Financial Trading Terms Every Trader Should Know
Financial Trading Terms Every Trader Should Know
Introduction
What does ‘day trading’ mean? Why do other traders get worried when they talk about the ‘volatility’ state of the markets? There are many questions and much information to digest when it comes to trading that an unprepared fresher may feel overwhelmed easily.
Essential Financial Trading Terms (by Alphabetical Order)
A
Annual Report
Annual reports provide financial information to shareholders about the company they invest in. It contains insightful data such as the company’s cash flows and management strategies so that the traders can evaluate the business proficiency and financial situation of the company to make further investment decisions.
Arbitrage
Arbitrage is the practice of buying and selling the same asset on different exchanges at different prices. If a stock is worth $20 on one exchange and $20.50 on another, you could buy it for $20 and sell it for $20.50 on the other while keeping the price difference as profit.
B
Bar Chart
A Bar Chart, also known as a ‘Bar Graph’, is a type of chart that demonstrates data using rectangular bars or columns (referred to as bins) that represent the total number of observations in the data for that category. A bar chart can be displayed with vertical columns, horizontal bars, comparative bars (many bars next to each other for easy comparison), or stacked bars (much detailed information about a bigger host).
Beta
Beta is used to measure the volatility of an asset in comparison to all markets in general – regarded to have a beta of 1. If an asset has a beta of a specific value, it means that it moves that many points for every one point move in the market, showing that the asset is more volatile than the market.
C
Candlestick Chart
Candlestick chart is a technique for establishing a basis for a trade by technically analyzing certain pieces of information: the open and close prices, as well as the high and low prices for the period.
Call Option
A call option is a contract that grants the buyer not the obligation but the right to purchase a specific asset at a specific price on a specific date. The value of a call option rises is also proportional to the price of the market asset.
D
Day Trading
Day trading involves the simultaneous purchase and sale of assets on the same day, often online, thus aiming to make profits based on minor, short-term price fluctuations
Delta
Delta, also known as a hedge ratio, is a metric used in trading to determine how the price of a contract changes when the price of the underlying asset changes.
AND
Earning Per Share
Earnings per share (or just EPS) is a critical metric when determining a company’s earnings. It is calculated by dividing the total returns made in a given period by the number of shares listed on the stock exchange.
Equity
In financial markets, equity refers to the number of shares owned by a company. When you buy assets from a company (shares, stocks, and the like) as an investor, you are purchasing an equivalent degree of ownership in that company. The financial markets are where these company assets (equity) are traded between investors.
F
Fair Value
Fair value is generally used to indicate the amount of money attributed to an asset, as well as the contract price (when it comes to options or futures trading) reflecting the price of the underlying asset.
Fiat Currency
A fiat currency is basically a that is not relevant to the price of a commodity, such as gold or diamond. Its value is mostly defined by its users (both national and worldwide) in the issuer (typically the government or the central bank of that country or just the country itself).
Fibonacci Retracement
A Fibonacci retracement is a popular technical analysis tool involving using percentages, horizontal lines, and price charts to determine potential levels of support and resistance. Knowing these areas can help traders decide when to open/ close positions and further strategies.
G
GDP
Gross domestic product, or GDP, is the sum of the value of the commodities and services generated in a nation during a given time period. It serves as a gauge for the size and strength of a nation’s economy.
Gross Margin
Gross margin, often known as gross profit margin, is a metric for determining how much money a business has left over after deducting the direct expenses related to the sale of its products and services.
H
Hedge
A hedge is a trade or an investment created to lower your current risk exposure. As a result, hedging is the technique of lowering risk through investing.
High-frequency Trading
High-frequency trading, also known as HFT, is a type of modern trading platform that utilizes cutting-edge processing technology (https://en.wikipedia.org/wiki/Automated_trading_system) (trading bots for instance) to quickly handle a large number of deals that a normal human is not capable of. It can also be used to do large-scale market research and identify potential trading opportunities.
I
Index
An index is a benchmark that traders and investors use as a point of reference, for instance, the S&P 500 and the Dow Jones Industrial Average (the Dow).
Indicator
An indicator includes using one or a series of trading tools to assist make the market more understandable. For instance, they can confirm if the market is trending or range and provide specific market data according to the criteria of the users.
L
Leverage
Leverage involves borrowing money from your broker to increase your profits. It is usually done to boost gains, but doing so also increases potential losses.
Liquidity
Market liquidity, often known as liquidity, is a term used in finance to indicate how quickly traders make moves to their assets on the market (withdraw, deposit, buy, sell, and the like) without changing their prices. High liquidity usually results from high demand.
M
Margin
A margin account is used to borrow funds from a broker to buy stocks or other assets. The margin is the discrepancy between the loan balance and the price of the security.
Moving Average
Moving average is a technique that is usually utilized within trading tools for demonstrating the typical share price of a stock over a given time frame.
N
Net Change
Net change is the difference between the closing price of the current trading session and that of the previous session. It reflects whether the markets were higher or lower than usual the day before, indicating positive or negative.
Negative Balance Protection
Negative balance protection involves the act of making sure that traders will not lose more than the balance in their account, even when high volatility strikes.
O
Options Contract
Unlike a futures contract, options contracts give the holder both the right, but not the obligation to buy or sell a specific asset at a specified price on a future date.
Over The Counter
Over-the-counter trades are executed electronically, thus there is less transparency than on the major exchanges. Small businesses, usually foreign corporations, that don’t meet the listing requirements for the major exchanges are the companies listed on the OTC marketplaces.
P
Portfolio
A portfolio of a trader is a grouping of assets. It can contain a single asset (for instance, stock or bond) or a large number of other securities.
Position
Position refers to a trade that is either open (still available for business) or closed (already been closed). Only when a position has been closed can profit or loss on it be recognized.
Q
Quote
A quote is the most recent trading price of a stock. Free stock quotes are typically delayed information. Real-time data might come with an additional cost.
R
Rally
A rally is a sudden sharp rise in the price of an asset or the general pricing level of the market. It may be a bull rally or a bear rally, depending on the general situation.
Range
The range of a market is the difference between its highest and lowest price over a specific time period and is primarily used as a volatility indicator. A large range suggests price turbulence.
S
Scalping
A scalp is when a trader opens and then swiftly closes a position in the hopes of making money off of slight price changes.
Sector
A sector is a collection of equities from the same industry. Some traders favor trading in a particular industry, particularly when that activity from that industry is strongly and heavily impactful.
T
Technical Analysis
Technical analysis is a method to analyze and forecast price changes in the financial markets by using historical price charts and market data. Its results can help traders deduct insightful information to make trading decisions.
Time Value
Time value refers to the fact that the value of an asset is proportional to the remaining time until its expiration. The longer the period, the more the value.
IN
Volatility
Volatility is the fluctuating state of the price of an asset. When high volatility strikes, the price can unpredictably make sudden changes to both directions within a short period.
Volume
Volume is the total number of shares of stock exchanged in a given time frame, usually measured as the daily average.
In
Weekend Trading
Weekend trading refers to a service that enables you to observe several markets over the weekend.
Y
Yield
Yield, which is stated as a percentage, primarily refers to the return on investment for an asset.
Conclusion
Understanding above financial market terms may only be the beginning of your learning journey. Things will get even more complicated when tackling these words in a bigger context or a more technical-driven topic.
Article source: https://libraryoftrader.net/financial-trading-terms