Trading Glossary

The lowest price a seller is willing to accept for a security. Also known as the 'offer price'. The ask price, along with the bid price, determines the spread.

A market condition characterized by falling prices and investor pessimism. Typically defined as a 20% or more decline from recent highs.

The highest price a buyer is willing to pay for a security. The difference between the bid and ask price is called the spread.

A market condition characterized by rising prices and investor optimism. Typically defined as a 20% or more increase from recent lows.

The ease with which an asset can be bought or sold in the market without affecting its price. High liquidity means you can quickly enter or exit positions at stable prices.

The total market value of a company's outstanding shares, calculated by multiplying the current share price by the total number of shares. Used to categorize companies as large-cap, mid-cap, or small-cap.

The difference between the bid (buy) and ask (sell) price of a security. A narrow spread typically indicates high liquidity, while a wide spread suggests lower liquidity.

The degree of variation in a security's price over time. High volatility means large price swings, while low volatility indicates more stable prices.

The number of shares or contracts traded in a security during a given period. High volume often indicates strong interest and can validate price movements.

A measure of a stock's volatility relative to the overall market. Beta of 1 means the stock moves with the market. Higher than 1 is more volatile, lower is less volatile.

A portion of a company's earnings distributed to shareholders. Usually paid quarterly. Dividend-paying stocks can provide steady income in addition to potential capital gains.

Annual dividends per share divided by the stock's price, expressed as a percentage. Helps compare income potential across different stocks. Higher yields may indicate value or risk.

A company's profit divided by its outstanding shares. Key metric for evaluating profitability. Used to calculate the P/E ratio and assess growth trends.

The date on which a stock begins trading without the value of its next dividend payment. To receive a dividend, you must own the stock before the ex-dividend date.

A break between prices on a chart where no trading occurred. Gaps typically happen between trading sessions due to news or events. Can be bullish or bearish signals.

A statistical measure of changes in a portfolio of stocks representing a portion of the market. Examples: S&P 500, Dow Jones, NASDAQ. Used to track market performance.

Trading with borrowed money from your broker. Amplifies both gains and losses. Requires maintaining minimum equity levels or facing margin calls.

The process of filling a market order at the best available price. In volatile markets or low-liquidity stocks, execution price may differ significantly from the quoted price.

Stock price divided by earnings per share. Measures how much investors are willing to pay for each dollar of earnings. High P/E may indicate growth expectations or overvaluation.

Borrowing shares to sell them, hoping to buy them back later at a lower price and profit from the decline. Carries unlimited risk if the price rises instead.

The difference between the expected price of a trade and the actual execution price. Common during high volatility or low liquidity. Can work for or against you.

An order that must be executed completely or not at all, but unlike FOK, it doesn't need to be immediate. Can remain active until filled or cancelled.

An order that automatically expires if not executed by the end of the trading day. Most orders are day orders by default unless specified otherwise.

An order that must be executed immediately in its entirety or cancelled. Used when you need all shares at once or none at all.

An order that remains active until it's either executed or manually cancelled by the trader. Can remain open for weeks or months depending on broker policies.

An order to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, while a sell limit order can only be executed at the limit price or higher.

An order to buy or sell a security immediately at the best available current price. Guarantees execution but not the price, which can be problematic in fast-moving or low-liquidity markets.

An order that becomes a market order once a specified price (the stop price) is reached. Used to limit losses or protect profits on existing positions.

Combines features of stop and limit orders. Once the stop price is reached, the order becomes a limit order rather than a market order, giving you more control over execution price.

Spreading investments across different securities, sectors, or asset classes to reduce risk. Helps ensure that poor performance in one area doesn't devastate your entire portfolio.

The decline from a portfolio's peak value to its lowest point before reaching a new peak. Expressed as a percentage. Maximum drawdown is a key measure of risk.

Determining how much capital to allocate to a single trade. Proper position sizing limits the impact of any single loss on your overall portfolio. Common rule: risk no more than 1-2% per trade.

The potential profit of a trade compared to its potential loss. A 3:1 ratio means you risk $1 to potentially make $3. Many traders seek ratios of 2:1 or higher.

A predetermined price level at which you exit a losing position to limit losses. Essential risk management tool. Should be set based on technical levels or risk tolerance, not emotions.

A predetermined price level at which you exit a winning position to lock in gains. Helps enforce discipline and prevent greed from turning winners into losers.

Volatility bands placed above and below a moving average. The bands expand during volatile periods and contract during calm periods. Prices touching the bands may indicate overbought or oversold conditions.

When price moves above a resistance level or below a support level with increased volume. Often signals the start of a new trend and can present trading opportunities.

A type of price chart that displays the high, low, open, and close for a security. The body shows open/close range, while wicks show high/low. Colors indicate whether price rose or fell.

A moving average that gives more weight to recent prices, making it more responsive to new information than a simple moving average.

A trend-following momentum indicator that shows the relationship between two moving averages. Consists of MACD line, signal line, and histogram. Crossovers generate buy/sell signals.

A technical indicator that smooths price data by creating a constantly updated average price. Common types include Simple Moving Average (SMA) and Exponential Moving Average (EMA).

A momentum oscillator that measures the speed and magnitude of price changes on a scale of 0-100. Values above 70 suggest overbought conditions, while values below 30 suggest oversold conditions.

A price level where a security tends to find selling pressure, preventing it from rising further. Acts as a 'ceiling' for the price. Breaking through resistance can signal a bullish trend.

The arithmetic mean of prices over a specific period. Each data point has equal weight. Common periods are 50-day and 200-day SMAs for identifying trends.

A price level where a security tends to find buying interest, preventing it from falling further. Acts as a 'floor' for the price. Multiple tests of support strengthen it.

Trading that occurs after the regular market session closes. In the US, typically runs from 4:00 PM to 8:00 PM ET. Characterized by lower volume and potentially higher volatility.

A shortened trading day where the market closes earlier than usual. Common before major holidays like Thanksgiving or Christmas Eve in the US.

A day when a stock exchange is closed and no trading occurs. Holidays vary by country and exchange, and may include national holidays, religious observances, or special closures.

Trading that occurs before the regular market session opens. In the US, typically runs from 4:00 AM to 9:30 AM ET. Lower volume and wider spreads are common.

The standard hours when a stock exchange is open for trading. For US markets, this is 9:30 AM to 4:00 PM ET Monday through Friday, excluding holidays.

Any day on which a stock exchange is open for business. Excludes weekends and market holidays. Different exchanges have different trading days based on their country's calendar.

A strategy that goes against prevailing market sentiment. Contrarian traders buy when others are fearful and sell when others are greedy, believing markets overreact.

A trading style where positions are opened and closed within the same trading day. Day traders avoid overnight risk and typically make multiple trades per day.

A strategy that involves buying securities showing an upward price trend and selling those in a downward trend. Based on the idea that trends tend to continue in the same direction.

A long-term trading style where positions are held for months or years. Position traders focus on major trends and are less concerned with short-term fluctuations.

An ultra-short-term trading strategy involving many trades throughout the day, holding positions for seconds to minutes. Aims to profit from small price movements.

A trading style where positions are held for several days to weeks, aiming to profit from expected upward or downward market shifts. Requires less time than day trading.