To successfully trade stocks and make a strong profit, you should know basic stock trading terms. Understanding the basic terms helps you understand how the overall stock trading process works, so you can become confident enough to develop effective strategies. When professional stock market traders discuss patterns, increases, charts, and other trading information, they’re using common stock market terminology to describe these things. Here are some basic trading terms to get you started in stock trading.
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The stock market is an exchange that helps stock traders buy and sell company stocks. A company’s stock is its equity, while a share of that stock is essentially a piece of the company. When investors buy or sell stocks, they’re buying or selling shares of a company’s stock.
A significant benefit of the stock market is providing capital to companies. They can use the stock funding to enhance or expand their business. When people buy stocks, they’re typically making a long-term investment in a company in hope that it will perform well over time, ultimately resulting in the investor earning more money as time goes on.
Knowing its definition helps you better understand how stock trading works. Stock trading occurs when someone regularly monitors the price fluctuations on stocks and sells their shares accordingly to make a profit. Stock trading is more for people looking to make short-term commitments to stocks so they can quickly make extra money. You can start receiving money from stock trading anywhere from an hour to a month after you begin stock trading, provided that you strategize well.
If you’re looking into stock trading, you may be working with stock options. Stock options allow you to buy or sell a stock, but they don’t require you to. With options, you’re typically betting on the rise or fall of a stock and picking a specific date you believe the stock will rise or fall by, also known as the expiration date. During options trading, you’ll buy or sell a certain stock option on both a date and price that has already been agreed upon and listed in your contract.
There are two types of options to pursue:
- Puts: Betting that the stock will fall.
- Calls: Betting that the stock will rise.
For assistance purchasing an investment, you can borrow money from a broker using a margin account. A margin is the difference between the loan amount and the price of the securities. You’re required to maintain a minimum balance in this account. It’s important to remain cautious when trading on margin, as you may lose a large amount of your investment if the stock you’ve invested in unexpectedly drops.
With mutual funds, you can combine your money with other investors’ money and use these combined funds to buy shares of different bonds, stocks, or other securities. Many small investors and beginners who find it challenging to create a strong portfolio on their own go in on mutual funds with others, as it’s often cost effective.
Becoming fluent in stock trading terminology can help you better understand the market and industry. These terms can be a great place for you to start as you begin investing in new stock buying, selling, and trading opportunities.