Stock Trading Terminology

Aggressive – An investment strategy that employs high risk trading strategies with the goal of providing high returns.

Buy and Hold – This is a very low maintenance strategy that involves buying stocks and holding on them for a long period of time throughout all the market fluctuations.

Buy at open – This is where you place a market order before the market opens. The order will then get filled at the opening price.

Capital gain – This is the amount of profit you gain from selling a security. There is a realized capital gain and unrealized. A profit or capital gain is realized when the position is sold. It is an unrealized gain or a floating gain when the position is currently in profit but has not been closed.

Capital loss – This is the opposite of capital gain. It is the loss that results from selling a capital asset.

Close a Position – This is where a position is closed. The gain or loss becomes realized.

Conservative – This is the opposite to aggressive. A conservative investor is more focused on keeping risk to a minimal and will generally be aiming for lower returns.

Cover - To repurchase a previously sold contract, this is also known as hedging.

Current Market Value – The value of a security or a portfolio of securities at the present time.

Day Trader – A stock market trader who trade very short time frames. Day traders often make many trades per day and usually close all trades before the market closes.

Diversification- This is where the investor seeks to have a more consistent return on their money by investing in a wider variety of different instruments. It is preferable to invest in securities that are not closely correlated, so in the event of a collapse, only part of your portfolio will be significantly affected. A diversified portfolio may contain stocks, bonds, real estate, forex etc.

Equity- Ownership interest in a corporation in the form of common stock or preferred stock. It can also be expressed as total assets minus total liabilities, referred to as “shareholder’s equity”, “net worth” or “book value”. In the context of a futures trading account, it is the value of the securities in the account, assuming that the account is liquidated at the going price. In the context of a brokerage account, it is the net value of the account (the value of securities in the account less any margin requirements).

Fundamental Analysis – This is a method to evaluate the value of a security by looking at company’s financial state. In particular sales, earning, debt, growth potential, market share, competition. In contrast, technical analysis simply focuses on price using chart patterns and support and resistance points.

Growth Strategy – A strategy based on investing in companies which are growing faster than others in the same industry, with the goal of generating capital gains rather than dividends.

Hedge funds - These are funds for wealthy individuals and institutions. They are allowed to use a wider array of trading strategies (often more aggressive) than that of a mutual fund. Common strategies employed by hedge funds include: short selling, swaps, arbitrage, futures trading, forex and derivative trading.

Minimum investments tend to start in the five figure area pushing smaller investors out. Most hedge funds pay a management fee as well as a performance fee.

Long-Term – Generally relates to buy and hold investing.

Limit Order – An order saying the maximum price you are willing to pay for a stock. Limit orders are set at a price lower than the current market price. If the market goes down to the price in the limit order, it will then be executed.

Long Position – Going long on a stock simply means to buy it. This is the opposite of short selling.

Margin Account – An account in which the broker is prepared to lend the trader additional funds to trade with. Margin account often offer low interest rates as an incentive to encourage traders to buy on margin. Margin trading trading can be very risky.

Money Management – The management of money relating to investments, loans, taxes etc.

Open a Position – Simply to buy or sell a particular security.

Overbought/Oversold Indicator – Where a technical indicator is indicating that a market is overpriced or under priced suggesting it may be a good time to buy or sell.

Risk Management – A plan set out to manage the amount of risk exposure in your trading plan. The amount risked per trade is a common part.

Risk Tolerance – The amount of risk a trader is prepared to take.

S&P 500 – Standard & Poor’s 500. A basket of 500 stocks that range widely through different sectors. Most of the stocks are American companies. Many experts believe the S&P 500 is the best indicator of the performance of the US economy.

Short – This is when a stock is sold without having it previously covered.

Short Selling – This is when a security is borrowed from a broker and sold. The security must later be bought back and returned to the price. Short selling is used by trader to profit from a falling stock price. The broker will borrow the stocks from somebody who owns them with the promise the investor will return them later.

The investor immediately sells these borrowed shares on receipt of them at the current marketprice. If the price of the shares drop, the investor covers the position buy buying back the shares and the broker returns them to the lender. The profit of the trade is the difference between the price at which the stock was sold minus any expenses and commissions for borrowing the stock. If the stock prices rises, there is no limit to the potential losses.

Spread – This is the difference between the buy and sell price or the bid/ask price. Generally the more liquid a particular market is, the lower the buy and sell spread will be.

Technical Analysis – The practice of using previous market data to try and predict future trends. Common practises include finding previous lows and highs, using trendlines, fibonacci retracement points, pivot points. Technical analysis techniques can be applied to any chart.

Ticker Symbol – Every stock traded has a symbol upto 5 letters long. Symbols with upto 3 letters are used for stocks listed on an exchange. 4 letter stocks are for NASDAQ stocks. 5 letter symbols are also used for NASDAQ stocks as well as other than single issues of common stock. Symbols that end in X are mutual funds.

Volatility – The speed the price moves up and down. It is calculated by the annualized standard deviation of the daily change in price.

Volume – The number of trades during a given period on an exchange or for an individual security.