Stock Terminology

Stock Terminology


Like any other industry, it is critical that you learn the proper stock terminology if you are planning on becoming an active trader. Understanding the proper stock terminology will also help you be taken seriously as an investor.

Arbitrage:

Profit created by selling a security immediately after buying it for a lower price.

Averaging Down:
Buying additional stock in a company at a lower price than you originally bought in at to lower your average price per share.

Binary Betting:
A bet on one of two potential results.

Market Crash:
A drastic drop in the value of a stock market.

Options-Call:
A contract that gives a buyer a right to purchase a set # of shares at a given price within a given time frame.

Options-Put:
A contract that gives the buyer the right to sell and the seller the obligation to buy securities if executed by the buyer.

Fubgible:
Securities that are interchangeable given identical specifications.

Divergence:
When no conforming trends can be found between two factors.

Futures:
Commodities that are available for purchase or sale on an auction market for delivery at a future date.

Candlestick Patterns:
Trading signals that indicate price movement.

LEAPS (Long Term Anticipation Securities):
Stock or index options with expiration dates up to three years.

Margin:
Using borrowed money from a broker or dealer to purchase securities.

Margin Call:
A brokers demand to an investor using margin to deposit additional money or securities into their account.

Open Interest:
The absolute number of derivative contracts that are outstanding.

Opening Gap:
An opening price that is notably higher or lower than the previous trading day’s closing value.

Order Book:
The record of unexecuted limit orders.

Depth of Market:
The degree (or number of shares) that a security can be sold or purchased without creating a change in price.

Point:
This describes one percent of a security amount. For example, ten points on a $100 stock would equate to $10.

Ticks:
Minimum price movements for stocks and futures.

PIPS:
Percentage in point that is equivalent to a one hundredth of one percent.

Position Trading:
A long term trading style in which securities are held for months to years.

Trending:
A tactic to identify the direction in which a security will move.

Realized Profit:
A loss or capital gain that is actualized by a completed securities transaction.

Risk/Reward Ratio:
A ratio used to determine the expected return of a security trade compared to other opportunities.

Scaling In:
A system of ordered purchases to acquire securities over time.

Scaling Out:
Strategic sale of securities over time.

Spread Betting:
Gambling on the expected movement or stock price (Illegal in the US).

Bid & Ask Spread:
The difference between the price being offered and what is being asked for the sale of a security.

Spread Trading:
When two similar securities are simultaneously purchased and sold.

Statistical Trading:
A highly mathematical trading strategy that uses quantitative and computational buy and sell signals.

Stop and Reverse:
When a current trade is exited and a new trade is entered in the opposite direction immediately following the completed transaction.

Stop Loss:
Just as it sounds, a stop loss refers to an order for a broker to sell securities when a security reaches a certain price or drops or increases by a certain percentage.

Strike Price:
A strike price is the price at which a specific derivative contract can be exercised.

Option Exercise:
When a buyer of an option executes their right to purchase or sell a contract.

Swing Trading:
Swing trading is a strategy in which a security is bought or sold close to the peak or valley of a stock price.

Tick Charts:
A graphical display of a new price bar after a defined number of trades are completed.

Tick Size:
The minimum value or increment that the price of the market can change.

Tick Value:
The cash value of one tick. This is applicable in computing potential profits or losses.

Trend Lines – Direction:
Tracking indicators that depict the direction of a securities price.

Trailing Stop:
A stop loss order that is set at a certain price below market value.

Trend Lines- Strength:
Strength of a securities price movement indicated by the greater the degree of the angle in direction.

Trend Lines- Support:
A support is the price that the market tends to trade above.

Trend Lines- Resistance:
A resistance is the price that the market tends to trade below.

Trend Line Bounces:
When a stock price moves towards a trend line and subsequently moves away from the trend line.

Trend Line Breaks:
When a stock price moves below a support or above a resistance trend line.

Triple Witching:
The last hour of the NYSE trading session on the third Friday in the months of March, June, September, and December in which stock market index futures, stock market index options, and stock options contracts simultaneously expire. This simultaneous expiration tends to increase stock volatility.

Unrealized Profit:
A net profit that has been made but not actually actualized through a completed transaction.

VDAX Volatility Index:
The expected range in which the DAX market will trade within a given trading day calculated by a specific set of factors.

VIX Volatility Index:
The anticipated volatility of the S&P 500 index options.

Volume Charts:
A chart that depicts every time a set number of contracts have been traded.

Win to Loss Ratio:
A ratio that simply depicts the number of winning trades compared to the number of losing trades which helps compute the probability of trading success.

This stock terminology list should help put you on your way to becoming a more educated investor.

Stock Terminology Importance

Stock terminology is extremely important for an investor to learn as it is the language of trading. Vocabulary is very important not only for increasing your understanding of the markets but also for your day to day usage when executing trades.