Day trading terminology is something every trader will need to understand. We’re going to start with basic terms that most day traders will already be familiar with. Then we’ll jump into the more advanced terms that you may still have questions about.
Remember, to quickly search for a term you can search this page using the Control + F button or use the search bar below!
If you have any questions as you are reading these definitions please don’t hesitate to reach out by contacting us today. Remember, as part of our Day Trading Courses I will explain each of these terms & how I use them in my day-to-day career as a trader.
Definition: The lowest price a seller is willing to accept for a stock.
Example 1: Seller lists Apple stock at $145 as the ask price.
Example 2: Buyer sees Microsoft stock ask price at $280 and buys it.
Definition: Diversifying investments across various asset classes to manage risk.
Example 1: Investing 70% in stocks, 20% in bonds, and 10% in cash.
Example 2: Changing asset allocation from 50% stocks to 60% to adjust risk.
Definition: The average number of shares traded per day over a specific period.
Example 1: Stock X has an ADV of 1 million shares.
Example 2: After a news release, Stock Y’s ADV jumps to 2 million.
Definition: A market condition where stock prices are rising or expected to rise.
Example 1: Tech stocks soar in a bull market.
Example 2: Bull market leads to all-time high S&P 500.
Definition: A market condition where stock prices are falling or expected to fall.
Example 1: Recession triggers a bear market, stock prices fall.
Example 2: Energy sector experiences a bear market.
Definition: The price a buyer is willing to pay for a stock.
Example 1: Buyer bids $100 for a share of Amazon.
Example 2: Stock Z has a bid price of $25, attracting sellers.
Definition: Stocks of large, well-established, and financially stable companies.
Example 1: Investing in blue-chip stocks like IBM for stability.
Example 2: Blue-chip stocks like Procter & Gamble show steady growth.
Definition: An individual or firm licensed to buy and sell securities on behalf of clients.
Example 1: Broker executes a buy order for client.
Example 2: Choosing a broker for lower trading fees.
Definition: Having a positive outlook on a particular stock or the market as a whole.
Example 1: Trader is bullish on Tesla, buys shares.
Example 2: Bullish sentiment after positive earnings report.
Definition: Having a negative outlook on a particular stock or the market as a whole.
Example 1: Investor is bearish on Retail Inc, sells shares.
Example 2: Bearish market after interest rate hike.
Definition: The profit realized from the sale of an asset.
Example 1: Sold shares of Company A at $20 each, capital gain of $5 per share from initial purchase price of $15.
Example 2: Sold a vintage car for a $10,000 capital gain.
Definition: The loss incurred from the sale of an asset.
Example 1: Sold shares of Company B at $8 each, capital loss of $2 per share from initial purchase price of $10.
Example 2: Sold artwork for a $1,000 capital loss.
Definition: Analysis of price and volume patterns using charts to forecast future price movements.
Example 1: Utilized charting to identify a bullish trend in Stock C.
Example 2: Charting showed a support level for Stock D at $25.
Definition: A raw material or primary agricultural product that can be bought and sold.
Example 1: Trading crude oil, a commodity, based on market conditions.
Example 2: Investing in gold, a commodity, as a hedge against inflation.
Definition: Buying and selling of stocks within the same trading day.
Example 1: Bought and sold shares of Company E within the same day for a profit.
Example 2: Engaged in day trading to capitalize on market volatility.
Definition: A portion of a company's earnings distributed to its shareholders.
Example 1: Received a $0.50 per share dividend from Company F.
Example 2: Company G announced a quarterly dividend of $1.20 per share.
Definition: A company's net income divided by the number of its outstanding shares.
Example 1: Company H reported an EPS of $3.00, indicating profitability.
Example 2: Higher EPS of Company I attracted more investors.
Definition: A venue, like a stock exchange, where securities are bought and sold.
Example 1: Traded shares of Company J on the New York Stock Exchange.
Example 2: NASDAQ, an exchange, facilitates the trading of tech stocks.
Definition: A type of investment fund traded on stock exchanges.
Example 1: Invested in a technology ETF to diversify within the sector.
Example 2: The S&P 500 ETF tracks the performance of the S&P 500 index.
Definition: The completion of a buy or sell order in the market.
Example 1: Received confirmation of execution for a buy order of Stock K.
Example 2: Execution of sell order resulted in capital gains.
Definition: An agreement to buy or sell an asset at a future date at a price specified today.
Example 1: Trader enters a futures contract to buy 100 barrels of oil at $60 per barrel.
Example 2: Farmer locks in a price for wheat by selling a futures contract.
Definition: Making an investment to reduce the risk of adverse price movements in an asset.
Example 1: Using options contracts to hedge against potential loss in stock investments.
Example 2: Buying gold as a hedge against inflation.
Definition: The first sale of stock by a private company to the public.
Example 1: Company L goes public with an IPO, raising $100 million in capital.
Example 2: Investor buys shares of Company M during its IPO.
Definition: Using borrowed money to increase the potential return of an investment.
Example 1: Trader uses leverage to amplify profits on a successful stock trade.
Example 2: Real estate investor uses leverage by financing property purchases.
Definition: An order to buy or sell a stock at a specific price or better.
Example 1: Places a limit order to buy 50 shares of Company N at $10 per share.
Example 2: Sets a limit order to sell 100 shares of Company O if price reaches $20.
Definition: The ability to quickly buy or sell an asset without affecting its price.
Example 1: High liquidity in Stock P allows for quick buying and selling.
Example 2: Real estate has lower liquidity compared to stocks.
Definition: Owning a stock or a security with the expectation that its price will rise.
Example 1: Takes a long position in Company Q expecting share price growth.
Example 2: Investor holds a long position in a bullish market.
Definition: Borrowed money used to purchase securities, with the expectation of higher profits.
Example 1: Buys stocks on margin, amplifying potential profits.
Example 2: Margin call occurs when market value of margined securities falls.
Definition: A demand by a broker for an investor to deposit further cash or securities to cover possible losses.
Example 1: Receives a margin call due to declining stock prices.
Example 2: Deposits additional funds to meet margin call requirements.
Definition: The total value of a company's outstanding shares of stock.
Example 1: Company R’s market cap reaches $1 billion after stock price increase.
Example 2: Large-cap companies like Apple have high market capitalization.
Definition: An order to buy or sell a stock immediately at the current market price.
Example 1: Placed a market order to buy 100 shares of Company S, executed immediately.
Example 2: Sold 50 shares of Company T through a market order at current market price.
Definition: A statistical calculation to analyze data points by creating a series of averages.
Example 1: The 50-day moving average of Stock U shows an upward trend.
Example 2: Stock V crosses above its 200-day moving average, signaling a bullish trend.
Definition: An investment fund that pools capital from many investors to purchase securities.
Example 1: Invested in a mutual fund focused on tech stocks for diversification.
Example 2: The mutual fund's performance is managed by a professional fund manager.
Definition: An American stock exchange and a global electronic marketplace for buying and selling securities.
Example 1: Tech companies like Apple and Microsoft are listed on Nasdaq.
Example 2: Nasdaq index is often used to gauge the performance of the tech sector.
Definition: The largest equities-based exchange in the world based on total market capitalization.
Example 1: Blue-chip companies like IBM and ExxonMobil are listed on the NYSE.
Example 2: The NYSE operates during regular trading hours with a physical trading floor.
Definition: Contracts that give the holder the right, but not the obligation, to buy or sell a security at a fixed price before a specific date.
Example 1: Bought call options of Company W, expecting the stock price to rise.
Example 2: Sold put options of Company X, expecting the stock price to stay above the strike price.
Definition: A decentralized market where trading of financial instruments, including stocks, is conducted directly between two parties without a central exchange or broker.
Example 1: Bought shares of a small-cap company through OTC market.
Example 2: OTC trading of less liquid assets, like certain bonds or derivatives.
Definition: Low-priced stocks of small companies, typically priced below $5 per share.
Example 1: Bought penny stocks of a startup hoping for significant growth.
Example 2: Penny stock of Company Y experiences high volatility.
Definition: A collection of financial investments like stocks, bonds, and cash equivalents.
Example 1: Diversified portfolio to mitigate risks and pursue returns.
Example 2: Portfolio review to reallocate assets based on changing financial goals.
Definition: Trading that occurs before the official opening of a stock exchange.
Example 1: Bought shares during pre-market trading on positive earnings news.
Example 2: Pre-market trading indicated a strong opening for the stock market.
Definition: A valuation ratio calculated by dividing the market price per share by the earnings per share over a trailing 12-month period.
Example 1: Company A has a P/E ratio of 15, indicating it may be fairly valued.
Example 2: A low P/E ratio for Company B may signal it's undervalued.
Definition: The latest trading price of a security.
Example 1: Checked the quote for Stock C, priced at $25 per share.
Example 2: The quote for Stock D increased by $2 after positive news.
Definition: A period of sustained increases in the prices of stocks, bonds, or indexes.
Example 1: Stock E rallied after a successful product launch.
Example 2: A market rally led by tech stocks boosts investor sentiment.
Definition: A price point at which a stock or market is likely to stop rising and may even bounce back downwards.
Example 1: Stock F failed to break through the resistance level of $50.
Example 2: The market faces a resistance level at its previous high.
Definition: A measure used to evaluate the efficiency or profitability of an investment.
Example 1: Achieved a 20% ROI on an investment in Company G.
Example 2: The negative ROI on Stock H leads to a portfolio review.
Definition: The chance that an investment's actual return will be different than expected.
Example 1: High-risk, high-reward investing in volatile stocks.
Example 2: Mitigating risk by diversifying investments.
Definition: Tradable financial assets such as stocks, bonds, and options.
Example 1: Trading securities like stocks and bonds to grow wealth.
Example 2: Regulatory compliance is crucial when dealing with securities.
Definition: A group of stocks that operate in a similar business or industry.
Example 1: Investing in the tech sector for potential growth.
Example 2: The energy sector faced challenges due to regulatory changes.
Definition: Selling a security that the seller does not own, with the hope of buying it back later at a lower price.
Example 1: Short selling Stock I anticipating a price decline.
Example 2: Covered a short position in Company J after a price drop.
Definition: An order to sell a stock once the price falls to a certain level, to limit losses.
Example 1: Placed a stop-loss order for Stock K at $15 to mitigate potential loss.
Example 2: Stop-loss order triggered for Stock L, minimizing loss during a downtrend.
Definition: A price level at which a stock or market tends to stop falling and may even bounce upwards.
Example 1: Stock M finds support at $20, reversing a downtrend.
Example 2: The market bounces back upon hitting a support level.
Definition: A style of trading aiming to capture gains in a stock within a period of a few days to several weeks.
Example 1: Engages in swing trading to profit from short-term price movements in Stock N.
Example 2: Swing trading Stock O based on technical indicators.
Definition: Evaluating securities by analyzing statistics generated from market activity such as past prices and volume.
Example 1: Used technical analysis to identify entry and exit points for Stock P.
Example 2: Technical analysis shows a bullish pattern in Stock Q's chart.
Definition: A unique series of letters representing a company’s stock.
Example 1: The ticker symbol for Apple is AAPL.
Example 2: Looked up the ticker symbol MSFT for Microsoft.
Definition: The expected duration an investor plans to hold an investment before needing access to their capital.
Example 1: A long-term time horizon for retirement savings.
Example 2: Short-term time horizon for a vacation fund.
Definition: The number of shares or contracts traded in a security or an entire market during a given period.
Example 1: High trading volume in Stock R indicates strong interest.
Example 2: Trading volume spikes in the market after significant news.
Definition: The general direction in which the price of an asset is moving.
Example 1: Identified an uptrend in Stock S, considering a long position.
Example 2: Downtrend in Stock T signals a potential bearish market.
Definition: The financial asset upon which a derivative's price is based.
Example 1: The underlying asset for a call option on Stock U is Stock U itself.
Example 2: Commodities like gold can be underlying assets for futures contracts.
Definition: The degree of variation of a trading price series over a certain period of time.
Example 1: High volatility in Stock V leads to large price swings.
Example 2: Low volatility in the market, with prices moving in a tight range.
Definition: The income return on an investment, such as the interest or dividends received.
Example 1: A high dividend yield from Stock W provides income to investors.
Example 2: The bond yield falls, driving bond prices higher.
Definition: The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms to take advantage of differing prices for the same asset.
Example 1: Buying a stock on a US exchange and selling it at a higher price on a European exchange.
Example 2: Capitalizing on price differences of the same commodity in two different markets.
Definition: A false signal indicating that the rising trend of a stock or index has reversed when it has not.
Example 1: Stock X temporarily declines, triggering a bear trap before resuming its uptrend.
Example 2: A sudden market dip lures short sellers into a bear trap before prices rebound.
Definition: A measure of the volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole.
Example 1: Stock Y with a beta of 1.5 is expected to move 50% more than the market.
Example 2: A beta of 0.7 suggests Stock Z is less volatile than the market.
Definition: Debt securities that are similar to IOUs. When purchased, the investor is lending money to the issuer in exchange for periodic interest payments and the return of the bond's face value when it matures.
Example 1: Buying government bonds as a safe investment.
Example 2: Corporate bond issuance to raise capital for business expansion.
Definition: The value of a company’s assets, minus its liabilities and intangible assets.
Example 1: A company with a higher book value than market value may be undervalued.
Example 2: Comparing book value to market value to assess company financial health.
Definition: A false signal indicating that the declining trend of a stock or index has reversed when it has not.
Example 1: Stock A appears to rebound only to fall again, setting a bull trap.
Example 2: Temporary market recovery lures investors into a bull trap before further decline.
Definition: The repurchase of shares by a company to reduce the number of shares on the market.
Example 1: Company B announces a share buyback to boost stock price.
Example 2: Buyback program to return value to shareholders.
Definition: A type of market index whose individual components are weighted according to their market capitalization.
Example 1: S&P 500, a capitalization-weighted index, where larger companies account for a bigger portion of the index.
Example 2: The performance of large-cap stocks significantly affects a capitalization-weighted index.
Definition: The price of a security at the end of the trading day.
Example 1: Stock C's closing price of $25 is higher than its opening price of $24.
Example 2: Monitoring closing prices to determine daily market performance.
Definition: A short-term price decline of at least 10% to adjust for overvaluation.
Example 1: Market enters a correction phase, falling 10% from recent highs.
Example 2: Stock D experiences a correction after a prolonged bullish run.
Definition: Stocks that are highly affected by economic fluctuations.
Example 1: Automotive stocks rise during economic booms but fall in recessions.
Example 2: Housing market stocks perform well in economic upturns, reflecting cyclical behavior.
Definition: An order to buy or sell a security that automatically expires if not executed on the day it was placed.
Example 1: Placed a day order to buy Stock E at $10 which expires at market close.
Example 2: Day order to sell Stock F at $20 gets filled before the market closes.
Definition: The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window.
Example 1: A lower discount rate encourages banks to borrow and lend, potentially boosting the economy.
Example 2: Federal Reserve raises the discount rate to cool down inflation.
Definition: The strategy of spreading investments among different securities to reduce risk.
Example 1: Diversifying by investing in stocks across various sectors and regions.
Example 2: Portfolio diversification to include stocks, bonds, and real estate.
Definition: A financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
Example 1: Stock G with a dividend yield of 4% provides steady income to investors.
Example 2: Comparing dividend yields to find income-generating stocks.
Definition: Ownership interest in a company, represented by shares of stock.
Example 1: Acquiring equity in Company H by purchasing shares.
Example 2: Equity investment hoping for capital gains and potential dividends.
Definition: The value of one currency for the purpose of conversion to another.
Example 1: Checking the exchange rate before converting USD to EUR for a European trip.
Example 2: Fluctuating exchange rates impacting international business transactions.
Definition: The rational and unbiased estimate of the potential market price of a good, service, or asset.
Example 1: Determining the fair value of Stock I to assess if it's overvalued or undervalued.
Example 2: Real estate appraisal to find the fair value of a property.
Definition: The completion of a buy or sell order in the market.
Example 1: Receive a fill confirmation for a buy order of Stock J at $15.
Example 2: Sell order for Stock K gets filled at the specified limit price.
Definition: Evaluating a security by measuring its intrinsic value, often by examining related economic, financial, and other qualitative and quantitative factors.
Example 1: Conducting fundamental analysis to assess Company L's financial health.
Example 2: Fundamental analysis reveals strong earnings growth for Company M.
Definition: The purchase of a security with the hope that it will increase in value.
Example 1: Going long on Stock N, expecting its price to rise.
Example 2: Investor goes long on a bullish stock, aiming for capital gains.
Definition: Selling a security that the seller does not own, with the expectation of buying it back later at a lower price.
Example 1: Going short on Stock O, anticipating a price decline.
Example 2: Trader shorts a stock expecting to profit from a price drop.
Definition: Stocks of companies expected to grow at an above-average rate compared to other companies.
Example 1: Investing in growth stocks like those of tech startups for potential high returns.
Example 2: Growth stock of Company P outperforms the market due to strong earnings growth.
Definition: A company created to buy and hold the shares of other companies, which it then controls.
Example 1: Holding company Q acquires a significant stake in several retail firms.
Example 2: Establishing a holding company to manage various subsidiary companies.
Definition: Stocks that have a track record of paying high dividends.
Example 1: Investing in income stocks like those of utility companies for steady dividend income.
Example 2: Income stock of Company R provides a reliable income stream to investors.
Definition: A type of mutual fund with a portfolio constructed to match or track the components of a market index.
Example 1: Investing in an S&P 500 index fund for diversified exposure to large-cap U.S. stocks.
Example 2: Index fund S tracks the NASDAQ, providing exposure to tech stocks.
Definition: The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
Example 1: Inflation leads to higher prices, impacting consumer spending.
Example 2: Central banks monitor inflation to adjust monetary policy accordingly.
Definition: The percentage of the purchase price that must be covered by cash or collateral when purchasing securities on margin.
Example 1: Broker sets an initial margin requirement of 50% for buying stocks on margin.
Example 2: Meeting the initial margin requirement to enter a leveraged position.
Definition: The trading of a public company's stock or other securities by individuals with access to non-public, material information about the company.
Example 1: Legal consequences for insider trading based on undisclosed financial information.
Example 2: Company executive caught insider trading before the release of financial results.
Definition: The price per share at which a company's stock is offered to the public for the first time.
Example 1: Company T's IPO price set at $15 per share, raising $150 million.
Example 2: Investors buy at the IPO price hoping for price appreciation post-IPO.
Definition: The acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition.
Example 1: Company U undergoes a leveraged buyout financed with significant debt.
Example 2: Private equity firm conducts an LBO of Company V, aiming for a later resale at a higher valuation.
Definition: A situation in which people hoard money instead of spending or investing it due to low interest rates.
Example 1: Economic stagnation due to a liquidity trap, despite low interest rates.
Example 2: Central bank struggles to boost spending during a liquidity trap.
Definition: A brokerage account in which the broker lends the customer cash to purchase securities.
Example 1: Opening a margin account to have the ability to trade on margin.
Example 2: Buying stocks in a margin account, using borrowed funds for potential higher returns.
Definition: A firm or individual who facilitates trading by providing bid and ask prices for a specified list of securities.
Example 1: Market maker W provides liquidity for Stock X by maintaining bid and ask prices.
Example 2: Market makers ensure smoother trading by reducing the bid-ask spread.
Moving Average Convergence Divergence (MACD):
Definition: A trend-following momentum indicator that shows the relationship between two moving averages of a security’s price.
Example 1: Bullish signal when MACD line crosses above the signal line on Stock Y's chart.
Example 2: Bearish MACD crossover indicating potential downtrend for Stock Z.
Net Asset Value (NAV):
Definition: The total value of a fund's assets minus its liabilities.
Example 1: Mutual fund A's NAV per share is $20, representing the per-share market value.
Example 2: ETF B's NAV used to gauge its overall performance.
Definition: An order to buy or sell a security that remains in effect until it is either canceled by the customer or executed.
Example 1: Placing an open order to buy Stock C at a specified price.
Example 2: Open sell order for Stock D remains active until the price hits the desired level.
Definition: A situation in which the price of a stock has risen to such a degree, usually on high trading volume, that an oscillator has reached its upper bound.
Example 1: Overbought conditions for Stock E suggest it may be due for a pullback.
Example 2: RSI indicator showing overbought status for Stock F.
Definition: A condition in which the price of a stock has fallen sharply, and too fast, usually on high trading volume, that an oscillator has reached its lower bound.
Example 1: Oversold conditions for Stock G indicating potential rebound.
Example 2: Buying opportunity as Stock H enters oversold territory.
Definition: A scheme that attempts to boost the price of a stock through recommendations based on false, misleading, or greatly exaggerated statements.
Example 1: Fraudsters execute a pump and dump scheme on a penny stock, causing financial loss to unsuspecting investors.
Example 2: Regulatory authorities crack down on a pump and dump scheme involving misleading social media campaigns.