40 Stock Market Terms You Need for Trading {With Infographic}

Understanding stock market terminology is vital for anyone stepping into the world of trading. In my years of trading and teaching, I’ve seen how knowing these terms not only enhances your understanding but also boosts your confidence in making trading decisions. This article will cover 40 essential terms that every trader should know, from basics like ‘Account Balance’ and ‘Ask Price’ to more complex ones like ‘Pattern Day Trader’ and ‘Margin Call’. Whether it’s understanding ‘Leverage’ or deciphering ‘Market Data’, these terms are the building blocks for navigating the trading landscape.

Read this article because it demystifies the complex world of trading by explaining 40 essential trading terms, making it easier for beginners to navigate and understand the stock market.

I’ll answer the following questions:

• What are the key trading terms every beginner should know?
• How do trading terms help in understanding the stock market?
• What is the significance of learning trading jargon for new investors?
• How can mastering trading terms improve investment strategies?
• What are some common misconceptions about trading terms?
• How do specific trading terms relate to stock market trends?
• In what ways do trading terms impact decision-making in trading?
• Why is it important to stay updated with trading terminology?

Let’s get to the content!

What Is the Stock Market?

The stock market is a collection of markets from around the world. It’s where traders and investors buy and sell shares of companies. In the U.S., most trading is done on the NYSE and Nasdaq.

But there are also over-the-counter (OTC) markets where day traders can find penny stocks. 

Traders and investors buy and sell stocks hoping to make a profit. There are a lot of different strategies for this. Some hold stocks for years — that’s long-term investing. 

Others open and close trades within minutes or hours. That’s what we call day trading. Learn more about market strategies here.

The stock market has its own culture, and people follow market action the same way sports fans follow their favorite teams.

And to keep up, you need to know the jargon…

What Is Day Trading?

Day trading is the practice of buying and selling securities within a single trading day. Traders capitalize on small price movements, making multiple transactions to accumulate gains. This trading style contrasts with long-term investment strategies, focusing instead on short-term market data and price movements. Day trading requires not just an understanding of the market but also a firm grasp of risk management to limit losses. It’s not just about predicting the direction of stock prices, but also about managing the account to ensure sustainability in this high-stakes environment. Remember, every transaction carries its own set of risks and rewards, making it imperative to stay informed and prepared.

It’s also crucial to be aware of specific rules and regulations that govern this high-paced trading style. These rules are not just bureaucratic red tape; they are designed to protect traders from significant losses and maintain market integrity. For instance, the Pattern Day Trader rule requires traders to maintain a minimum account balance, which is essential for managing the inherent risks of day trading. To navigate these rules successfully and make informed trading decisions, it’s vital to have a comprehensive understanding. For a detailed guide on day trading rules, explore StocksToTrade’s comprehensive overview of day trading rules.

Benefits of Day Trading

The primary benefit of day trading is the potential for significant gains within a short period. Unlike traditional investing, day trading can yield quick returns on equity due to the frequency of transactions. Another advantage is the level of control and flexibility it offers; you’re not tied down to long-term market fluctuations or interest trends. However, it’s crucial to understand that with high potential gains come substantial risks. Effective day trading requires a deep understanding of market indicators, leverage, and price movements. As I often emphasize in my teachings, success in day trading hinges on consistent preparation and adherence to a well-thought-out trading strategy.

Many enter day trading with expectations of high returns, but it’s essential to have a realistic understanding of what traders typically earn. Day trader income can vary widely based on factors like experience, strategy, and market conditions. It’s not just about the potential for significant gains; it’s also about understanding the average earnings and how they align with your financial goals. To get a clearer picture of what day traders typically earn, check out StocksToTrade’s analysis of day trader average income.

What Is Stock Trading Terminology?

Understanding stock trading terminology is essential for anyone looking to navigate the markets effectively. Terms like ‘margin account’, ‘ask price’, ‘pattern day trader’, and ‘resistance level’ are not just jargon; they represent critical concepts that impact trading decisions. Knowing these terms helps in understanding market analysis, news events, and regulations. For beginners, grasping these basics is the first step towards making informed and confident trading decisions. It’s not just about knowing the definitions; it’s about understanding how these terms reflect market dynamics and influence your trading style.

Why Traders Must Learn Stock Market Terms

Learning stock market terms is crucial for traders, as it enables them to interpret market data accurately and make informed decisions. Without this knowledge, traders may struggle to understand the implications of price changes, news events, or analysis reports. Stock market terms also provide a common language for discussing strategies and sharing insights with others in the trading community. From my experience, I can attest that a solid understanding of these terms is a foundational element in developing effective trading strategies.

40 Common Stock Market Terms for Traders

Below are 40 of the most common stock market terms, with simple explanations.

Buy

To take a position by buying shares of a company.

As a trader, you generally buy shares when you think a stock’s price will rise.

Sell

To sell the shares you currently own.

Traders generally sell shares when they see an opportunity to take profits or they think the stock’s rise is ending.

Bid

When a trader in the market makes an offer to buy shares.

Traders will bid for a stock at a certain price.

Ask

When a trader offers their shares for sale at a certain price.

If a trader holds shares and wants to sell them at a particular price, they place an order asking buyers to purchase them.

Bid-Ask Spread

The difference between the highest price at which someone is willing to buy shares and the lowest price someone is willing to sell shares.

Bull Market

A market condition where stock prices are continually rising.

Bull markets are characterized by optimism and excitement from traders and investors.

Bear Market

A bear market is the opposite of a bull market. It’s a market in which prices continually fall.

Bear markets are times when the outlook seems bleak for a company, an industry, or the overall economy. Traders and investors are less willing to buy stocks, and many are looking to sell. This causes prices to fall.

Limit Order

A type of stock market order that provides instruction to only execute at a certain price.

For example, a trader could place a limit buy order to purchase 100 shares of a stock at $10.20. The broker will attempt to buy 100 shares at a price of $10.20 or less.

Market Order

This stock market order provides instruction to buy or sell as quickly as possible, at whatever price is currently available.

Market orders can be expensive if there’s not enough volume. If you’re going to trade penny stocks, never use market orders.

Good Till Canceled Order

This market order remains open until you complete the trade or cancel the order. Also known as a GTC order.

Day Order

With this market order, if it isn’t filled during the day, it’s automatically canceled at the market close.

Volatility

The statistical measure of how much a stock moves up or down.

Stocks that move up and down wildly are known as volatile stocks. They can provide great profit opportunities, but also come with greater risk.

Liquidity

The measure of how easy it is to buy and sell a stock.

If a lot of buyers and sellers are actively trading stock, you’ll generally find it easier to enter and exit a position. The stock is more liquid.

Trading Volume

The number of shares being traded at any time.

More trading volume means more liquidity, and traders can more easily enter and exit positions.

Going Long

When going long, you purchase stock shares hoping to profit from an increase in the stock price.

Going Short

When a trader tries to profit from a stock’s dropping price.

Short sellers borrow shares from a broker, sell them, and hope the stock price declines. Then they buy the shares back and return them to the broker.

Averaging Down

This is where a trader buys more shares of a stock as the price drops, lowering the average price paid for the position.

Averaging down can work for long-term investors, but we don’t recommend it for active traders.

Market Capitalization

Market capitalization, aka market cap, is the total value of all a company’s shares.

For example, if a company has one million shares outstanding and the stock price is $10 per share, the market cap is $10 million.

Public Float

This is the term for a company’s freely traded shares. As active traders, we often look for companies with a low float, as their prices tend to be more volatile.

Outstanding Shares

This is the total number of a company’s shares. It includes both the public float and restricted shares.

IPO

IPO stands for initial public offering. It’s when a company goes through the process of selling shares on the stock market for the first time.

Secondary Offering

A company may raise money by offering shares, even after the company’s shares are traded on a stock exchange. This is called a secondary offering.

Blue-Chip Stock

These are large, stable, well-known companies that are often household names.

Forex

Forex is short for foreign exchange. The term refers to the global trading of currencies in a way similar to the way stocks are traded.

Hedge Funds

A hedge fund is a type of investment fund that often uses non-standard investment and trading techniques.

Mutual Funds

Mutual funds are pools of investor capital for investing in stocks, bonds, and other financial assets.

ETFs

Short for exchange-traded fund. ETFs are similar to mutual funds — they’re pools of capital used for investment purposes. But instead of wiring your money into the fund, you can purchase shares of the ETF on a stock exchange.

ADR

Short for American depositary receipt. These certificates represent shares of overseas stocks.

ADRs allow traders to buy and sell overseas stocks on U.S. stock exchanges.

Beta

A measure of a stock’s performance compared to the broader market. Beta can help traders assess the risk of holding a stock.

Stockbroker

An agent that allows traders to buy and sell stocks. Find out more about brokers here.

Day Trading

The practice of entering and exiting stock trades within a single day.

For example, if you purchase a stock in the morning and sell it in the afternoon, you’ve day traded.

Dividend

This is when a company pays a portion of its earnings to its shareholders. Long-term investors and retirees generally focus on dividends.

Stock Charts

A visual graph of a stock’s price over time. Traders use stock charts to help them interpret a stock’s price action and pattern.

Stock Exchange

A stock exchange is an entity where stocks are bought and sold. The most well-known stock exchanges are the New York Stock Exchange (NYSE) and the Nasdaq.

Execution

Execution is the fulfillment of a stock trading order.

For example, you place an order with your broker to buy 100 shares of XYZ at $10. When that trade is completed, that order is executed.

Margin

Margin is when traders borrow money to trade shares. With margin, you can make money and lose money faster. Remember, 90% of traders lose before you try margin trading. Be careful!

Moving Average

A common technical indicator traders use on stock charts to see a stock’s price trend. The moving average is an average of the stock price over a certain period.

For example, the 20-day moving average is calculated by taking the price of the stock on each of the prior 20 days, then finding the average of those 20 prices.

Stock Portfolio

A stock portfolio is an investor’s collection of stocks. 

Trading Mentor

An experienced trader who can shorten your learning curve by teaching you how they trade and what they’ve found to work in the markets. The SteadyTrade Team is our mentorship community. Apply to join us!

Price Quote

A price quote is a stock’s price at a certain point in time. Traders will often want up-to-date price quotes to better analyze stocks and find decent trading set-ups.

Price Rally

A price rally is when a stock price rises at a noticeably quicker pace.

Sector

The stock market is made up of shares of companies in different industries and niches. We call those sectors.

Stock Symbol

A unique collection of letters and/or numbers that represent a stock. Amazon, for example, trades on the Nasdaq under the symbol AMZN.

Dividend Yield

This refers to the size of a company’s dividend compared with the price of its stock.

Stock Market Slang: How to Learn Fast

Learning stock market slang can seem daunting, but it becomes easier with the right approach. Start with the basics: familiarize yourself with common terms like ‘swing trading’, ‘scalping’, and ‘support and resistance levels’. Use trading platforms and software that offer educational resources and explanations of terms. Practice makes perfect – the more you engage with market news, analysis, and trading communities, the quicker you’ll pick up the language. Remember, every trader was once a beginner, and understanding these terms is a crucial step towards trading success.

Do I Need to Know These 40 Stock Market Terms to Start Trading Stocks?

While you don’t need to memorize every stock market term before you start trading, knowing the key terms is crucial. Terms related to account balance, transactions, margin calls, and price points are essential for making informed trading decisions. Understanding these terms helps in managing risks and navigating the complexities of day trades. My advice to beginners is to focus first on the most relevant terms for your trading style and gradually expand your vocabulary as you gain more experience.

What Comes After Learning Stock Market Terms?

Once you’re comfortable with stock market terms and ready for next steps, it’s time to think about your market approach.

What will your trading strategy be? What tools can help you succeed?

No doubt, we’re big fans of our StocksToTrade trading platform. It has awesome charts, scanners, news feeds, and much more. Plus, we have tons of educational features and killer add-ons like…

• Breaking News Chat
• Breakouts & Breakdowns chat room
• Small Cap Rockets chat room
• STT Advisory

No matter how you plan to build your trading strategy, we’ve got you covered. Learn more here!

The Wrap on Stock Market Terms

• Day trading involves making multiple transactions within a single day to capitalize on short-term price movements.
• Understanding key stock trading terms is crucial for making informed decisions and managing risks effectively.
• Learning stock market slang and terminology is a continuous process that evolves with your trading experience.
• Start with the basics and expand your knowledge as you gain more experience in trading.
• Effective day trading requires a combination of quick decision-making, thorough market analysis, and consistent risk management.

Learning about the stock market is easier when you learn the fundamentals first.

Before you even think about becoming profitable, you’ll need to build a solid foundation. That’s what I help my students do every day — scanning the market, outlining trading plans, and answering any questions that come up.

You can check out the NO-COST webinar here for a closer look at how profitable traders go about preparing for the trading day!

Any stock market terms we missed that you need help with? Leave a comment with your questions and input!

Stock Market Terms FAQs

What Are the Key Components of Trading Mechanics?

In day trading, understanding the mechanics is crucial. The ‘Amount’ refers to the quantity of securities traded. ‘Security’ is a tradable financial asset, like stocks or bonds. ‘Supply’ and ‘Value’ are fundamental concepts affecting the price of securities. ‘Fees’ are costs associated with trading, while ‘Program’ can refer to automated trading systems. ‘Percentage’ is often used in profit and loss calculations, vital for day traders to monitor.

How Do Market Participants and Entities Influence Day Trading?

Day trading is influenced by various market participants and entities. ‘Party’ can refer to buyers and sellers in the market. ‘Market Makers’ are entities that provide liquidity, ensuring smoother trading. ‘Country’ and ‘Currency’ are essential in Forex trading, affecting currency pair values. ‘Commodities’ like gold and oil, and financial ‘Instruments’ like derivatives, are also traded, each with unique characteristics influencing trading strategies.

What Are the Fundamental Trading Strategies and Concepts in Day Trading?

In day trading, several strategies and concepts are fundamental. ‘Investments’ refer to the allocation of capital in hopes of ‘Growth’ or profit. ‘Contract’ often relates to derivatives trading, where agreements are made on future prices. Understanding ‘Day Trading Terms’ is essential for strategy execution. ‘Margins’ refer to borrowed funds for trading, while ‘Inflation’ can influence market movements and the value of assets.

How Do Trading Conditions and Constraints Affect Day Trading?

Day trading is often shaped by various conditions and constraints. ‘Addition’ can refer to adding to a position or diversifying. ‘Restrictions’ might involve regulatory limits or personal trading rules. The ‘Case’ or specific scenario can dictate strategy adjustments. The ‘Situation’ in the market, like high volatility, requires adaptability. ‘Obligation’ involves commitments in derivative trading, and ‘Ownership’ refers to holding a stake in an asset.