Must-Know Stock Market Terms: Key Takeaways
- Learn these must-know stock market terms before you make a single trade…
- This is the beginning of your new vocabulary — study up!
- What is leverage and why should you avoid it? Read this now!
What’s the best place to start for new traders? Learn the trading lingo! If you want to learn how to trade, you need to know what the terms mean so you can follow along.
What does it mean when traders talk about the bid, ask, and spread? And what about brokers and leverage? Get all the answers below…
Table of Contents
- 1 What Is the Stock Market?
- 2 What Are Stock Trading Terms?
- 3 38 Key Basic Stock Market Terms
- 3.1 1. Annual Report
- 3.2 2. Arbitrage
- 3.3 3. Averaging Down
- 3.4 4. Bear Market
- 3.5 5. Beta
- 3.6 6. Blue-Chip Stocks
- 3.7 7. Bourse
- 3.8 8. Bull Market
- 3.9 9. Broker
- 3.10 10. Bid
- 3.11 11. Close
- 3.12 12. Day Trading
- 3.13 13. Dividend
- 3.14 14. Exchange
- 3.15 15. Execution
- 3.16 16. Haircut
- 3.17 17. High
- 3.18 18. Index
- 3.19 19. Initial Public Offering (IPO)
- 3.20 20. Leverage
- 3.21 21. Low
- 3.22 22. Margin
- 3.23 23. Moving Average
- 3.24 24. Open
- 3.25 25. Order
- 3.26 26. OTC Stocks
- 3.27 27. Pink Sheet Stocks
- 3.28 28. Portfolio
- 3.29 29. Quote
- 3.30 30. Rally
- 3.31 31. Sector
- 3.32 32. Share Market
- 3.33 33. Short Selling
- 3.34 34. Spread
- 3.35 35. Stock Symbol
- 3.36 36. Volatility
- 3.37 37. Volume
- 3.38 38. Yield
- 4 Frequently Asked Questions About Market Terms
- 5 What Is the Stock Market?
- 6 What Are Stock Market Trading Terms?
- 7 What Are the Most Used Stock Market Terms?
- 8 Stock Market Terms: The Bottom Line
What Is the Stock Market?
The stock market is where people buy and sell shares of publicly traded companies. The term refers to all the major exchanges as a whole.
What Are Stock Trading Terms?
Stock trading terms are the lingo used by day traders.
Before you study any of my YouTube videos, blog posts, or watchlists — learn these stock market terms. You must know the basics before you can move on to patterns, strategies, and executing trades. (I’ll tell you what that means later.)
The more you know, the better prepared you can be to tackle the markets. Bookmark this page and return to it often as a handy reference.
I’ve made over $7 million in profits trading penny stocks. Learn more with my FREE penny stock trading guide.
38 Key Basic Stock Market Terms
Let’s look at some of the most important stock market terms you must know to trade stocks.
1. Annual Report
Annual reports inform shareholders about the company. It includes information like the company’s cash flow and management strategy. When you read an annual report, you’re judging the company’s solvency and financial situation.
Arbitrage refers to buying and selling the same security on different exchanges and at different price points. If a stock trades at $10 on one exchange and $10.50 on another, you could buy shares for $10 and sell them for $10.50 on the other market. You’d pocket the difference as profits.
3. Averaging Down
Averaging down means adding to a losing position at a lower price. It increases your position size and lowers your average purchase price.
I call it adding to a loser and I don’t recommend it. If a stock goes against you, cut losses quickly!
4. Bear Market
A bear market refers to a market environment where a major index or stock falls 20% or more from its recent highs. It’s the opposite of a bull market. More on that term in a bit.
Beta is a measurement of a stock’s volatility compared to the overall markets.
The markets have a beta of 1. If a stock has a beta of 1.5, it means that for every 1-point move in the market, the stock moves 1.5 points. That means the stock’s more volatile than the market.
6. Blue-Chip Stocks
Blue-chip stocks are the stocks of large, industry-leading companies. The expression came from blue gambling chips, the highest-valued chips in casinos.
This stock market term is a little murky. Technically, it’s another name for the stock market. It originates from a house where wealthy men gathered to trade shares. But in today’s terms, it usually refers to the Paris stock exchange or a non-U.S. stock exchange.
8. Bull Market
A bull market is the opposite of a bear market. It refers to a market in a prolonged period of increasing stock prices at least 20% above a recent low.
A single stock can be bullish or bearish too. So can a sector.
A firm or person who executes your buy and sell orders for stocks or other securities. A broker is a must for every trader. Learn how to choose your best broker here.
The amount of money a trader’s willing to pay per share for a stock. It’s balanced against the ask, which is what a seller wants per share of that same stock.
The time the market closes. The major exchanges close at 4 p.m. Eastern, with after-hours trading continuing until 8 p.m.
12. Day Trading
A dividend is a portion of a company’s earnings paid to shareholders quarterly or annually. Not all companies pay dividends. They’re especially rare for penny stock companies since they rarely have profits.
A place where investors and traders buy and sell stocks. The most well-known exchanges in the U.S. are the New York Stock Exchange (NYSE) and Nasdaq. I prefer to trade stocks that trade on the OTC markets.
When your buy or sell order completes, it’s called execution. If you put in an order to sell 100 shares, your order executes when all 100 shares are sold.
A haircut can have two meanings. It can refer to a thin spread between the market maker’s bid and ask. It can also refer to the difference between a stock’s value and the amount a bank will recognize as collateral for a loan.
A high refers to a stock or index reaching a greater price point. A high can refer to a daily, weekly, or monthly high. Stocks near 52-week highs or all-time highs can be a bullish signal for traders.
An index is a benchmark used as a reference marker for traders and investors. The Dow Jones Industrial Average (the Dow) and S&P 500 are examples of indexes.
19. Initial Public Offering (IPO)
An IPO is the first sale or offering of a stock by a company to the public. The Securities Exchange Commission (SEC) has strict rules for companies issuing an IPO.
When you use leverage, you borrow capital from your broker with the goal of increasing profits. It’s one way to potentially increase gains — but it also increases losses. Don’t trade with leverage.
Low is the opposite of high. It represents a lower price point for a stock or index.
A margin account lets a trader borrow money from a broker to purchase a stock or asset. Margin is the difference between the loan amount and the securities price.
Margin trading is risky. If the trade goes south, you can lose significant cash. Read up on margin trading here.
23. Moving Average
A moving average is an indicator that shows a stock’s average price per share during a specific period. The 50- and 200-day moving averages are commonly used time frames.
The start of the trading day. In the U.S., the stock market opens at 9:30 a.m. Eastern. Premarket trading begins at 4:30 a.m. Eastern. Note that there’s less volume in premarket and after-hours sessions.
A trader’s bid to buy or sell a certain amount of stock. Brush up on order types here.
26. OTC Stocks
OTC stocks trade over-the-counter. They’re traded electronically but transactions are less transparent than the major exchanges. Companies listed on the OTC markets are small companies that don’t meet the major exchanges’ listing requirements. They can also be foreign companies.
27. Pink Sheet Stocks
Pink sheet stocks are the lowest tier of OTC stocks. They’re the sketchiest companies and they typically trade under $5 per share.
A collection of assets that makes up a trader or investor’s portfolio. You can have as few as one stock in a portfolio or an infinite amount of stocks or other securities.
A quote is a stock’s latest trading price. Stock quotes on free websites are usually delayed information. You may have to pay extra for real-time data.
A rally is a rapid increase in the general price level of the market or of the price of a stock. Depending on the overall environment, it can either be a bull rally or a bear rally. In a bear market, upward trends of as little as 10% can qualify as a rally.
A group of stocks in the same industry belong to the same sector. An example is the tech sector, which includes companies like Apple and Microsoft. Some traders prefer to trade in a specific sector, especially when sector momentum is hot.
Any market where traders can buy or sell a company’s shares. The stock market is an example of a share market.
33. Short Selling
Short selling a stock is the opposite of going long. It’s a lot to cover in this post — read more about short selling here. In short (sorry, couldn’t resist), you take a trade where you believe the stock’s price will drop. I used to short sell. These days it’s an overcrowded and risky strategy. But that could change if the market crashes.
The spread is the difference between a stock’s bid and ask price. Say a trader’s willing to sell a stock for $10 and a buyer is willing to pay $9 for it. The spread is $1.
35. Stock Symbol
A stock symbol is an alphabetic symbol of one to four characters. It represents a publicly-traded company on a stock exchange. Example: Apple Inc.’s stock symbol is AAPL.
The price movements of a stock or the stock market as a whole. Highly volatile stocks make extreme movements and make wide intraday price swings.
The number of shares of stock traded during a period. It’s usually measured in average daily trading volume.
Often refers to the measure of the return on an investment, such as a dividend payment. It’s determined by dividing the annual dividend amount by the price paid for the stock.
Frequently Asked Questions About Market Terms
What Is the Stock Market?
The stock market is an exchange that allows companies to issue shares for the public to buy and sell.
What Are Stock Market Trading Terms?
Stock market trading terms are specific jargon for the securities industry. When experts and amateurs talk about trading, they use stock market terms.
What Are the Most Used Stock Market Terms?
The most used stock market terms include bear market, bull market, blue-chip stocks, and earnings per share. Dividend, bid, ask, spread, and close are more must-know terms.
Stock Market Terms: The Bottom Line
Study this list of stock market terms and become familiar with them. Knowing them can greatly increase your learning curve. And education is the key to trading success.
Are you dedicated and ready to learn how to trade penny stocks? I teach students everything I’ve learned from 20+ years of trading experience in my Trading Challenge.
In 2021, a record number of my students hit huge milestones, and I’m always on the hunt for more success stories. If you want to be next…
Did you learn a new stock market term? Let me know in a comment — I love to hear from you!