Jargon Buster

Arbitrage

Buying and selling the same security on different markets and at different price points. An example: stock A trades on one market at $100 per share, but on a different market it sells for $101 per share. A trader could buy a share on the first market for $100 and sell it on the other market, and could keep the difference in price as their profit.

Ask

The lowest price that a seller is willing to sell their stock to a buyer. 

Averaging Down

When an investor buys more of a stock, share, currency or index as the price is lowered. This causes their ‘average’ price of the share to be reduced. This strategy is regularly used but can be very dangerous. It is a major cause of accounts being blown.

Bear (Bearish) Market

This term is used widely in the trading world. It means that the market is on a decline. The harsher the fall in price, the more bearish the market is.

Beta

The relationship between the price of a stock and the movement in the market as a whole is portrayed by a beta. This shows how closely correlated the individual stock is to the wider market. For example, if stock A has a beta of 2, this means that for every 1 point move in the overall market, stock A moves 2 points in price. This also means that for every time stock A moves 2 points, the market will move 1 point.

Blue Chip

The lowest price that a seller is willing to sell their stock to a buyer. 

Bourse

The lowest price that a seller is willing to sell their stock to a buyer. 

Bull Market

The lowest price that a seller is willing to sell their stock to a buyer. 

Bid

The amount of money an investor is willing to pay for one share of a given security. It is paired with the ask price, which is the price that a seller is willing to sell one share for a given stock. The spread is the difference in those two prices.

Candle

A candle is the symbol which you see on a candlestick trading chart. It will show the open. close, high and low prices of a security.

CFD

CFD stands for Contract For Difference. With CFDs, you do not actually own the underlying asset. CFDs are leveraged products, meaning only a small amount of money is needed to trade multiple stocks or currency pairs. This is because leverage multiplies the initial investment by X amount. This is known as ‘trading on margin’.

Close

The close is the time that the stock exchange ends trading for the day. This will vary with different exchanges and time zones.

Day Trading

This is when traders buy and sell securities within one day before the market closes. This type of trader may also be known as an ‘active trader’.

Dividend

The part of a businesses profit that is paid out to shareholders on a quarterly or annual basis.

Doji

An ‘undecided’ candlestick. There are three main types of Doji candle.

Exchange

A market where a variety of different investments can be traded.

Execution

Whenever an order, buy, or sell is placed and ‘executed’. This means that the strike price of the stock or currency pair has been reached, the trade will become active.

Haircut

A thin spread between bid and ask price. Haircut may also be defined as the event where a stock price is reduced by a percentage for margin trades or other reasons.

High

A point in the market where the price of a certain stock, index or currency pair reaches a new high-point for a given amount of time.

Index

A collective of stocks which are grouped together. This is calculated via the prices of these stocks. Indexes are most often a group of stocks which are the most highly coveted in a certain geographic area. Examples of indices (an interchangeable term for an Index) include the FTSE100 (top 100 performing companies in the UK) and the DJ30 (Dow Jones 30).

Initial Public Offering (IPO)

The first sale of a stock to the public. The initial float on the stock market occurs when a business decides to ‘go public’. There are strict rules for companies to follow before and during the IPO.

Leverage

Leverage is the process of borrowing of a certain amount of money from the broker to buy shares, commodities, indices, metals or currencies, with the aim of increasing their profits. This can be a dangerous operation and is advised for professional use only as it increases risk. It is a major cause of accounts being blown. In many countries, it is now a highly regulated section of trading. 

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Low

The opposite of the high. A low in a market is where the price of a stock, index, commodity, metal or currency pair has reached the lowest price it’s been for a given period of time.

Margin

Allows people to borrow money. This is a loan from the broker. The difference between the amount of the loan and the price of a security is known as the ‘margin’. This could be a dangerous endeavour as it increases risk. Traders should aim to reduce risk to a minimum balance on margin accounts, as it will cause less damage to the account when trades go wrong. If you would like to learn more on minimizing risk, please click here.

Moving Average

The average price-per-share over a specified amount of time. The main time-frames used are the 30, 50 and 200 day moving averages. They show overall trends in the changes in price.

Open

The initial opening of a market each day. This will vary from country, exchange and the security traded. 

If you would like more information on the trading cycle, and the events which occur over a 24 hour trading period, please click here.

Order

This is when the investors bid to buy or sell a stock, option, currency pair, commodity, metal or index at a certain price.

Pink-Sheet Stocks

This refers to ‘penny stocks’. These are shares which float at $5 or less. They are also known as ‘over-the-counter’ (OTC) stocks. This is because they are not found on large stock exchanges like the NYSE or Nasdaq.

Portfolio

The overall amount of current investments owned by an investor is known as a portfolio. This can be from one stock to an infinite amount of securities.

Quote

This is the latest trading price of a security. This is often delayed by twenty minutes on news or information outlets. However, if trading with a broker, the quote will be live.

Rally

A swift surge in the increase of price of a certain security or the market as a whole. It may be noted that it could be a bull or bear rally. In a bear market, upwards trends as small as 10% can be known as rallies.

Sector

 A group of securities which are in the same industry. A prime example of this is the pharmaceutical sector. Some traders specifically invest in certain sectors as this may be where they have an edge in information, experience and predictions.

Security

A certificate or other financial instrument from stocks, indices, currency pairs, indices, raw materials, commodities or metals that have monetary value and can be traded.

Shares

A portion of the company which is sold to investors in return for dividends of profits. Companies do this to raise capital.

Shares

A portion of the company which is sold to investors in return for dividends of profits. Companies do this to raise capital.

Share Market

All markets which shares are bought and sold.

Short Selling

Borrowing shares from someone else with a promise to return the,. When the stock drops in price, you sell it, and keep the difference in profit. Short-selling is a great technique that is often used with traders who see that the price of a security will drop and can be used effectively in volatile markets.

Spread

The difference between the bid and ask price of a given security

Stock Symbol

A 1-4 character abbreviation of a stock, for example Apple is abbreviated to AAPL, and Nvidia is known as NVDA. Tesla becomes TSLA.

Volatility

The movements in price in the market. Volatility can be high or low. A high volatility is where there are large spikes or slumps in price. Low volatility is when there are only slight movements in price. This can be due to a multitude of reasons.

Volume

The number of shares traded over a specific time-frame. This can also be mean the number of shares, currencies, or amount of commodities bought.

Yield

The return on investment (ROI) received from a dividend. To find the yield, divide the annual dividend amount by the price paid for the stock. If you bought stock A for $100 per share, and the yearly return is $1, and you bought one share, the yield would be 1%.

Overall

The more savvy with your terminology, the more likely you are to understand the fundamentals of trading. These terms are thrown around daily in the news, on the trading floors and online. To get the most out of your reading and trading, learning these terms and incorporating them into your daily vocabulary can be a huge step in the right direction for becoming a better trader.

 Learning to trade effectively and profitably can take a great deal of time, but pushing yourself to learn more is the only way to improve. Read over this list, write down the terms you don’t know yet and learn to define them and use them in sentences.

This does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results.

This website and the information provided does not constitute investment advice or personal recommendations as your specific financial circumstances have not been considered. No warranty is given in regards to the accuracy and completeness of information. Past performance is not an indicator of future results. The information given is a reflection of opinion. Trading CFDs on leverage involves significant risk of loss to your capital.