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Stock Market Terms
There are many stock market terms used by traders and investors that are unknown to the outside world. Following are the 60 most popular stock terms and trading definitions used on Wall Street. Every trader should know and understand these stock market terms. The trading definitions are listed by the order of importance instead of alphabetic.
60 Stock Terms & Definitions
Buy - To buy a stock means to buy shares in a company. Sell - To sell a stock means to sell shares that you purchased. Either you made a profit, cut loss, or simply want to exit a trade. Bid - To bid on a stock is the price that you want to pay for each share of the stock. Ask - The price the stock sellers are asking for. Bid-Ask Spread - The price difference between the bid and ask. The market makers use tools to facilitate buying and selling so that transactions can take place. Limit Order - An order that allows you to execute a trade under a specific price or above that price. Always use limit orders when buying penny stocks.
Market Order - An order to execute a trade as soon as possible. The price you see might not be the price you get when executing with market orders. You should avoid using market orders for penny stocks. Stop Order - An order to automatically execute a trade when the stock price reaches a preset price. Day Order - An order that expires after the market closes on that trading day. If the order doesn't get executed during the day, it will be canceled. Good Till Canceled Order - Good Till Canceled or GTC is an order that doesn't expire when the market closes. The GTC order will be executed when the stock hits your price or until you manually cancel the order. It can last for weeks or even longer. Bull Market - A market that is dominated by buyers and therefore the market is expected to rise. Bear Market - A market that is dominated by sellers and the market is expected to go down. Going Long - Going long on a stock means that you are bullish on the stock and buying shares. You think the stock will rise. Short Selling - This means you are shorting a stock or betting against a company. You feel bearish of a stock and betting the stock price would go down. Open - The opening time of the stock market. In the United States, the market opens at 9:30 am. Close - The closing time of the stock market. In the United States, the market closes at 4:00 pm.
52-Week High - This means a stock is trading at its highest price in 52 weeks as of its recent closing price. 52-Week Low - This means a stock is trading at its lowest price in 52 weeks as of its recent closing price. After-Hours Trading - Trading takes place when the regular market is closed. After-hours trading starts from 4:00 p.m. to 8:00 p.m. Pre-market trading - Trading before the market opens. Pre-market trading starts from 4:00 am to 9:30 am. Market Hours - Market hours mean the regular hours for trading which is 9:30 am to 4:00 pm for the US stock exchanges. Penny Stocks - By definition, any stock trading under $5 is considered a penny stock. Blue Chip Stocks - These are large public companies and industry leaders with a mega-market capitalization. Many blue-chip companies pay dividends to shareholders. ETFs - Exchange traded funds or ETFs are a collection of stocks. They are traded like stocks and have attributes of a mutual fund and an index fund. IPO - Initial public offering or IPO is when a company goes public for the first time. The shares are now available to be traded on the stock exchanges. As retail traders, we can now buy and sell the shares of that company. Averaging Down - When you buy more shares of a company as its stock price dropped. Averaging down makes your average purchases lower and makes your losses seem smaller in terms of percentage. However, if a stock keeps dropping, averaging down could be a dangerous strategy. Stock Exchange - A place where stocks are listed and traded. The most popular stock exchanges in the United States are NYSE and NASDAQ. NYSE - New York Stock Exchange or NYSE is the world's largest stock exchange by market capitalization. NASDAQ - The second-largest stock exchange in the world by market capitalization. NASDAQ is the exchange where most technology stocks are traded.
Gap Up stocks - A stock opens higher than the previous day's highest price, thus creating a gap up on a chart. Broker - A firm that allows you to buy and sell stocks. A number of reputable online stock brokers now offer commission-free trades. Index - A benchmark that is used by traders and investors to measure the market performance. The Dow Jones Industrial Average and Standard & Poor’s 500 are the most popular indices used by investors. Margin - Buying on margin means borrowing shares from your broker which requires a margin account. A margin account is a brokerage account that allows you to borrow money to pay for the stocks that you want to trade. Your broker charges interest on the money you borrow and use the security as collateral. Buying on margin can accelerate your wins and losses. Cash Account - A brokerage account in which you are required to pay the full amount for buying and selling stocks. It usually takes 2 days for trades to settle and you cannot use the unsettled funds to buy and sell stocks. Market Capitalization - The market value of a public company. It is measure by multiply the company's outstanding shares by its current stock price. Day Trading - A type of trading where a trader buys and sells a stock within the same day. Day traders often buy and sell multiple times throughout the day depending on their strategies. Swing Trading - A type of trading where a trader buys and sells a stock within a few days to a few weeks.
Dividend - A dividend is a form of payment that you receive if you invested in a company that pays dividends. Some companies use a portion of the company earnings to pay dividends to its shareholders. Pink Sheet Stocks - Over-the-counter penny stocks that are not traded on any stock exchange. OTCBB - OTC market offering trading services for over-the-counter penny stocks that do not qualify for listing requirements in the regular stock exchanges like NASDAQ and NYSE. Forex - Foreign exchange market or Forex is the world's largest market in the world. The Forex market offers currency trading. Fundamental Analysis - The study of company fundamentals to predict the stock price in the long term, such as P/E, EPS, and other variables on a company's income statements and balance sheets. Technical Analysis - The study of stock charts and indicators to predict the stock price in the shorter term. Unlike fundamental analysis, technical analysis does not care about company fundamentals; it focuses only on current and historical stock prices, volume, and other indicators that are derived from price and volume.
Leverage - By using a margin account, you can borrow money from your broker to buy more shares of a stock. Leverage could increase your profits when you are on the right side of the trade, and bigger losses when you take on the wrong positions. Leverage could be dangerous. Moving Average - A term that is often used by technical analysts, moving average is the average price of a stock in a period of time. The 50-day and 200-day moving averages are popular among traders. Stock Symbol - The unique symbol of a public traded company. For example, Amazon's stock symbol is AMZN, and Microsoft's symbol is MSFT. We use this symbol to look up quotes and stock information. Volatility - The gap between the highs and lows of stock prices during the day. The wider the price range, the higher the volatility. The narrow the price range, the lower the volatility. Usually, small-cap stocks have much higher volatility than blue-chip stocks. Volume - The number of shares traded for a stock during the day. Volume is an important indicator use by traders to judge whether or not to buy a stock. Quote - A quote gives you the latest trading price of a stock. The quote you see on public financial sites are usually delayed by 15-20 minutes. You should use a stockbroker to check for real-time quotes.1 Simple Options Strategy - 738% ROI
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Portfolio - A collection of investments in stocks. You can have as many stocks as you like in your portfolio. Liquidity - Liquidity measures how easily a stock can be bought and sold. Larger companies usually have higher liquidity than smaller ones. Earnings Reports - Public companies are required to report their earnings every quarter. Earning surprises may have a big impact on stock prices. Float - Float is the number of shares that are available for trading a particular stock. High float stocks have a large number of shares available for trading whereas low float stocks have a low number of shares. Overbought - This means that a stock is trading above its intrinsic value. Oversold - This means that a stock is trading below its intrinsic value. Pattern Day Trader - Pattern Day Trader or PDT is a rule that requires traders to have a margin account with a minimum of $25,000 if they execute four or more day trades in five trading days. Stock Split - A stock split occurs when a company splits its stock price by increasing the number of outstanding shares by dividing each share. Reverse Stock Split - The opposite of a stock split. A reverse stock split occurs when a company reduces the number of outstanding shares and increases its stock price proportionally. If a company's stock trades under $1 for more than 30 days, it will be in danger of delisting from NASDAQ and NYSE. Many companies reverse stock split to make their stock prices higher to stay compliant with the stock exchanges. Traders and investors should avoid stocks that keep doing reverse splits. Golden Cross - A shorter-term moving average crossover a longer-term moving average on a stock chart. In technical analysis, this is a bullish signal for a stock. Death Cross - A shorter-term moving average cross down a longer-term moving average on a stock chart. In technical analysis, this is a bearish signal for a stock selloff.
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