Terms You Need to Understand When Trading
They say that anyone can become a trader – and it’s true. With a little bit of research, it’s not difficult to trade on the market whether you’re looking to make it a full-time occupation or just something to do in your spare time.
You can launch without any preparation at all, but that’s a bad idea. If you want the best chance of success, it’s essential to get to grips with the basics. If you don’t understand standard trading terms, you could end up swallowing a much bigger risk than you planned, and you could easily wipe out your accessible funds.
The good news is that it’s easy to get started, and these are some of the most popular trading terms to help you on your way.
Bear market
A general term meaning that overall there’s a downward trend in prices; you may see traders mention a stock being bearish. Compare this to a bull market.
Blue chip stocks
Blue chip stocks have a strong reputation and are stable, with a track record of good dividend payments and efficient management.
Bull market
A general term meaning that overall, there’s an upward trend in prices which is prolonged. A bull market is the opposite of a bear market, and you may hear stocks referred to as bullish.
Day trading
A type of trading strategy where you buy and sell stocks within the same day before the market closes.
Dividend
A payment made by a company from its earnings to its shareholders, or those who own stock. Every company doesn’t pay dividends but those that do may pay them quarterly or annually.
Exchange
A place where different types of investment trades can be carried out.
Indices
Known individually as an index, indices measure how a group of stocks perform. Different indices measure different groups of stocks, eg/the FTSE 100 tracks the performance of the largest 100 companies on the London Stock Exchange. There are many useful resources on indices that include how to trade on the indices overall and individual stocks.
Margin
A margin account allows you to borrow money to place larger trades. The money is borrowed from your broker and will typically only be permitted if you retain a certain amount of cash in your account. Trading on margin is high-risk as losses can be substantial.
Short selling
A type of trading that enables you to take advantage of a stock that you believe will fall in value. A successful short means you “borrow” shares from your broker, sell them on the market and later buy them back at a lower price, giving back the borrowed shares to the broker and keeping the difference in the cash.
Volatility
A description of the movement of either an individual stock or the market overall. Stocks that are described as highly volatile can swing rapidly up or down and have a wide range. High volatility can deliver high profits, but it also carries a substantial risk and isn’t usually advised for novice traders.
