trading in forex

14 Common terms of trading that all beginners should be familiar with

By Jo Leighton 29 April, 2023 3 mins read

Navigating the world of options, stocks and bonds can be confusing for a novice trader. One of the most challenging aspects of trading is learning the vocabulary. Trading jargon might be complex and difficult to understand, yet knowing it is important to avoid costly mistakes and make informed decisions. This article includes a comprehensive list of 14 terms used in trading that every novice should understand.

Resistance

Resistance is a price level at which a stock or security tends to encounter selling pressure. Understanding resistance helps identify areas where profit-taking or a trend reversal may occur.

Risk Management

Risk management is the act of identifying, assessing and managing risks in trading. Understanding risk can help traders reduce potential losses and protect capital.

Portfolio Diversification

Portfolio diversification means investing in various securities to spread the risk and minimize possible losses. Understanding portfolio diversification can help traders manage risk and potentially increase long-term returns.

Market Order

A market order allows you to buy or sold a security for the best possible price on the market. Understanding market trades can help traders complete their transactions quickly.

Stop Loss

A stop loss order is a sale of a security at a specific price. Understanding this term is important to protect capital and limit losses.

Position Trading

Position trading refers to holding a security for several months to years to take advantage of long-term price movements. Understanding position trades can help traders identify investment opportunities for the long term.

Liquidity

Liquidity describes the ease in which a stock can be bought and sold without impacting its price. Understanding liquidity allows you to trade quickly and avoid slippage.

Slippage

Slippage is a difference between a trade's expected price and its actual price. Understanding slippage is important for traders because it can help them evaluate the effectiveness and efficiency of their trading methods.

Leverage

Leverage refers to using borrowed money to increase potential returns on an investment. Understanding leverage is crucial to maximizing margin trading and other trading techniques.

Broker

A broker is an individual or company who purchases and sells securities in the name of a trader. Understanding brokers is important for traders who want to select a reliable and trustworthy brokerage company to execute trades.

Margin call

A margin call is when a broker asks a trader for more money in order to maintain the minimum balance on their margin account. Understanding margin calls can help traders avoid potential forced liquidation of their positions.

Volatility

Volatility can be defined as the degree of change in price of a financial instrument over a specified period. Understanding volatility helps identify trading opportunities, and reduces risk.

Penny Stock

A penny-stock is a very low-priced stock with high risks, issued by an organization that has a relatively small market cap. Understanding penny stocks helps traders identify high-risk investments with high rewards.

Take Profit Order

A take-profit order is an order to sell a security at a specified price to lock in profits. Understanding take-profit orders can help traders maximize their profitability and potentially increase their returns.

Understanding these 14 trading terms will give new traders a good foundation for their trading career. Understanding these trading terms allows traders to make more informed decisions about their trading, manage risks, and possibly increase profitability. Beginner traders must take the time to understand and learn these terms in order to be successful.

Frequently Asked Question

Can I trade without understanding all the terms?

It is possible, but you should have a good understanding of the terms in order to make well-informed decisions about trading and manage your risks effectively.

Where can I learn more about these terms?

Online resources such as trading forums blogs and educational sites can help you learn more about these terms.

How long does learning these terms take?

This can range from a week to several months depending on what you are studying and your preferred learning style.

Are these terms relevant to all types of trading?

These terms apply to all forms of trading including forex, stocks, futures and options.

Can I trade without using a broker or a trading platform?

It is possible to make trades without a professional broker. However, it's best to use a reliable and trusted brokerage to execute trades.

FAQ

What is a bond and how do you define it?

A bond agreement is a contract between two parties that allows money to be transferred for goods or services. It is also known by the term contract.

A bond is normally written on paper and signed by both the parties. This document contains information such as date, amount owed and interest rate.

A bond is used to cover risks, such as when a business goes bust or someone makes a mistake.

Bonds can often be combined with other loans such as mortgages. This means that the borrower has to pay the loan back plus any interest.

Bonds are also used to raise money for big projects like building roads, bridges, and hospitals.

A bond becomes due when it matures. This means that the bond owner gets the principal amount plus any interest.

Lenders can lose their money if they fail to pay back a bond.

What is a REIT and what are its benefits?

An REIT (real estate investment trust) is an entity that has income-producing properties, such as apartments, shopping centers, office building, hotels, and industrial parks. These companies are publicly traded and pay dividends to shareholders, instead of paying corporate tax.

They are similar to corporations, except that they don't own goods or property.

What are the benefits of stock ownership?

Stocks are less volatile than bonds. The value of shares that are bankrupted will plummet dramatically.

But, shares will increase if the company grows.

In order to raise capital, companies usually issue new shares. This allows investors buy more shares.

Companies use debt finance to borrow money. This gives them cheap credit and allows them grow faster.

Good products are more popular than bad ones. The stock price rises as the demand for it increases.

As long as the company continues to produce products that people want, then the stock price should continue to increase.

Who can trade on the stock market?

Everyone. Not all people are created equal. Some have better skills and knowledge than others. They should be rewarded.

Trading stocks is not easy. There are many other factors that influence whether you succeed or fail. If you don’t have the ability to read financial reports, it will be difficult to make decisions.

This is why you should learn how to read reports. Understanding the significance of each number is essential. It is important to be able correctly interpret numbers.

This will allow you to identify trends and patterns in data. This will allow you to decide when to sell or buy shares.

This could lead to you becoming wealthy if you're fortunate enough.

How does the stock markets work?

You are purchasing ownership rights to a portion of the company when you purchase a share of stock. The company has some rights that a shareholder can exercise. He/she has the right to vote on major resolutions and policies. The company can be sued for damages. He/she also has the right to sue the company for breaching a contract.

A company cannot issue more shares that its total assets minus liabilities. This is called capital adequacy.

A company with a high capital sufficiency ratio is considered to be safe. Companies with low ratios are risky investments.

What is the difference between stock market and securities market?

The securities market refers to the entire set of companies listed on an exchange for trading shares. This includes stocks, bonds, options, futures contracts, and other financial instruments. There are two types of stock markets: primary and secondary. Primary stock markets include large exchanges such as the NYSE (New York Stock Exchange) and NASDAQ (National Association of Securities Dealers Automated Quotations). Secondary stock markets let investors trade privately and are smaller than the NYSE (New York Stock Exchange). These include OTC Bulletin Board, Pink Sheets and Nasdaq SmallCap market.

Stock markets have a lot of importance because they offer a place for people to buy and trade shares of businesses. The value of shares depends on their price. New shares are issued to the public when a company goes public. These shares are issued to investors who receive dividends. Dividends are payments made by a corporation to shareholders.

Stock markets serve not only as a place for buyers or sellers but also as a tool for corporate governance. Boards of directors, elected by shareholders, oversee the management. Boards make sure managers follow ethical business practices. If the board is unable to fulfill its duties, the government could replace it.

How do I invest in the stock market?

Brokers can help you sell or buy securities. A broker sells or buys securities for clients. When you trade securities, brokerage commissions are paid.

Banks charge lower fees for brokers than they do for banks. Banks will often offer higher rates, as they don’t make money selling securities.

If you want to invest in stocks, you must open an account with a bank or broker.

Brokers will let you know how much it costs for you to sell or buy securities. Based on the amount of each transaction, he will calculate this fee.

Ask your broker questions about:

You must deposit a minimum amount to begin trading
Are there any additional charges for closing your position before expiration?
What happens if your loss exceeds $5,000 in one day?
How many days can you keep positions open without having to pay taxes?
How you can borrow against a portfolio
How you can transfer funds from one account to another
how long it takes to settle transactions
How to sell or purchase securities the most effectively
how to avoid fraud
how to get help if you need it
How you can stop trading at anytime
What trades must you report to the government
If you have to file reports with SEC
What records are required for transactions
If you need to register with SEC
What is registration?
How does it impact me?
Who needs to be registered?
What are the requirements to register?

Statistics

For instance, an individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake. (investopedia.com)
The S&P 500 has grown about 10.5% per year since its establishment in the 1920s. (investopedia.com)
Ratchet down that 10% if you don't yet have a healthy emergency fund and 10% to 15% of your income funneled into a retirement savings account. (nerdwallet.com)
Our focus on Main Street investors reflects the fact that American households own $38 trillion worth of equities, more than 59 percent of the U.S. equity market either directly or indirectly through mutual funds, retirement accounts, and other investments. (sec.gov)