Basic Terminology

Feb 12, 2014   //   by Profitly   //   Profitly  //  Comments Off on Basic Terminology

If you want to learn to trade, you have to know some basic terms. Education and practicing are the keys to getting better at anything; trading is no different. So, if you want to learn to trade professionally and learn to trade penny stocks in particular, then you need to read this post and follow the best stock traders like Tim, Superman and the other gurus.

Here are some terms that you should know before moving on to more in depth topics. Knowing the little things will help you better understand other stock trading tips and tricks.

Averaging Down: when an investor buys more of a stock as the price goes down, therefore lowering your average cost per share.

Bear Market: This is trading talk for the stock market being in a down trend, or a period of falling stock prices. This is the opposite of a bull market. I keep the two separate by remembering “bear down.”

Beta: this is a way to measure the relationship between the price of a stock and the movement of the whole market. For example: if stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points and vice versa.

Blue Chip Stocks: think BIG! These are the large, industry leading companies. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.

Broker: this is a person who buys or sells an investment for you in exchange for a fee, also called a commission.

Day Trading: this is buying and selling within the same trading day. Tim typically does this, but other gurus like Superman hold onto their picks for a longer period of time.

Dividend: this is a portion of a company’s earnings that is paid to shareholders, or people that own that company’s stock. Only some companies do this.

Execution: this is when your order to buy or sell is officially completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold.

Index: this is a benchmark that is used as a reference marker for traders and portfolio managers. A 10% return may sound good, but if that would have been last year when the S&P was up 30%, then that is actually a horrible return.

Initial Public Offering (IPO): the first sale or offering of a stock by a company to the public, rather than just being owned by private or inside investors. Twitter is an example of a company that had an IPO recently.

Margin: a margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the securities, is called the margin.

Moving Average: this is a stock’s average price-per-share during a certain period of time. Some time frames are 50 and 200 day moving averages.

Portfolio: a collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks. The more stocks you have in your portfolio, the more diversified you are.

Quote: this is a stock’s latest trading price. If you are using the internet to get a quote, be careful, as it may be delayed. To ensure you are getting the most recent number, you’ll want to be logged into a trading platform.

Sector: a group of stocks that are in the same business. An example would be the “Technology” sector which would include companies like Apple and Microsoft.

Spread: each stock has a bid and an ask; the spread is the difference between these numbers. The bid is how much someone is willing to pay for the stock and the ask is how much someone is willing to sell the stock for. Lower volume stocks will have a wider spread.

Stock Symbol: this is an alphabetic root symbol, which represents a publicly traded company on a stock exchange. Apple’s stock symbol is AAPL, Twitter is TWTR, Sprint is S, and Google is GOOG.

Volatility: this refers to the price movements of a stock or the stock market as a whole. Stocks that are highly volatile have extreme daily up and down movements and wide intraday trading ranges.

Volume: the number of shares of stock traded during a particular time period, normally measured in average daily trading volume. This varies widely between companies.