Youthful people who have the interest and the passion for stock trading normally lack the primary domain expertise of the marketplace. Although buying and selling don’t require loads of time and money, it is nevertheless crucial to equip oneself with some primary tools and necessary training to make the correct choices.
Whether you are a new investor inclined to make money in the stock market or a prepared expert, it helps to have a strong glossary readily available to provide a quick understanding of a specific term or to extend your general stock exchange vocabulary.
Before you go out into excessive numerous technical details, here is a little glossary with few key wordings that you should know before you begin investing in the stock market.
In the event that the glossary page still doesn’t help with an inquiry or issue that you have then please don’t hesitate to comment below or reach us for help.
Common Terminologies Of Stock Market:
Advance/Decline Line – (A/D): Measures the net difference between advancing issues and declining issues and adds it to previous results. This gives an accumulative value which is then plotted on a chart.
Agent: A brokerage firm is said to be an agent when it acts on behalf of the client in buying or purchasing of shares.
Alpha Stock: A weighted measure of how much a stock has risen or fallen over a certain period, usually a year. Generally, more emphasis is placed on recent activity by assigning higher weights to it than those assigned to earlier movements. This helps to give a return figure that has a greater focus on the most current period and is a more relevant measure for short-term analysis.
Ask size: The total amount being offered at the current ask to sell a particular security.
Assets: Everything the company owns in its name, including the cash, types of equipment, land, technology etc. which shows the total wealth of the company.
Averages and Indices: Measures the combined performance of a basket of stocks.
Averaging Down: Buying a security as it drops resulting in a lower average purchase price.
Bear Phase: When the market keeps going down it is called as Bear Phase or Cycle.
Bear Trap: Price breaks support and create sell signals. The price then rallies and cancels the sell signal thereby catching all the short sellers on the wrong side.
Beta Stock: Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock’s beta is less than 1.0. High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.
Bid: The buying price is called as the Bid price.
Bid Quantity: The total amount of shares available for buying is called as Bid Quantity.
Bid Size: The total amount being offered at the current bid to buy a particular security.
Black Box: A computer program designed to trade the market.
Bonus Shares: Free shares of stock given to current shareholders, based upon the number of shares that a shareholder owns.
Blue Chip Stock: A stock that is publicly well known and believed to be financially strong.
Breakaway Gap: A gap that is not filled immediately as price continues to move in the direction of the gap.
Bull Phase: When the market keeps going up it is called as Bull Phase or Cycle.
Buying Into Weakness: Buying a stock while it drops instead of buying after it reaches the low point of the move.
Call option: A call option gives the owner the right, but not the obligation, to buy a security at a predetermined price within a specific time. A call option is bought for leverage or for limiting your risk.
Candlestick: A very old form of Japanese charting. A line (shadow/wick) shows the high/low and a wider body shows opening and closing price.
Chart Analysis: An analysis of a security using price action on charts such as highs and lows and support/resistance. Used for the prediction of the direction of the next move.
Choppy Market: A market where price is moving rapidly up and down without any real trend.
Commission: The fee the broker charges for buying or selling a security on the client behalf.
Commodity: Raw materials such as gold, silver, oil or pork bellies.
Correction: A decline after an advance where the beginning of the advance is not penetrated.
Day Order: An order that is valid for the day and if unfilled, by market close it will be canceled.
Day Trading: Buy and selling of shares in a day is called as day trading. Day trading can also be done in futures and in options.
Demat Account: The account used to save the shares is called as a demat account. The shares are saved in electronic format in demat account.
Debt Market: The debt market is the market where debt instruments are traded. Debt instruments are assets that require a fixed payment to the holder, usually with interest. Examples of debt instruments include bonds (government or corporate) and mortgages.
Divergence: When a trendline on an indicator, points in opposite direction then trendline is on price. Often seen when price makes a higher high and indicator makes a lower high the trendline above the price will point up and the trendline on the indicator will point down.
Dividend: The company shares some of its profits to its shareholder is called as Dividend.
Dow Theory: A very popular and old trading signal which is given when Dow industrials and Dow Transportation takes out prior swing high/low.
Elliot Wave Theory: A strategy developed by Ralph Nelson Elliot which is based on wave counting. He believed price moves in repetitive waves.
Equities: Common or preferred stocks, which represent a part of the ownership for a company.
Exchange Traded Funds – ETF: A fund that is designed to follow an index/commodity. Can be traded like a stock.
Exhaustion Gap: A gap that is filled and price then continues in the opposite direction of the gap resulting in a reversal of the trend prior to the gap.
Expiration Date: The date an option expires.
Filters: A set of rules that helps the trader narrow down the amount of trades and only focus on those believe to be quality trades.
Final Dividend: The final dividend declared at a company’s Annual General Meeting(AGM) for any given year is called as final dividend.
Forex Trading: Trading done in currency is called as Forex Trading.
Follow on Public Offer(FPO): FPO are issued by the companies which are already listed on an exchange but want to raise funds by issuing some more equity shares.
Front Month: The closest month of which a future or option expires.
Fundamental Analysis – FA: Analysis of a stock, the market or economy based on news, earnings, forecast etc.
Futures: Contracts to buy or sell securities at the future date. Often commodities or indexes.
Future Derivatives: It is the financial instrument whose price depends on the underlying instrument. The underlying instrument can be stock, currency, commodity etc. It has an expiry of one month.
Gap: When price opens at another price than the previous close.
Good Till Cancel Order – GTC: An order that stays open until either filled or canceled however there is a time limit of 90 days.
Good Till Date Order – GTD: An order that stays open until either filled or until the specified date where it will automatically be canceled.
Hedge: A way to protect your investment. Done by making a transaction that offsets the existing investment.
Hedge Fund: A fund which invests in any available instrument but more aggressively than a mutual fund as the hedge fund is exempt from many rules so it can both short sell, use leverage etc.
High: The stock price reached at the highest level throughout the trading day.
HOD: Abbreviation of High of Day. The highest price where the security traded on that day.
Index: Measures the combined performance of a basket of stocks.
Indicator: A mathematical formula used to predict the direction of a security. Often a derivative of price, but also of volume.
Initial Public Offering – IPO: When a company first issue its stock to the public.
Inside Information: Non-public information in a business that could move the price of a stock, should that information made public.
Insider: Anyone in a company who are presumed to have the opportunity to gather inside information concerning that company. Anyone owning more than 10% of the voting stocks of that company is also considered an insider.
- Legal: When insiders trade the stock of their company and report these trades to the appropriate securities.
- Illegal: Insiders who trade based on inside information.
Interim Dividend: Distribution of profits to shareholders before a company’s annual earnings have been computed, or at any time between two successive annual general meetings (AGM). Firms paying interim dividend try to be reasonably certain they can afford it, and make the necessary adjustments (if any) in the subsequent or year-end dividend payments.
Investor: The person investing the money in stocks for long-term based on the fundamentals of the company is called as an investor. Long term like 2 to 5 years or even for 10 years.
Investment Advisor: An employee of an investment dealer who advises clients of investment opportunities and/or executes trades for the clients.
Island Reversal: When price gaps up/down and then trades above/below the gap but then the gap goes down/up leaving all the price action unconnected like an island.
Laggard: A stock or sector that underperforms the market.
Leader: A stock or sector that outperforms the market.
Liabilities: A company or a person’s debt. Current liabilities are debt which is due for payment within one year. Long term liabilities are debt that is due for payment after one year.
Limit Order: In limit order, the buying or selling price has to be mentioned and when the share price comes to that price then the order will get executed with the price mentioned by the trader.
Line Chart: A chart that is drawn only using the closing price resulting in a line.
Liquidity: The possibility to buy or sell a security in volume without big price fluctuations. A liquid stock is one with a high daily volume.
LOD: Abbreviation of Low of Day. The lowest price where the security traded on that day.
Long: Owning the security.
Low: The stock price reached the lowest level throughout the trading day.
Margin Account: An account that uses credit from the brokerage firm to buy or sell short securities. The client will be charged interest on the credit. The client will have to deposit a margin amount to get the credit.
Margin trading: Margin amount is the amount given by broker for day trading. The trading done using margin amount is called as margin trading. If you use margin amount then the trades has to be closed on the same day.
Market Capitalization(Market Cap): The total value of a company which is calculated by multiplying the total amount of shares with the stock price.
Market Maker: A brokerage that’s able to have an ask and bid in the market for any given security to be ready and able to trade at the price. If traded the market maker will supply or receive the given security. Market Makers are providing liquidity in the market and are essential for the market to stay efficient.
Market Order: An order to buy or sell at best available price at the current price.
Momentum: Speed of a move in price or volume.
Mutual Fund: It is a financial instrument which collects money from all investor and then invests in financial instruments like stocks, bonds, etc. It is managed by the fund manager.
Net Change: The difference between the previous closing price and the last traded price.
Net Worth: The sum of a company or person’s total assets and total liabilities.
Offer: The selling price is called an offer price.
Offer Quantity: The total number of shares available for selling is called as Offer Quantity.
OHLC bar chart: A chart where the OHLC is clearly marked. OHLC stands for Open – High – Low – Close.
Open Interest: Shows the amount of open options or futures currently being held by people/institutions at the end of the day.
Open Order: An order that stays in the market/system for more than 1 day.
Option: An option gives the owner the right but not the obligation to buy/sell a security at a predetermined price within a specific time. An option is bought/sold for leverage or for limiting your risk.
Order Sends Order – OSO: When price hits the order/price the broker will automatically place a limit order at a predetermined price.
Overbought: A term used when technical indicators suggest that the price of a security is too high and is bound to fall.
Oversold: A term used when technical indicators suggest that the price of a security is too low and is bound to rise.
Painting the Tape: When a market maker has artificially inflated or deflated price in order to make a security look better or worse than the truth.
Paper Trade: When a trade is not taken with real money but merely “written down” in order to keep a record. A risk free way of testing a trading strategy.
Pattern Day Trader: SEC term for traders who trade (buy and sell) more than 4 times a day in any given stock over a period of 5 days and for whom the same-day trades makes up of more than 6% of their activity for that period.
Penny Stock: A highly speculative stock priced under $1.00 per share.
Point & Figure Chart: A chart consisting of X’s and O’s and only take price into consideration. When price climbs, a predetermined amount the chart will plot a X and when price drops it will plot an O.
Portfolio: The holdings of investments or open trades by a person or institution.
Price/Earnings Ratio – P/E Ratio: P/E Ratio shows the stock price divided with the company’s earnings per share. It makes is easy to compare to other stocks.
Proxy: When a stock follows a sector, index or commodity so close that you can substitute it for the other.
Pull Back: A relative small drop in price in a prevailing uptrend.
Put Option: A put option gives the owner the right but not the obligation to sell a security at a predetermined price within a specific time. A put option is sold for leverage or for limiting your risk.
Range Bound Trading: A strategy where the trader will be looking to trade securities trading in a channel,: either sideways or trending channel.
Relative Strength Comparison: A comparison of a security’s trend with for example the market or sector to see whether it’s underperforming or outperforming.
Resistance: A level where price seems to run into too much supply so price stalls and possibly reverses down.
Reversal: Price suddenly change direction and reverse prior trend.
Risk/Reward: A calculation of the potential loss vs. potential gain in a trade.
Run Away Gap: A gap that is not filled immediately as price continues to move in the direction of the gap.
S/R: Abbreviation for support/resistance.
Seat: Membership on a stock exchange. Often mentioned as owning a seat on the exchange. This membership gives certain benefits such as lower commissions.
Sector: A group of stocks that generate revenue from similar areas.
Selling Into Strength: Selling a stock while it is still advancing instead of selling after reaching the high point of the move.
Securities: Proof of ownership of various investment products, stocks, bonds etc.
Settlement: When the seller delivers the security to the buyer and buyer pays the seller.
Settlement Date: The date where the settlement has to take place.
Shake Out: An incident where traders/investors are scared out of a position only to see it move in the right direction.
Share Trading: Buying and selling of shares is called as share trading.
Short Interest: The total amount of stocks sold short by traders; privately or institutions.
Short Selling: First selling and then buying(this happens only in day trading) is called as Short Selling.
Sideways Market: A market where price is no longer making higher high/higher low or lower low/lower highs.
Spread: The difference between bid and ask of a security.
Squaring Off: This term is used to complete one transaction. Means if you buy then have to sell (means square off) and if you short sell then you have to buy (means square off).
Stop Loss: As the name indicates the stop-loss orders are used to stop or limit the losses in the share market. Stop loss orders are a limit price set by traders at which the order will automatically enter or exit the trade.
Strike Price: The price of the underlying security an option owner can buy or sell at.
Support: A level where price seems to run into too much demand so price stalls and possibly reverse up.
Swing Trading: Buying and selling positions with the intention of holding two days or more. Looking for quick gains.
Technical Analysis: An analysis of a security using charts with various indicators plotted. Used for the prediction of the direction of the next move.
Thin Market: An illiquid market where there are few bids and offers. Slippage often occurs in these markets.
Tick: Minimum spread between bid and ask. Can be a cent or a dollar etc.
Ticker Tape: Shows completed trades.
Times & Sales: Shows reasoned trades, price, size and time.
Top-Down Approach: Analysis divided up into three steps. First, analysis of the overall market, then the sectors and finally the individual stocks.
Trader: The person who trades to make quick money in share market is called as a trader. The trader is not concerned about the company’s fundamentals. The trader waits for any type of news which gives an opportunity to make money in a day or in a week or in a month.
Trading Session: The time where the exchange is open for trading.
Trailing Stop: A stop loss that is being moved with the trade as price moves. In a long trade the stop would be moved up and in a short trade, the stop loss would be moved down. Never move stop against the direction of the trade.
Transaction: One complete cycle of buying and selling of shares is considered as one Transaction.
Trend: Price either makes higher highs/higher lows or lower lows/lower highs.
Volatility: A measurement of price fluctuations. Often measured in percentage. When traders talk about increased volatility they are referring to price moving up and down rather fast.
Volume: Volume is nothing but the quantity of shares.
Washout Day(Flushout day): When a decline ends with a high volume bar that “washes out” all the sellers. Buyers take over and the stock can climb again.
Whipsaw: When a trading signal is reversed shortly after appearing resulting in a close of the trade.