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Day Trading Terminology: 50 Must-Know Stock Market Terms for Beginners

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Written by Timothy Sykes
Reviewed by Friedrich Odermann Fact-checked by Ed Weinberg
Updated 10/6/2023 24 min read

Stock market terms are the specialized vocabulary used in the world of trading and investing. These terms range from basic concepts like “shares” and “dividends” to more complex jargon such as “over-the-counter” and “earnings per share (EPS).” Understanding these terms is crucial for anyone looking to navigate the stock market effectively, as they provide the linguistic tools needed to interpret news, analyze investments, and make informed trading decisions.

Check out this article because it’s the Rosetta Stone for trading terms, unlocking the language you need to succeed.

I’ll cover the following questions:

  • What Basic Knowledge Do You Need About the Stock Market?
  • What Are Stock Trading Terms?
  • What Are Key Basic Stock Market Terms?
  • What Advanced Stock Market Vocabulary Do You Need to Know?
  • How Do You Understand Stock Trading Abbreviations?

Let’s get into it!

Table of Contents

What Is Day Trading?

In the simplest terms, day trading is a strategy where financial instruments like stocks, futures, and currencies are bought and sold within the same trading day. Day trading can involve a variety of financial instruments, not just stocks.

You’re not holding onto positions overnight; the goal here is to make quick trades based on small price movements.

Types of Day Trading Strategies

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There are several approaches to this game, each with its own set of rules and indicators. Some traders might use a ‘scalping’ strategy, aiming for frequent small profits, while others might opt for ‘range trading’, playing off the highs and lows within a given range. Then there’s ‘news-based trading’ where you’re capitalizing on volatility around news events.

To excel in day trading, you’ll require a keen analysis of market trends. Whether you’re scalping or swing trading, understanding the market’s direction is crucial.

No one size fits all here, you have to find the strategy that fits your trading style and risk tolerance.

Benefits of Day Trading

Beyond the thrill of the game, day trading offers a few unique perks. There’s the potential for quick profits.

There’s also the ability to involve different trading strategies. You’re not tied to one approach; you can adapt as the market changes.

Plus, it offers control over your investment decisions. Unlike long-term investing, you’re not waiting for years to see if your predictions pan out.

Ability To Make Quick Profits

With day trading, the goal is to make profits fast. By strategically entering and exiting positions throughout the day, you can accumulate profits from small price changes in highly liquid stocks or futures.

But remember, folks, along with high reward potential, there’s also high risk. That’s where stop-loss orders come into play, limiting potential losses.

Making quick profits in day trading can also require risk management through diversification. But not all day traders follow this advice — I’ve been profitable over my 20 year career by trading sketchy penny stocks!

Control Over Your Investment Decisions

With day trading, you’re at the helm. You choose your entry and exit points, your target prices, and set your own trailing stops. This gives you a level of control that long-term investors just don’t have.

However: your trading success can be influenced by changes in market sentiment. Always keep a pulse on the market mood.

Flexibility and Portability

The beauty of day trading is you can do it from anywhere in the world, as long as you have a good internet connection and access to a trading platform. Whether you’re at home, in a coffee shop, or on the beach, the market is at your fingertips.

What Is the Stock Market?

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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.

The stock market is impacted by macroeconomic factors like inflation, interest rates, and geopolitical stability. Some people treat it as a barometer of economic health.

An Insight into the Basic Knowledge of the Stock Market

Before you jump into day trading, it’s essential to understand the basics of the stock market. That includes trading abbreviations like ITM (in the money), ATM (at the money), and OTM (out of the money).

Understanding the language of the market is crucial for making informed decisions.

An Insight into the Basic Knowledge of the Stock Market

Before you jump into day trading, it’s essential to understand the basics of the stock market. That includes trading abbreviations like ITM (in the money), ATM (at the money), and OTM (out of the money).

Understanding stock market terms is just the tip of the iceberg. The real deal starts when you actually get into the stock market. How do you make the leap from theory to practice? Here’s a guide on how to get into the stock market and start your trading journey.

What Are Stock Trading Terms?

Stock trading terms are the lingo used by day traders. They involve the buying and selling of securities — knowing the lingo is the first step to understanding the actions you’ll be taking.

Before you study any of my YouTube videos, blog posts, or watchlists, you should have your stock market vocabulary down pat. You must know the basics before you can move on to learning patterns, strategies, and executing trades. (I’ll tell you what that all 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. You can also use it whenever you forget the definition of a stock market term.

I’ve made over $7.5 million in career profits trading penny stocks. Learn more with my FREE penny stock trading guide.

Understanding Stock Trading Abbreviations

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Stock trading abbreviations are part of the trader’s language. These terms are vital to understand as you navigate your day trading journey.

It’s important to keep current on these terms. For example, they can be impacted by geopolitical events. Sanctions or trade wars can introduce new terms or change the meaning of existing ones.

50 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’s operations. It includes information about its finances 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.

2. Arbitrage

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. Asset Allocation

Asset allocation is the strategy of dividing your investments among different asset classes like stocks, bonds, and real estate. The goal is to maximize returns while minimizing risk.

Diversifying your stock portfolio across various asset classes can help you weather economic indicators like inflation or recession.

The Federal Reserve and other economic events can have a significant impact on asset classes. So, it’s crucial to keep an eye on the news and articles that discuss these topics. Your asset allocation should be flexible enough to adapt to rise and decline in market value.

Liquidity is another factor to consider; some assets can be quickly converted into cash, while others can’t.

4. 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!

5. 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.

6. Beta

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 is more volatile than the market.

7. Blockchain

Blockchain technology is revolutionizing how transactions are verified and recorded. It’s not just for cryptocurrencies; it’s finding applications in various industries from healthcare to supply chain management.

The technology provides a secure way to record transactions, making it highly valuable for businesses. It’s changing the way people think about exchanging goods and services. Blockchain can affect share prices of companies that adopt this technology, offering a mix of risk and reward that traders should be aware of.

8. 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.

9. Bourse

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.

You might need other currencies to trade at non-U.S. exchanges.

10. 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.

11. Broker

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 a broker here.

12. Bid

The amount of money a buyer is 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.

13. Close

The time the market closes. The major exchanges close at 4 p.m. Eastern, with after-hours trading continuing until 8 p.m.

14. Day Trading

Day trading is the practice of buying and selling a stock or security within the same trading day. This is my go-to trading strategy.

There’s a lot more to day trading than the term. You need to understand the market’s volatility, the importance of timing, and the role of discipline in trading. If you’re looking to deepen your knowledge, consider exploring the day trading basics that can provide you with a solid foundation.

15. Dividend

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 make consistent profits.

16. Earnings per Share (EPS)

Earnings per Share (EPS) is a financial metric that represents the portion of a company’s profit allocated to each outstanding share of common stock. It’s a key indicator that investors use to gauge a company’s profitability. I’ve always emphasized the importance of understanding a company’s EPS when making trading decisions. It’s a direct reflection of a company’s earning power.

EPS is often reported in news articles and is a frequent topic during earnings calls. A rise or decline in EPS can significantly affect the share price. It’s crucial to have access to this information as part of your investment strategy. The issuer of the stock will usually provide this data, but it’s also widely available through various financial news outlets.

17. Equity

A measure of the cash value of everything a company owns, minus its debts. It’s measured by reducing the company’s assets by its liabilities, including fees and operational costs.

18. Exchange

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 also like to trade stocks that trade on the OTC markets.

19. Exchange-Traded Funds (ETFs)

ETFs are investment vehicles to trade assets like indices, real estate, commodities, bonds and other financial products.

20. Execution

Execution is what it’s called when your buy or sell order reaches completion. If you put in an order to sell 100 shares, your order executes when all 100 shares are sold.

21. Fundamental Analysis

A stock analysis method that focuses on the company’s financial situation and current market conditions.

22. Growth Stock

A stock from a company that is expected to grow significantly in the near future. They usually don’t pay dividends because they want to accelerate short-term growth.

23. Haircut

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.

24. High

A high refers to a stock or index reaching a greater price point than it had previously reached. A high can refer to a daily, weekly, or monthly high. 52-week highs and all-time highs can be bullish signals for traders.

25. Index

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 (also spelled ‘indices’).

26. Initial Public Offering (IPO)

An IPO is the first sale or offering of a stock by a corporation to the public. The Securities Exchange Commission (SEC) and the government have strict rules for companies issuing an IPO.

IPOs are usually used to give companies more capital to pursue growth. Traders buy IPO stocks because they think their market price will grow.

27. Interest

A fee that a bank or financial institution charges to borrowers. Interest rates are usually calculated in percentages. Interest rates can also affect the economy — high interest rates usually cause stock prices to fall.

28. Leverage

When you use leverage, you borrow capital from your broker with the goal of increasing profits (and your capital gains taxes)

It’s one way to potentially increase gains — but it also increases losses. Don’t take leverage lightly.

29. Low

Low is the opposite of high. It represents a lower price point for a stock or index.

30. Market Capitalization

A measure of how much a company’s outstanding shares are worth. Often shortened to market cap.

31. Margin

A margin account lets a trader borrow money from a broker — a.k.a., use leverage — 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.

32. Moving Average

A moving average is an indicator that shows a stock’s average price per share during a specific period. 50- and 200-day moving averages are commonly used time frames.

33. Open

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.

34. Options

A contract that gives a trader the right (but not the obligation) to buy a certain asset at a predetermined time and price. This strategy becomes profitable when the asset price exceeds the price specified in the options contract.

Options trading rewards traders who can accurately predict market conditions and the direction of price movements.

35. Order

A trader’s action to buy or sell a certain amount of stock. Stock order types include market orders, limit orders, and stop orders. Brush up on order types here.

36. 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.

37. 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.

38. Portfolio

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.

39. Quote

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.

40. Rally

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.

41. Sector

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 specific sectors, especially when sector momentum is hot.

42. Share Market

Any market where buyers and sellers trade a company’s shares. The stock market is an example of a share market.

43. 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.

44. Spread

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.

45. Stock Symbol

A stock symbol is an alphabetic symbol of one to four characters, otherwise known as a ‘TICKER.’ It represents a publicly-traded company on a stock exchange.

Example: Apple Inc.’s stock symbol is AAPL.

46. Technical Analysis

A stock analysis method that emphasizes past stock performance. It involves looking at previous price and volume swings to spot patterns in the chart.

It also involves using indicators and other data to predict future price movements. If you’re interested in mastering this skill, delve into the world of technical analysis to enhance your trading strategies.

47. Trading Platform

Software that allows you to buy and sell stocks and other assets. The good ones come with charting tools and other advanced technology.

48. Volatility

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.

See why I love trading high-volatility stocks here. And learn my #1 rule for staying safe here.

49. Volume

The number of shares of stock traded during a period. It’s usually measured in average daily trading volume.

50. Yield

Often refers to the measure of the return on investments, such as a dividend payment. It’s determined by dividing the annual dividend amount by the price paid for the stock.

Yield is usually measured by earnings per share (EPS) or dividends per share (DPS).

What Are the Most Popular Stock Market Terms?

If you’re new to the stock market, terms like over-the-counter, liquidity, and federal reserve might sound like gibberish. But understanding these terms is crucial for anyone looking to make informed investment decisions. In my experience, knowing the lingo can make or break your ability to navigate the markets successfully.

You’ll often find these terms in articles and news updates, so familiarizing yourself with them is essential. They can affect everything from market value to your investment strategy. For example, understanding what “over-the-counter” means can give you access to a pool of stocks that aren’t listed on major exchanges, offering a different risk-reward profile.

First comes vision, then comes decision.

Are These 50 Key Stock Market Terms Necessary for New Stock Traders?

You might be wondering if you need to know every single stock market term out there. The short answer is no, but the more you know, the better. I’ve been teaching this stuff for years, and I can tell you that a well-informed trader is often a successful one.

Terms like “certificates,” “economic indicators,” and “asset classes” are more than just jargon; they’re the building blocks of a sound investment strategy. You don’t have to be a walking dictionary, but you should at least understand the basics. These terms often appear in business news, and knowing them can provide you with valuable insights into market trends.

What’s next? Diving deeper into investing basics is a smart move. Knowing the terms is one thing, but understanding how to apply them in real-world investing scenarios is another. Check out this comprehensive guide on investing for beginners to further your knowledge.

Beyond Stock Market Terms: What to Explore Next?

Once you’ve got the terminology down, what’s next? Well, the learning never stops. The stock market is dynamic, influenced by everything from the events of our times to federal policies. In my years of trading, I’ve learned that the most successful investors are those who never stop learning.

You should explore different investment strategies, keep an eye on market trends, and maybe even dabble in asset classes you haven’t considered before. The goal is to continually adapt and grow your stock portfolio. The best investment you can make is in yourself. So keep reading, keep learning, and keep trading.

Don’t forget about doing research into what counts — the stocks you’re watching for trades. This is where the rubber meets the road. Research helps you make informed decisions, and it’s an ongoing process. Learn how to conduct effective stock market research to stay ahead of the game.

How Do I Get Started Day Trading?

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Eager to dive in? First, arm yourself with knowledge. Understand the market and your chosen strategy. Day trading also requires careful monitoring of financial news. Market conditions can change rapidly, and you need to stay updated.

Then, choose a reliable trading platform and start small. Keep in mind, profits might not come immediately. It takes time and practice to get the hang of this. And remember, never invest more than you can afford to lose.

Tips for Best Online Stock Trading for Beginners

For those of you starting your trading journey, it’s essential to find a trading platform that’s user-friendly and offers strong educational resources. Practice with a demo account before you go live.

A good trading strategy will require an understanding of both technical and fundamental analysis. These are the building blocks of any trading strategy.

Stay informed about the markets, and never stop learning.

Stock Market Terms: The Bottom Line

Study this glossary of stock market terms and become familiar with them. Knowing them can shorten your learning curve. 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.

I have over 30 millionaire students, and I’m always on the hunt for more success stories. If you want to be next…

Apply to my Trading Challenge today!

Are there any trading terms I left off my list? Drop them in the comments!

FAQs

How Does a Day Trader Get Started?

Just like I mentioned earlier, get started with knowledge. Learn about the market, pick your strategy, and practice on a demo account. Once you’re comfortable, you can start live trading.

Who Makes a Living by Day Trading?

Making a living by day trading isn’t for everyone. It requires time, dedication, and an understanding of the risks involved. Some people thrive on this style of trading, but it’s not a guaranteed way to make a living.

Should I Start Day Trading?

Only you can answer that, folks! If you’re attracted to fast-paced trading and have time to monitor the markets, it might be for you. But remember, there’s a steep learning curve and you could lose money.


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Author card Timothy Sykes picture

Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (205) 851-0506 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”