Ask Price – The lowest price that a dealer will sell a stock for. Also known as the offer price.
Bear Market – A stock market in which sellers dominate, resulting in falling prices.
Beat the Street - When a company reports quarterly earnings that come in above what brokerage firms and analysts expect.
Bid Price - The highest price that a buyer will to pay for a stock.
Break Down - When a stock drops below a specified moving average.
Breakout - The end of a trend, signaled by a stock’s price increasing or decreasing past the price at which the trend began; when a stock rises above a specified moving average.
Bull Market - A stock market in which buyers dominate and where prices are on an uptrend.
Call Option – A contract that gives the buyer of the option the right, but not the obligation, to purchase a stock at a specific price within a specified period of time.
Capital gain - The amount by which an asset’s selling price exceeds its initial purchase price. A realized capital gain is the profit resulting from the sale of an investment. An unrealized capital gain is an investment that hasn’t been sold yet but would result in a profit if sold. Capital gains generally receive more favorable tax treatment than ordinary gains. Depending on your tax bracket and on how long you held a capital asset, you may pay about one-third to one-half less tax on a capital gain than you would have paid on the same amount of ordinary income.
Capital loss - The loss that results from the sale of a capital asset. Ordinary income can be offset with capital losses up to a maximum of $3,000 per year and excess capital losses can be carried forward indefinitely until exhausted.
Close - The end of a market’s trading day; further trading is not conducted until the open of the next trading day, although there is activity during after-market trading for several hours through electronic computer networks.
Closing Price - The price at which a stock finishes at the end of a trading day.
Common Stock – Common stock is a form of corporate equity ownership, a type of security. It is called ‘common’ to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc.
Consolidation - A period of limited price fluctuations following a period of more pronounced price fluctuations, signaling a relative balance between supply and demand.
Day Trader – A very active stock trader who buys and sells the same security very quickly, executes a large number of trades each day, and generally closes all positions at the end of each trading day.
Divergence - When two or more averages or indices fail to show confirming trends.
Dividends - Dividends are payments made by a corporation to its shareholders. It is the portion of corporate profits paid out to stockholders. Usually made in cash but can sometimes be made in the form of additional stock.
Dow Jones Averages - Averages of prices for categories of stocks traded on the “Dow,” such as the “Dow Jones Industrial Average”, the “Dow Jones Transportation Average,” or the “Dow Jones Utilities Average.”
Down - The downward movement in the price of a stock, bond, commodity or market.
Earnings Per Share - The amount of a company’s annual profits or earnings attributable to each ordinary share of that company. Usually associated with that company’s fiscal quarter.
ECN - Electronic Communications Network – independent execution systems set up by brokerage firms, matching new retail limit orders with compatible orders already in the system.
Equity - Ownership interest in a corporation in the form of common stock or preferred stock. It can also be expressed as total assets minus total liabilities, referred to as “shareholder’s equity”, “net worth” or “book value”. In the context of a futures trading account, it is the value of the securities in the account, assuming that the account is liquidated at the going price. In the context of a brokerage account, it is the net value of the account (the value of securities in the account less any margin requirements).
Execution - The actual buying and selling of stocks, bonds, and commodities – most often conducted through a stockbroker.
Fill - An executed order; sometimes the term refers to the price at which an order is executed.
Forex - The international exchange market, the market for conversion exchange operations of specified amounts of one country’s currency into the currency of another country according to an agreed rate for a given date.
Futures - A futures contract is a contract to buy or sell a specified commodity at a certain date in the future, at a market determined price (the futures price). The contracts are traded on a futures exchange.
Gap Down – An opening price that is below the prior day closing price.
Gap Up – An opening price that is above the prior day’s closing price.
High - The highest price paid for a stock during a particular time interval.
Historical Data - A series of past daily, weekly or monthly market prices (open, high, low, close, volume, open interest).
IPO - Initial Public Offering. A company’s first sale of stock to the public. Companies making an IPO are seeking outside equity capital and a public market for their stock.
Leading Indicators - Systems used to predict the direction of a stock or the market.
Limit Order - A trader’s instructions to a stockbroker to buy or sell at a particular price or better.
Liquidity - The relative ease at which a stock can be bought or sold; also, the ability of a stock to be traded at high volume without its price being substantially affected.
Long - Means the purchase of a stock with the expectation that it will go up within a particular time frame. When the stock reaches a higher price, the trader can sell it at a profit. Of course, if the trader “went long’ on a stock which happens to go down instead of up, the trader can lose money.
Low - The lowest executed price for a stock during a particular time interval.
MACD – Moving Average Convergence/Divergence – the crossing of two exponentially smoothed moving averages that are plotted above and below a zero line. The crossover, movement through the zero line, and divergences generate buy and sell signals.
Margin - The percentage paid by an investor on the total price for shares of stock; the balance is advanced by the broker. If the stockbroker determines that the customer’s equity in a margin account drops below a minimum standard, the broker can issue a margin call – a demand that the customer send additional money.
Market Maker - A brokerage firm that specializes in creating a market for a particular stock by actively buying and selling shares of that stock.
Meet Expectations - When a company reports quarterly earnings that are the same as what brokerage firms expect.
Moving Average - An average price for a stock figured through a certain number of days. A new average is calculated for the stock each trading day and plotted on a price and volume chart.
Mutual Fund - A mutual fund is a professionally manager diversified portfolio of securities invested on behalf of a group of investors. Individual investors own a percentage of the value of the fund represented by the number of units they purchased and thus share in any gains or losses of the fund.
NASDAQ - National Association of Securities Dealers Automated Quotation system. The NASDAQ is an electronic network of stock quotation display devices. It provides current price quotes for many stocks that are traded over-the-counter (OTC), meaning that they, for the most part, are not listed on exchanges, but rather are traded through brokers and dealers. The NASDAQ carries mostly “high-tech” stocks, such as those of Internet-based companies and computer manufacturers.
NYSE - The New York Stock Exchange – the largest exchange in the United States. It lists most of the largest best-known companies and also many smaller ones.
Open - The start of a market’s trading day.
Opening Price - The price at which a stock begins trading at the start of a particular time interval.
Option - Contract between a buyer and a seller that gives the buyer the right—but not the obligation—to buy or to sell a particular asset (the underlying asset) at a later day at an agreed price.
OTC - Over-the-counter; stocks that, for the most part, are not listed on exchanges, but rather are traded through brokers and dealers. NASDAQ stocks are traded over-the-counter.
Paper Trading – The ability to simulate a trade without actually putting up the money for the purpose of gaining additional trading experience. The best type of trading for a new trader to use to gain experience in the markets and to prevent them from making costly mistakes.
P/E Ratio - Price/Earnings ratio – given by the price of a stock divided by its earnings per share. Also called earnings multiple or market multiple. A stock selling at $100 with earnings of $5 per share has a P/E of 20.
Portfolio - The securities owned by an investor or company. A portfolio may include many different categories and types of stocks and bonds.
Position - A trader’s holding of a particular security. Also, a trader’s plan on how to implement an investment strategy.
Price - The amount of money for which a share of a particular stock can be bought or sold.
Put Option – A contract that gives the buyer of the option the right, not the obligation, to sell a stock at a specified price within a specified period of time.
Preferred Stock – Stock with a claim on the company’s earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates. Also referred to as preferred shares or preference shares, it is typically a ‘higher ranking’ stock than voting shares. Its terms are negotiated between the corporation and the investor. They usually don’t have voting privileges but do receive dividends, which are usually paid to the preferred stock holder before the common stock holder is paid.
Resistance - The highest price in a trading range.
Risk – The level of uncertainty involved in a particular trade. The term risk refers to the deviation between expected and realized profit, as well as to the possibility of losing some or all of your investment. Levels of risk, of course, vary among investments.
SEC – Securities and Exchange Commission. The federal agency that regulates activity in the securities markets, and protects the public against malpractice by broker-dealers.
S&P Stocks - Refers to those stocks listed in the Standard & Poor’s 500 Stock Composite Index. Standard & Poor’s, a publisher of financial and investment reports and services, calculates the index based on each listed stock’s aggregate market value – its price times the number of shares. It is therefore value-weighted, not price-weighted as is the Dow Jones Industrial Average (DJIA). The S&P 500 comprises four separate indexes: 400 industrials, 40 utilities, 40 financial companies, and 20 transportation companies.
Short - A trading technique typically used when a stock is expected to go down in price. A “short” sale occurs when an investor sells borrowed stock with the expectation that the stock’s price will fall. If the investor’s expectation proves correct and the stock’s price falls, he can then buy the shares back at a lower price, return the borrowed stock, and keep the profits, less the commission to the broker from whom the investor initially borrowed the stock.
Short Cover – A buying back of stock – hopefully at a lower price – that was sold earlier in the day by the same trader. If the stock goes down after the trader executes a short sell, the trader makes a profit when he buys back those shares. If the stock goes up, such a short sell can result in a loss. See also “short”.
Spread - The difference between the “ask” and the “bid” price of a particular stock.
Stock - The capital raised by a corporation through the issue of shares entitling holders to an ownership interest (equity.) When you buy stock you own shares of the company’s stock. The percentage of stock that you own determines your power and liability within the company.
Stock Broker – A regulated professional who charges a fee or commission for executing buy and sell orders submitted by an investor.
Stock Exchange – Marketplace where brokers and dealers meet to buy and sell stocks of publicly traded companies on behalf of investors. Major US stock exchanges include the New York Stock Exchange (NYSE), the NASDAQ, the Tokyo Stock Exchange, the London Stock Exchange and the American Stock Exchange.
Stock Market – A market where securities are bought and sold. Its basic function is to enable public companies, governments and local authorities to raise capital by selling securities to investors.
Stop Loss – Also known as a “stop order” or a “stop-loss order.” An order placed with a broker to buy or sell a stock when the price reaches a specified amount. The broker then executes the trade by buying or selling at the market price. A stop order is often used to limit the extent of possible loss.
Stock Split – An increase in the number of a company’s outstanding shares. A two-for-one split by a company with 500,000 shares would result in its having 1,000,000 shares outstanding. An investor who holds, say, 500 shares before such a split would have 1,000 shares after the split, although the overall value of the investor’s holdings isn’t immediately affected. A company sometimes declares a stock split after the market price of its stock has increased significantly, and the halving of the price per share would then make the stock more attractive to smaller investors.
Support – The lowest price in a trading range.
Swing Trading - A trade that is held for days, weeks, or even months.
Symbol – The letters that represent a company’s name.
Ticker Symbol – A system of letters used to uniquely identify a stock or mutual fund. Symbols with up to three letters are used for stocks which are listed and trade on an exchange. Symbols with four letters are used for NASDAQ stocks. Symbols with five letters are used for NASDAQ stocks other than single issues of common stock. Symbols with five letters ending in X are used for mutual funds.
Trend – The general direction of price variations in a stock or market.
Volatility – The relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes, it has low volatility.
Volume – The number of shares, bonds or contracts traded during a given period, for a security or an entire exchange.