Imagine sitting in front of your screen, watching colorful charts spiking up and down like a rollercoaster ride. You are ready to trade and even excited. But there is just one problem: you do not have an idea about the words on the screen.
That is where this blog becomes fruitful. If you are new to the world of trading and brushing up on the basics, here are 100 important trading terms explained one at a time.
A – E: Let’s Start with the Basics
Every trader begins their journey with the basics. These items are the foundation of how the financial markets operate and how trades are made.
- Ask price is the minimum price that a seller is willing to accept for a security.
- Asset is something that has value and can be traded, like stocks, bonds and real estate.
- Averaging down is when you buy more of a security as the price drops, reducing the average purchase price.
- A bear market is a market where prices are generally falling. It often results in widespread pessimism.
- The bid price is the maximum price that a buyer wishes to pay for a security.
- Blue-chip stock means the shares of well-built companies with reliable performance and solid reputations.
- A broker is a licensed individual or platform to facilitate trading between buyers and sellers.
- A bull market is considered to be a market where prices are usually rising, often depending on the investor’s confidence.
- A Candlestick chart is a graphical representation of price movements using candlestick shapes to show open, closed, high and low prices.
- Capital gain is the profit made from selling an asset at a higher price than the purchase cost.
- A circuit breaker is a mechanism that halts trading during sharp market declines to maintain order.
- Commodities are raw materials like oil, gold, and wheat, which are traded on exchanges.
- Correction is a short-term decline of about 10% in the financial market, often regarded as a healthy pullback.
- Cross currency is a currency pair that does not involve the United States dollar.
- Day trading is the process of buying and selling financial instruments on the same trading day.
- A dematerialised account is an account that holds your securities in electronic form rather than physical certificates.
- A derivative is a financial contract that derives its value from an underlying asset.
- The dividend is a part of the company’s earnings distributed among the shareholders.
- Drawdown is the reduction in the trader’s capital from the peak to the lowest point during the trading period.
- An exchange-traded fund is a type of investment fund that is traded on stock exchanges like stocks.
F – J: Tools, Strategies, and Concepts
This section explores the advanced and important tools to analyse the trades and planning strategies.
- Fibonacci Retracement is a tool used in economic analysis to find possible levels of support and resistance.
- Fundamental analysis looks at a security’s economic, financial, and other qualitative and quantitative factors that are linked to it.
- There is a formal agreement called a futures contract to buy or sell an asset at a certain price and time in the future.
- Gap Up means that the price of an asset opens higher than the price at which it closed the previous day.
- Gap Down means that the price of a security starts lower than the price it closed at the last day.
- Hedging is an investment technique used to lower the risk of an asset’s price going down.
- When a private company sells shares to the public for the first time, this is called an IPO.
- An index is a statistical measure that shows how well a market section is doing by looking at a group of stocks.
- When you buy and sell financial products on the same day, this is called intraday trading.
- The International Assets Identification Number (ISIN) is a 12-character code that is used all over the world to identify assets.
K – O: Orders, Accounts, and Market Mechanics
These are some daily terms you will get to know while placing orders, managing trades and opening accounts.
- Know Your Customer means making sure a customer is who they say they are before letting them trade.
- Leverage is when you borrow money to make a purchase more likely to make you money.
- A limit order tells the market to buy or sell an asset at a certain price or up to that price.
- When you buy or sell something, its liquidity tells you how easy it is to do so without changing its price.
- A trader takes a “long position” when they buy an object with the hope that its value will go up.
- Lot Size refers to the amount of a financial asset that is purchased or sold in a single transaction.
- When you buy a property, you borrow money from a broker. This is called margin.
- A market order is an order to buy or sell something that is carried out right away at the current market price.
- Market capitalization is the sum of all the money that can be made from selling a company’s shares on the market.
- In technical research, the moving average is often used to smooth out price data.
- A mutual fund is a way for many investors to pool their money to buy stocks.
- The National Stock Exchange Fifty (NIFTY) is an important measure for the Indian stock market. It shows the weighted average of 50 Indian company stocks.
- There is a big stock market in New York called the New York Stock Market.
- Open Interest is the number of contracts that are still open in the futures or options markets and have not been closed yet.
- A financial derivative called an option contract lets the buyer choose whether to buy or sell an object at a certain price, but not whether they have to.
P – T: Strategies, Risks, and Execution
This is all about covering the trading strategies, profit-making tactics, and the tools you require to manage the risk efficiently:
- Penny Stock is a small-cap stock with a low price that is very risky.
- Price-to-Earnings: You can figure out the ratio by dividing the present share price by the earnings per share.
- When you put money in things like stocks, bonds, and cash, you have a portfolio.
- The amount of money that is put into a trade is called its position size.
- When you sell assets to lock in gains, this is called profit booking.
- A pullback is a short-term change in the direction of a stock’s price that is part of a bigger trend.
- A rally is a time when the prices of stocks or other assets keep going up.
- A resistance level is a price point that an asset finds hard to break above because more people want to sell it.
- The amount of money made from an investment is called its return on investment.
- Risk management is the process of finding possible cash losses and reducing them as much as possible.
- Scalping is a short-term trading technique that tries to make money from small changes in prices.
- A person who invests in stocks hopes to buy them back at a cheaper price later. This is called short selling.
- If a sale goes through at a price that is different from what was expected, this is called slippage.
- A Spot Market is a place where people trade financial products that are ready to be delivered right away.
- In the world of stocks, the spread is the gap between the bid and ask prices.
- A stop-loss order tells the market to sell a security when it hits a certain price. This is done to limit risks and losses.
- There is a price level called a “support level” where security is likely to find buyers and go back up.
- The goal of swing trading is to get short- to medium-term gains in a stock over a few days or weeks.
- Technical analysis is a way to look at stocks by looking at statistical trends that come from buying activity.
- A security that is traded on the market is represented by a unique set of letters called a ticker symbol.
U – Z: Wrapping Up with Advanced Tools and Concepts
The final stretch covers some of the most advanced and critical terms, which boosts your trading knowledge.
- This is the product that a derivative is based on and its value.
- What is an unrealized profit or loss? It’s the difference between gains or losses that have been recorded but not yet booked.
- The Unified Payments Interface is a real-time payment method that lets mobile users send money instantly between banks.
- Value investing is a way to pick stocks that are selling for less than what they’re really worth.
- How much the price of a security changes over time is called its volatility.
- Volume is the amount of contracts or shares that are bought and sold in a market or security during a certain period.
- The Volume Weighted Average Price (VWAP) shows the average price at which an asset has traded during the day, taking into account both volume and price.
- Traders keep an eye on a list of stocks or other securities to see if they might be good investments.
- Wealth Management is a skilled service that includes legal and accounting help, as well as advice on money and investments.
- When the price of an investment goes in one direction for a short time and then quickly changes direction, this is called “whipsawing”.
- Yield, which is generally given as an annual percentage, is the amount of money that an investment brings in.
- This number, the Z-Score, tells you how far away a figure is from the mean.
- The term “zero booking” refers to a way to trade where there are no fees.
- A zone of support is a price band where buyers are likely to be interested in a security.
- A zone of resistance is a price band where selling pressure usually stops prices from going up any further.
- Arbitrage is when you buy and sell assets in different places at the same time to make money off of price differences.
- Back testing is the process of checking out a trading plan by using data from the past.
- Beta is a way to figure out how volatile a stock is compared to the market as a whole.
- The net asset value of a business is shown on its balance sheet as its “book value.
- When the price goes above or below a support level with a lot of volume, this is called a breakout.
- Circuit Limit is the biggest change in price that can happen during a single trade session.
- Clearing House acts as a go-between for buyers and sellers in the financial markets, making sure that trades are settled smoothly.
- A broker issues a contract note, which is a legal record of a trade that has been made.
- As the name suggests, a custodian is a financial company that keeps customers’ securities safe.
- Decentralized Finance refers to financial systems that use blockchain and don’t need standard intermediaries.
- Equity is the amount of ownership you have in a business, usually through shares.
- The end of a buy or sell order is called execution.
- With Fibonacci Extension, you can guess where the price might go after a decline.
- A fill or kill order is an order that needs to be carried out right away or cancelled.
- An Index Fund is a type of mutual fund that is set up to follow certain rules to follow a certain index.
- The leverage ratio shows how much debt a company has compared to its assets or stock.
- A margin call is when an investor’s banker asks them to put down more money to cover possible losses.
- This is how much each share of a mutual fund or exchange-traded fund is worth.
- When a property is overbought, it means that it is thought to be worth more than it is worth.
- When a property is oversold, it means that people think it is worth less than it is worth.
Final Thought
Understanding the language of the markets is the first step to becoming a successful trader. You are no longer in the dark when you know about the top 100 firms. You can make your mark with the best trading platform in India at your fingertips with the knowledge and power you possess.
