One of the most difficult parts of learning to invest and trade the stock market is keeping up with all of the terms that they use. Much more so than other industries, the financial sector is overflowing with jargon. This means that learning to trade stocks is usually a two-step process.
First, you need to understand what these words actually mean. Then you need to figure out how to react to this information.
To help out, we’ve put together this quick list of some of the most common terms used in stock trading. Let’s take a look!
Bid price – The price that you are willing to buy a share of stock for (Bid = Buy)
Ask price – The price that you are willing to sell a share of stock for.
Bid-ask spread – The difference between the bid and ask prices. Trades can only happen when this spread is resolved.
Market order – An order to buy a share of stock at the best available price. These types of orders will usually be executed almost immediately.
Limit order – An order to buy or sell a share of stock for a specified price or better. For example, you could set an $80 limit buy order to buy a stock that currently costs $100. This means that the order will not executive unless the price of the stock drops to $80 or lower.
You can do the same thing with a sell order. If you own a stock that costs $100 then you could set a limit order of $120. This means that your sell order will not execute until the price of that stock rises to $120.
Moving average – Moving averages are a method for identifying whether a stock’s price is trending upwards or downwards. For example, some traders will determine the moving average of a stock over the past 50 days and then track this average as time goes on. If the stock makes a significant break above or below this average then the trader may decide to buy/sell accordingly.
Averaging down – This is a strategy that’s commonly used when entering into a longer-term trade. A trader may buy into stock only for that stock’s price to decrease over the next few days/weeks. Since the trader likes the long-term potential of the stock, they will continue to buy shares even as the stock price drops.
By doing this, they are lowering the average price that they’ve bought the stock for (“averaging down”.
Bull market (bullish) – A bull market is one that’s trending upwards. Traders will use the term “bullish” on securities that they are optimistic about in the long term.
Bear market (bearish) – A bear market is one that’s trending downwards. Traders will use the term “bearish” on securities that they are pessimistic about in the long term.
We hope that you’ve found this article valuable when it comes to learning a few of the most common terms used in trading. If you’re interested in learning more, please subscribe below to get alerted of new articles as we write them!