Terms used in TRADING
Trading involves a vast array of terms and concepts that traders and investors use to analyze, strategize, and communicate within the financial markets. Here is an extensive list of terms and concepts used in trading:
Asset: A financial instrument or security that can be bought or sold, including stocks, bonds, commodities, currencies, or options.
Bid: The highest price a buyer is willing to pay for an asset at a given time.
Ask (or Offer): The lowest price at which a seller is willing to sell an asset at a given time.
Spread: The difference between the bid and ask prices, representing the transaction cost for trading an asset.
Market Order: An order to buy or sell an asset at the current market price, executed immediately.
Limit Order: An order to buy or sell an asset at a specified price or better, executed when the market reaches the specified price.
Stop Order (or Stop-Loss Order): An order to buy or sell an asset once it reaches a specified price level, often used to limit losses or protect profits.
Volatility: The degree of price fluctuation or variation of an asset over time, with high volatility indicating larger price swings.
Liquidity: The ease with which an asset can be bought or sold without significantly affecting its price; highly liquid assets have tight bid-ask spreads.
Day Trading: Buying and selling assets within the same trading day, with all positions closed before the market closes.
Swing Trading: Holding positions for several days or weeks, aiming to profit from short to medium-term price movements.
Long Position: Owning an asset with the expectation that its price will rise, profiting from an increase in value.
Short Position: Borrowing and selling an asset with the expectation that its price will fall, profiting from a decrease in value.
Margin: Borrowed funds used to trade or invest, amplifying both gains and losses.
Margin Call: A demand for additional funds to cover trading losses when an account's balance falls below a certain level.
Day Trader: A trader who opens and closes positions within the same trading day, often making multiple trades.
Scalping: A short term trading strategy making quick and small profits from numerous trades throughout the day.
Bull Market: A market characterized by rising asset prices, optimism, and positive investor sentiment.
Bear Market: A market characterized by falling asset prices, pessimism, and negative investor sentiment.
Technical Analysis: Analyzing historical price and volume data to make predictions about future price movements.
Fundamental Analysis: Evaluating an asset's value based on underlying financial and economic factors like earnings, revenue, and economic conditions.
Risk Management: Strategies and techniques to minimize potential losses in trading, including setting stop-loss orders and position sizing.
Volatility Index (VIX): A measure of market volatility often referred to as the "fear gauge" because it reflects investor sentiment and expected market turbulence.
Arbitrage: Exploiting price discrepancies between different markets or assets to make a risk-free profit.
Candlestick Chart: A type of chart used in technical analysis, displaying price movements for a specific time period, showing open, close, high, and low prices.
Moving Average: A commonly used technical indicator that smooths out price data to identify trends over time.
Relative Strength Index (RSI): A momentum oscillator used in technical analysis to measure the speed and change of price movements.
Fibonacci Retracement: A technical analysis tool that identifies potential levels of support and resistance based on the Fibonacci sequence.
Market Sentiment: The overall attitude and mood of market participants toward a particular asset or market.
Leverage: The use of borrowed funds to increase the size of a trading position, potentially amplifying both profits and losses.
Hedging: Using financial instruments or strategies to offset or reduce the risk of adverse price movements in an asset.
Bullish: A positive outlook on an asset, expecting its price to rise.
Bearish: A negative outlook on an asset, expecting its price to fall.
Moving Average Convergence Divergence (MACD): A popular momentum indicator used in technical analysis.
Options: Derivative contracts that give the holder the right (but not the obligation) to buy or sell an underlying asset at a specified price on or before a specified expiration date.
Futures: Contracts that obligate the buyer to purchase, and the seller to sell, a specific asset at a predetermined price on a specified future date.
Pip: A unit of measurement in currency trading, typically representing the smallest price movement in an exchange rate.
Short Squeeze: A situation where a rapid rise in an asset's price forces short sellers to buy to cover their positions, further fueling the price increase.
Margin Trading: Trading with borrowed funds provided by a broker, using collateral from the trader's own account.
Dividend: A payment made by a corporation to its shareholders, typically as a share of the company's profits.
Initial Public Offering (IPO): The first sale of a company's stock to the public, marking its transition from a privately held to a publicly traded company.
Penny Stock: Low-priced stocks, typically trading for less than $5 per share, often associated with higher risk and volatility.
Dark Pool: Private trading venues or platforms where large institutional investors execute block trades away from public exchanges.
Blue Chip Stocks: Stocks of large, well-established, and financially stable companies with a history of reliable performance.
Market Maker: A financial institution or individual that facilitates trading by providing liquidity by quoting buy and sell prices for an asset.
Short Interest: The total number of shares of a security that have been sold short by investors.
Bull Call Spread: An options trading strategy involving buying a call option and selling another call option at a higher strike price.
Bear Put Spread: An options trading strategy involving buying a put option and selling another put option at a lower strike price.
Limit Up-Limit Down (LULD): Circuit breaker rules in place to prevent excessive volatility in financial markets.
HFT (High-Frequency Trading): A trading strategy that relies on computer algorithms to execute a large number of trades in milliseconds.
Volatility Smile: A graphical representation of implied volatility for options with the same expiration but different strike prices.
Market Capitalization: The total market value of a company's outstanding shares, calculated by multiplying the stock price by the number of shares.
Algorithmic Trading: Automated trading strategies that use computer algorithms to execute orders based on predefined criteria.
ROE (Return on Equity): A financial ratio that measures a company's profitability by comparing net income to shareholders' equity.
MACRO Analysis: A form of fundamental analysis that considers economic, political, and macroeconomic factors when making trading decisions.
Pipette: A smaller unit of measurement in currency trading, often representing a fraction of a pip.
Pairs Trading: A trading strategy that involves taking both long and short positions in two correlated assets to profit from their relative price movements.
Day High and Day Low: The highest and lowest prices of an asset during a trading day.
Market Cap Weighted Index: An index where the constituent stocks are weighted based on their market capitalization.
Earnings Per Share (EPS): A financial metric that measures a company's profitability by dividing net earnings by the number of outstanding shares.
Public Float: The portion of a company's outstanding shares that is available for trading by the public.
Trend Trading: A trading strategy that aims to profit from sustained price movements in the same direction as the prevailing trend.
Position Sizing: Determining the amount of capital to allocate to a specific trade or position based on risk management principles.
Portfolio Diversification: Spreading investments across a variety of assets to reduce risk.
Bid-Ask Spread Percentage: The percentage difference between the bid and ask prices.
Market Capitalization Weighting: An index weighting method where stocks are weighted based on their market capitalization.
Market Sentiment Indicators: Measures and tools used to gauge the overall mood and sentiment of market participants.
Rally: A sustained upward movement in the price of an asset or market.
Short Covering: The process of closing out a short position by buying back the borrowed shares, often resulting in a price increase.
Bollinger Bands: A technical analysis tool that measures price volatility and potential price reversals.
Cash Market: A market where assets are traded for immediate delivery and payment, as opposed to the futures or options market.
Implied Volatility: The market's expectation of a security's future price volatility, often used in options pricing.
Circuit Breaker: Mechanisms in place to temporarily halt trading in response to extreme price movements or volatility.
Liquidation: The process of closing out or selling assets to settle outstanding debts or obligations.
Margin Call Level: The minimum account balance required to avoid a margin call.
Penny Spread: The difference between the bid and ask prices of a low-priced stock.
Securities Exchange: A regulated marketplace where financial instruments are bought and sold.
Underlying Asset: The asset on which a derivative contract is based.
Cash Settlement: A method of settling derivative contracts where the difference between the contract price and market price is paid in cash.
Long Call Option: An options contract that gives the holder the right, but not the obligation, to buy the underlying asset at a specified price.
Short Put Option: An options contract that gives the holder the right, but not the obligation, to sell the underlying asset at a specified price.
Basis Point (BPS): A unit of measurement used to describe percentage changes in interest rates or yields.
Open Interest: The total number of outstanding derivative contracts, such as options or futures, for a particular asset.
ETF (Exchange-Traded Fund): A fund that holds a collection of assets, such as stocks or bonds, and trades on an exchange like a stock. Bull Put Spread: An options trading strategy involving selling a put option and buying another put option at a lower strike price.
Bear Call Spread: An options trading strategy involving selling a call option and buying another call option at a higher strike price.
Stock Split: An action taken by a company to increase the number of its outstanding shares, typically reducing the stock's price per share.
Head and Shoulders Pattern: A technical analysis pattern used to predict a reversal of an asset's price trend.
IPO Lock-Up Period: A period during which early investors and insiders are restricted from selling their shares after an IPO.
Pip Value: The monetary value of a pip movement in currency trading.
Currency Pair: Two currencies traded together in a forex transaction, such as EUR/USD (Euro/US Dollar).
Market Maker Spread: The difference between the price at which a market maker buys and sells a financial instrument.
Economic Calendar: A tool that displays upcoming economic events and announcements that may impact financial markets.
Stochastic Oscillator: A momentum indicator used in technical analysis to identify overbought and oversold conditions.
Contango: A situation in the futures market where the future price of a commodity is higher than the spot price.
Backtesting: Testing a trading strategy using historical data to assess its potential profitability.
Pump and Dump: A fraudulent scheme in which the price of a security is artificially inflated (pumped) and then sold off (dumped) at a profit.
Day-Count Convention: A method used to calculate the number of days between interest payments for bonds and other fixed-income securities.
Support Level: A price level at which an asset tends to find buying interest and resist falling below.
Resistance Level: A price level at which an asset tends to find selling interest and struggle to rise above.
Front-Running: A prohibited trading practice where a trader or firm executes orders on a security for its own account based on advance knowledge of a large order by a customer.
Trendline: A line drawn on a price chart that connects a series of data points to identify the prevailing trend.
Rollover (Swap): The process of extending the settlement date of a trade in the forex or futures market.
Slippage: The difference between the expected price of a trade and the actual price at which it is executed.
Market Cap-to-GDP Ratio: A valuation metric that compares a country's stock market capitalization to its gross domestic product (GDP).
Gamma: A measure of the rate of change of an option's delta, indicating the sensitivity of an option's price to changes in the underlying asset's price.
Theta: A measure of the time decay of an option's value, indicating how much the option's price is expected to decrease as time passes.
Vega: A measure of the sensitivity of an option's price to changes in implied volatility.
Intraday Trading: Trading activity that occurs within the same trading day, with all positions closed by the end of the day.
Order Book: A real-time list of buy and sell orders for an asset, showing the depth of the market.
Rebate Trading: A trading strategy where traders receive rebates from market makers or exchanges for providing liquidity through their orders.
Pattern Day Trader: In the United States, an individual who executes four or more day trades within a five-day period must maintain a minimum account balance.
Bid-Ask Size: The number of shares or contracts available at the bid and ask prices in the order book.
Dark Pool Trading: Private trading venues or platforms where large institutional investors execute block trades away from public exchanges.
Elliott Wave Theory: A technical analysis approach that attempts to predict future price movements by identifying repeating patterns in market data.
Market-On-Close (MOC) Order: An order to buy or sell a security at the closing market price.
Market-On-Open (MOO) Order: An order to buy or sell a security at the opening market price.
Market-At-Close (MAC) Order: An order to buy or sell a security at or near the closing market price.
Market-At-Open (MAO) Order: An order to buy or sell a security at or near the opening market price.
Earnings Before Interest and Taxes (EBIT): A financial metric that measures a company's profitability before interest and taxes are taken into account.
Relative Performance: Comparing the performance of one asset or investment against another to assess relative strength or weakness. Candlestick Pattern: A visual pattern formed on a candlestick chart that is used in technical analysis to predict price movements.
Gap: A price gap occurs when the opening price of an asset is significantly different from the previous day's closing price.
Market Order Imbalance: A situation where there are significantly more buy or sell orders for an asset than there are matching orders.
Block Trade: A large-sized trade, often conducted off-exchange, involving a substantial quantity of shares or contracts.
Front-Month Contract: The nearest contract month in a futures or options series.
Contingent Order: An order that is only executed when specific conditions or criteria are met.
Portfolio Margin: A margin methodology that calculates margin requirements based on the overall risk of an entire portfolio of positions.
Time in Force (TIF): A parameter used when placing orders that specifies how long the order remains active in the market.
Heat Map: A graphical representation of data where values are depicted as colors, often used to display market performance.
Volatility Skew: The difference in implied volatility between options with different strike prices but the same expiration date.
Basis Trading: A trading strategy that seeks to profit from price discrepancies between related assets, such as futures and their underlying securities.
Basis Point Value (BPV): A measure of how the price of a bond changes in response to a one-basis-point change in yield.
Box Spread: An options strategy that involves combining a bull call spread and a bear put spread to create a risk-free position.
Currency Swap: A financial derivative in which two parties exchange principal and interest payments in different currencies.
Drawdown: The peak-to-trough decline in the value of a portfolio or asset during a specific period.
Earnings Calendar: A schedule of upcoming earnings announcements and release dates for publicly traded companies.
Fading the Market: A trading strategy that involves taking a position opposite to the prevailing market trend, expecting a reversal.
Gann Theory: A technical analysis approach that uses geometric angles and patterns to predict price movements.
Hard Stop: An order to buy or sell an asset at a specified price, triggered automatically when the market reaches that price.
Inverted Yield Curve: A yield curve where short-term interest rates are higher than long-term rates, often seen as a recession indicator.
Junk Bond: A bond with a lower credit rating and higher risk of default, often characterized by higher yields.
Key Reversal: A technical analysis pattern that signals a potential change in trend.
Lead Lag Effect: The phenomenon where one asset or market leads the price movement of another.
Maintenance Margin: The minimum amount of capital required to maintain an open position, as set by a broker.
Net Asset Value (NAV): The per-share value of a mutual fund or ETF, calculated by dividing the total assets by the number of shares outstanding.
Offshore Accounts: Bank or brokerage accounts held in a foreign country, often for tax and asset protection purposes.
Pareto Principle (80/20 Rule): The idea that 80% of outcomes result from 20% of causes, often applied in trading and investing to focus on the most impactful factors.
Quantitative Easing (QE): A monetary policy tool used by central banks to increase the money supply and stimulate economic growth by purchasing financial assets.
Risk-On and Risk-Off: Market conditions characterized by a willingness (risk-on) or aversion (risk-off) to take on risk, often associated with shifts in investor sentiment.
Securities Lending: The practice of lending securities, often for a fee, to other market participants.
Trend Reversal: A change in the prevailing direction of an asset's price trend.
Up-Tick Rule: A rule that restricts short selling to occur only after a trade on an uptick in price, aimed at reducing market volatility.
Value Investing: An investment strategy that focuses on buying undervalued assets with the expectation of long-term appreciation.
Whipsaw: A situation where a trader is caught in a series of rapid, conflicting price movements.
Xenocurrency: A currency that is not the official currency of the country in which it is used, often applied to foreign currency trading.
Yield Curve: A graphical representation of interest rates on debt for a range of maturities, often used to gauge economic conditions.
Zero-Coupon Bond: A bond that pays no periodic interest but is sold at a discount to face value, with the investor receiving the face value at maturity.
10-K and 10-Q Reports: Annual and quarterly financial reports filed with the U.S. Securities and Exchange Commission (SEC) by publicly traded companies.
ADX (Average Directional Index): A technical indicator used to measure the strength of a trend in an asset's price.
Bear Market Rally: A temporary upward movement in a bear market, often followed by a resumption of the downtrend.
Convertible Bond: A bond that can be converted into a specified number of shares of the issuer's common stock.
Dark Cloud Cover: A bearish candlestick pattern that suggests a potential reversal of an uptrend.
ECN (Electronic Communication Network): A computer-based system that facilitates electronic trading of financial assets.
Fair Value: The estimated intrinsic value of an asset or security, often used in fundamental analysis.
Golden Cross: A technical analysis pattern that occurs when a short-term moving average crosses above a long-term moving average, signaling a potential uptrend.
Hedge Fund: An investment fund that employs various strategies to generate returns for its investors.
Institutional Investor: Large organizations, such as mutual funds, pension funds, and insurance companies, that invest on behalf of clients or shareholders.
J-Curve Effect: The phenomenon where a country's trade balance initially worsens after a depreciation of its currency before improving over time.
Key Rate Duration: A measure of the sensitivity of a bond's price to changes in specific key interest rates.
Liquidity Trap: A situation in which interest rates are very low, and monetary policy becomes ineffective at stimulating economic activity.
Maturity Date: The date on which a bond or other fixed-income security becomes due and the principal is repaid to the investor.
Naked Option: Selling an option contract without owning the underlying asset or without an offsetting position.
Over-the-Counter (OTC) Market: A decentralized market for trading financial instruments directly between participants.
Pennant: A continuation pattern in technical analysis that resembles a small symmetrical triangle.
Quantitative Analyst (Quant): A professional who uses mathematical and statistical models to analyze and make trading decisions.
Ratchet Bond: A bond with a provision that allows its interest rate to increase based on predetermined triggers.
Short Straddle: An options trading strategy involving selling both a call option and a put option with the same strike price and expiration date.
Technical Indicator: A mathematical calculation or chart pattern used in technical analysis to make trading decisions.
Unrealized Gain or Loss: The change in the value of an open position that has not yet been realized through a sale or closing of the position.
Volatility Crush: A significant decrease in implied volatility, often seen after an earnings announcement or major event.
Wash Sale: A prohibited practice where a trader sells an asset to realize a loss and then repurchases it within a short time frame to maintain exposure.
X-Efficiency: A concept used in microeconomics to measure how well a firm uses its resources to maximize output.
Yield to Maturity (YTM): The total return anticipated on a bond if held until it matures, including interest payments and potential capital gains or losses.
Zero-Sum Game: A situation where one participant's gain or loss is exactly balanced by the losses or gains of other participants.
Algorithmic Trading Strategies: Various automated trading strategies used by quantitative analysts, including statistical arbitrage, market making, and trend following.
Bearish Divergence: A technical analysis pattern where an asset's price makes a higher high while an indicator makes a lower high, suggesting a potential reversal.
Call Option: A financial derivative that gives the holder the right, but not the obligation, to buy the underlying asset at a specified price.
Double Top and Double Bottom: Technical analysis patterns characterized by two peaks or two troughs, often signaling reversals.
Earnings Per Share (EPS) Growth: The percentage change in a company's earnings per share from one period to another.
Futures Contract: A standardized financial contract obligating the buyer to purchase, and the seller to sell, a specified asset at a predetermined future date and price.
Gap-Up and Gap-Down: Price gaps that occur at the opening of a trading session, often due to significant news or events.
Hawala System: An informal and often illegal money transfer system used in some regions, bypassing traditional banking channels.
Inverted Head and Shoulders Pattern: A technical analysis pattern used to predict a reversal of a downtrend.
Key Currency: A currency that is widely used and held in international reserves, often used as a reference currency in forex markets.
LIBOR (London Interbank Offered Rate): A benchmark interest rate that serves as the basis for various financial products, including loans and derivatives.
Momentum Investing: An investment strategy that seeks to capitalize on the continuation of existing price trends.
Nasdaq: A stock exchange known for its technology-focused listings and electronic trading platform.
Open Market Operations: The buying or selling of government securities by central banks to influence the money supply and interest rates.
Penny Jumping: A trading strategy that aims to profit from small price movements by rapidly trading in and out of positions.
Quantile: A division of data into four equal parts, often used to assess the performance of mutual funds.
Risk-Adjusted Return: A measure of investment performance that considers the level of risk taken to achieve a return.
Stochastic RSI: A variation of the Stochastic Oscillator that combines the RSI (Relative Strength Index) and Stochastic indicators.
Consolidation: A period of price movement where an asset's price remains within a relatively narrow range.
Gap Fill: The process of an asset's price returning to the level of a previous price gap.
Liquidity Provider: An entity that offers to buy or sell an asset at specified prices, adding liquidity to the market.
Momentum Oscillator: An indicator used in technical analysis to identify overbought and oversold conditions.
Nikkei Index: A stock market index that tracks the performance of the Tokyo Stock Exchange.
Opening Range: The range of prices at which an asset trades during the first few minutes or hours of a trading session.
Penny Jumping: A trading strategy that aims to profit from small price movements by rapidly trading in and out of positions.
Quantitative Easing (QE): A monetary policy tool used by central banks to increase the money supply and stimulate economic growth by purchasing financial assets.