend.
VWAP (Volume Weighted Average Price) The average price a stock has traded at throughout the session, weighted by the volume at each price level. Stocks trading above VWAP are generally considered to be in a bullish intraday posture. Stocks trading below VWAP are considered bearish. Institutional traders use VWAP as a benchmark. Active day traders use it as a dynamic support and resistance level and as a reference for reading intraday momentum.
RSI (Relative Strength Index) A momentum oscillator that measures the speed and magnitude of recent price changes on a scale of 0 to 100. Readings above 70 are generally considered overbought. Readings below 30 are generally considered oversold. RSI is a useful contextual indicator. It does not generate reliable buy or sell signals on its own.
MACD (Moving Average Convergence Divergence) A momentum indicator tracking the relationship between two exponential moving averages. When the MACD line crosses above the signal line, it suggests building upward momentum. A cross below the signal line suggests fading momentum. Active traders use MACD as one signal among several, not as a standalone trigger.
Candlestick chart The standard chart type for active traders. Each candle represents a defined time period and displays four data points: open, high, low, and close. Green candles close higher than they open. Red candles close lower. Candlestick shape communicates market sentiment in ways a simple line chart cannot.
Short Selling and Risk
Short selling Borrowing shares from a broker and selling them on the open market with the expectation of buying them back later at a lower price. The profit is the difference between the sale price and the buyback price, minus borrowing costs. The risk is theoretically unlimited: if the stock rises rather than falls, the short seller must eventually buy the shares back at a higher price.
Short interest The percentage of a stock’s float currently held as short positions. High short interest, typically 20% or more of float, creates the conditions for a short squeeze if the stock begins rising sharply.
Short squeeze When a rising stock forces short sellers to buy shares to cover their positions and limit losses. That buying adds to upward price pressure, pushing the stock even higher and triggering more covering. Short squeezes are most violent in stocks with small floats and high short interest, where the supply of available shares is already limited.
Hedge A position taken to offset the risk of another position. Buying a put option on a stock you own, for example, hedges against a drop in that stock’s price. Hedging reduces risk but also caps potential upside. Institutional investors hedge frequently. Most retail traders do not.
Margin Borrowed money extended by a broker to increase a trader’s buying power. A margin account with $25,000 and 4:1 intraday leverage provides $100,000 in buying power. Leverage amplifies both gains and losses. Positions that move against a leveraged trader can generate losses that exceed the original account balance.
Margin call A demand from a broker that a trader deposit additional funds or close positions because account equity has dropped below the required maintenance level. If the trader cannot meet the margin call, the broker has the authority to liquidate positions to bring the account back into compliance.
Investment Vehicles
Bond A debt instrument representing a loan from an investor to a government or corporation. The issuer pays periodic interest and returns the principal at maturity. Bonds are generally considered less volatile than stocks and are used in portfolios to provide income and reduce overall price fluctuation.
ETF (Exchange-Traded Fund) A fund holding a collection of securities, traded on an exchange like a stock. ETFs provide instant diversification, often at low cost. An S&P 500 ETF, for example, gives exposure to 500 large US companies through a single purchase. ETF prices update throughout the trading day, unlike mutual funds which price once at close.
Mutual fund A pooled investment vehicle that combines money from many investors to purchase a portfolio of stocks, bonds, or other securities. Mutual funds are managed by a fund manager and priced once per day at market close. They charge ongoing management fees.
REIT (Real Estate Investment Trust) A company that owns and typically operates income-producing real estate. REITs trade on exchanges like stocks and are required by law to distribute at least 90% of taxable income to shareholders as dividends. They provide exposure to real estate without requiring direct property ownership.
IPO (Initial Public Offering) The first time a private company offers shares to the public on a stock exchange. IPOs allow a company to raise capital from public investors. Trading in newly listed stocks can be volatile in the initial sessions as the market establishes a price.
Economic and Macro Terms
Inflation The rate at which the general level of prices for goods and services increases over time, reducing the purchasing power of money. Inflation is measured primarily through the Consumer Price Index (CPI). The Federal Reserve targets 2% annual inflation. When inflation runs significantly higher, the Fed raises interest rates to slow economic activity.
Federal funds rate The interest rate at which banks lend money to each other overnight. The Federal Reserve’s primary policy tool for managing inflation and economic growth. When the Fed raises rates, borrowing becomes more expensive across the entire economy, which tends to slow growth and put pressure on stock valuations. Rate cuts do the opposite.
FOMC (Federal Open Market Committee) The branch of the Federal Reserve that sets monetary policy and determines the federal funds rate. The FOMC meets 8 times per year. Those meetings are closely watched events for traders, as rate decisions and forward guidance move markets.
Quantitative easing (QE) A monetary policy tool where the Federal Reserve purchases government bonds and other securities to inject money into the economy and lower long-term interest rates. QE is used when the standard rate-cutting tool has been exhausted or when the economy needs additional stimulus.
Recession Generally defined as two consecutive quarters of negative GDP growth. During recessions, corporate earnings contract, unemployment rises, and consumer spending slows. Stock markets often begin declining before a recession is officially declared and begin recovering before it officially ends.
Dollar-cost averaging (DCA) Investing a fixed dollar amount at regular intervals, regardless of price. DCA removes the temptation to time the market and smooths out the average purchase price over time. A trader who invests $500 per month buys more shares when prices are low and fewer when prices are high, without making any active decisions.
Liquidity In market terms, the ease with which an asset can be bought or sold without significantly affecting its price. A liquid stock has high trading volume, tight bid-ask spreads, and many buyers and sellers active at any given moment. An illiquid stock has low volume and wide spreads. Trying to exit a large position in an illiquid stock can move the price against you.
Risk tolerance The degree of market fluctuation and potential loss an investor is willing to accept in pursuit of returns. Risk tolerance is shaped by time horizon, financial situation, and temperament. An investor with a 30-year time horizon can tolerate significant drawdowns. A trader relying on their account for near-term income cannot.
Diversification Spreading capital across different asset classes, sectors, and securities to reduce the impact of any single position’s losses on the overall portfolio. Diversification does not eliminate risk, but it limits exposure to the failure of any one company or sector.
Rebalancing Periodically adjusting portfolio allocations to bring them back in line with target percentages after market movements have shifted the weightings. A portfolio targeting 60% stocks and 40% bonds that shifts to 70% stocks after a market rally would be rebalanced by selling some equity and buying more bonds.
Circuit Breakers and Market Mechanics
Market-wide circuit breaker A regulatory mechanism that halts trading across all exchanges when the S&P 500 drops sharply from its prior closing price. A Level 1 halt triggers at a 7% drop before 3:25pm ET and pauses trading for 15 minutes. A Level 2 halt triggers at 13% and also halts for 15 minutes. A Level 3 halt at 20% shuts down trading for the rest of the session.
LULD halt (Limit Up/Limit Down) A price-band mechanism applied to individual stocks during regular market hours. When a stock’s price moves too far too fast relative to its reference price, trading in that stock pauses temporarily. LULD halts do not occur during pre-market or after-hours sessions. When trading resumes, a brief auction period often results in a meaningful price gap.
Settlement The process by which a trade is formally completed and securities and cash are transferred between buyer and seller. US stocks settle T+1, meaning one business day after the trade date. In cash accounts, traders must wait for settlement before those proceeds are available to trade again.
Last Updated: May 2026