Trading Glossary

Trading Glossary: Top 50 Common Terms

Welcome to our trading glossary! Whether you're a beginner or an experienced trader, it's always helpful to have a reference guide for commonly used terms in the industry. Below, we've compiled a list of the top 50 most common terms that you'll come across in your trading journey.

It's definitely not necessary to memorize them all, but it's important to have a basic understanding of what they are to learn the lingo. We will go into much more detail on the terms we feel are important in other posts. Enjoy!

1. Accumulation/distribution: A technical analysis indicator that uses volume and price data to identify buying or selling pressure.
2. Alpha: A measure of the excess return of an investment compared to the return of a benchmark index.
3. Averaging down: The practice of buying more of an asset at a lower price in order to lower the average cost of the entire position.
4. Asset: A financial instrument or item of value that is bought or sold.
5. Base currency: The first currency listed in a currency pair, which is the currency that the other currency is being compared to.
6. Bear market: A market characterized by falling prices, typically associated with investor pessimism.
7. Bollinger bands: A technical analysis tool consisting of a moving average and two bands that are placed above and below it. The bands are used to indicate overbought or oversold conditions in the market.
8. Bull market: A market characterized by rising prices, typically associated with investor optimism.
9. Bullish: A positive outlook on the market, characterized by an expectation that prices will rise.
10. Call option: An option contract that gives the holder the right, but not the obligation, to buy an underlying asset at a predetermined price on or before a specified date.
11. Candlestick chart: A type of chart that uses candlesticks to represent the price action of an asset over a given time period.
12. Cross currency pairs: Currency pairs that do not include the US dollar.
13. Currency pair: A quotation of the relative value of one currency against another.
14. Day trading: The practice of buying and selling securities within the same trading day.
15. Derivative: A financial instrument that derives its value from an underlying asset.
16. Diversification: The practice of spreading investment across a range of different assets to reduce risk.
17. Earning per share (EPS): A company's net earnings divided by the number of outstanding shares of stock.
18. Fundamental analysis: An evaluation of a security's intrinsic value based on economic and financial factors.
19. Gap: A significant price difference between the closing price of one period and the opening price of the next period.
20. Indicator: A statistical measure used in technical analysis to predict future price movements.
21. Initial margin: The amount of money required to enter into a position on margin.
22. Interest rate: The percentage of a loan that is charged for the use of borrowed money.
23. Intrinsic value: The inherent value of a security, calculated by considering factors such as the underlying asset's cash flows, earnings, and dividends.
24. Leverage: The use of borrowed capital to increase the potential return on an investment.
25. Limit order: An order to buy or sell an asset at a specific price or better.
26. Long position: A position in which an investor has bought an asset with the expectation that its value will increase.
27. Long-term investment: An investment with a holding period of more than one year.
28. Margin: The amount of money that an investor must deposit as collateral when trading on margin.
29. Market capitalization (market cap): The total value of a company's outstanding shares of stock.
30. Market maker: A financial institution or individual that quotes both a buy and a sell price for a security, committing to buy or sell at those prices.
31. Market order: An order to buy or sell an asset at the best available price.
32. Momentum: The rate at which the price of a security is changing.
33. Overnight position: A trade that is held open overnight, meaning that it is not closed out by the end of the trading day.
34. Option: A financial derivative that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date.
35. Overbought: A condition in which the price of a security has risen significantly and may be due for a correction.
36. Oversold: A condition in which the price of a security has fallen significantly and may be due for a rebound.
37. P/E ratio: The price-to-earnings ratio, which is calculated by dividing a company's stock price by its earnings per share.
38. Portfolio: A collection of investments held by an individual or organization.
39. Put option: An option contract that gives the holder the right, but not the obligation, to sell an underlying asset at a predetermined price on or before a specified date.
40. Quotation: A statement of the current bid and ask prices for a particular security.
41. Range: The difference between the highest and lowest prices at which a security has traded over a given time period.
42. Relative strength index (RSI): A technical analysis indicator that measures the magnitude of recent price changes to determine overbought or oversold conditions.
43. Resistance level: A price level at which there is a high level of selling pressure, making it difficult for the price to rise above it.
44. Scalping: A trading strategy that involves buying and selling securities quickly in order to profit from small price movements.
45. Short position: A position in which an investor has sold an asset with the expectation that its value will decrease.
46. Short selling: The practice of selling securities that are not owned, with the expectation that the price will fall so they can be bought back at a lower price.
47. Stop-loss order: An order to sell a security when it reaches a certain price, designed to minimize potential losses.
48. Support level: A price level at which there is a high level of buying pressure, making it difficult for the price to fall below it.
49. Strike price: The price at which an option contract can be exercised.
50. Technical analysis: The study of historical price and volume data to identify patterns and predict future price movements.

We hope this glossary helps you navigate the world of trading and gain a better understanding of the terminology used in the industry. Happy Trading!