Discover trading terms from the following categories:
- Basic Trading Terminology
- Trading Terminology: Account Types
- Trading Terminology: Placing Orders
- Trading Terminology: Bulls & Bears
- Trading Terminology: Fundamental & Technical Analysis
Remember, you can search this page using the keyboard shortcuts Ctrl + F (Windows) or Cmd + F (Apple) to quickly find a term!
Basic Trading Terminology
Day Trading: Day trading is defined as the simple act of buying stocks with the intention of selling them on the same day.
Professional Day Trader: A professional day trader can informally be considered someone who makes a living from day trading. Traders who are licensed pay higher fees for market data. Therefore, you must indicate whether you are a professional (licensed) trader when opening an account. Day traders do not have to be licensed if they trade with their own money.
Pattern Day Trader Rule: The Pattern Day Trader (PDT) rule states that a trader who makes three or more day trades in a five-day period is a day trader and must maintain a minimum account balance of $25,000 USD. Many traders who are unable to maintain this account balance can bypass this hurdle with brokers like TradeZero. There, it is possible to trade actively and start with smaller sums.
Swing Trading: Unlike day trading, swing trading requires holding times overnight. Swing traders hold stocks for at least one night, often several nights. These are very short-term investments.
Stock Market Hours: The market is open Monday through Friday from 9:30 AM to 4 PM EST (3:30 PM to 10:00 PM German time). There are holidays when the market is closed or closes at 1 PM EST (7:00 PM German time). Pre-market and after-hours trading is possible, but liquidity is often very low as there are not many buyers or sellers trading during this period.
Bull or Bullish: This term refers to a strong market with stocks moving upwards. This term can also be used to refer to a specific position a trader takes. If you are bullish, you expect the stock to rise.
Bear or Bearish: This term refers to a weak market. This means traders believe the price of stocks or a specific stock will fall. If you are bearish, you can sell your bullish positions or even enter short positions (see below).
Initial Public Offering (IPO): When a company goes public, it sells a fixed number of shares on the open market to raise money. For example, this could be 10 million shares. If these shares are traded at a price of $10/share, the IPO raises $100 million. This money is invested in the company for future growth (construction of factories, strategic investments, etc.).
Float (Free Float): The free float refers to the number of outstanding shares available for trading. When the company first went public, it released shares. This number is usually the float, although there are three ways the number of shares can change. The float is equal to the supply level. Stocks with limited supply and high demand are those that move the fastest up or down.
Share Buy Back: A share buyback program is when a company buys back shares that were sold during the IPO. This reduces the number of shares available for trading. The value of the shares usually increases. Share buybacks reduce the float (free float).
Secondary Offering: A secondary offering is an offer made after the Initial Public Offering. Even if a company makes several secondary offers, they are always referred to as a secondary offering (not as third, fourth, etc.). A secondary offering brings the company money by selling more shares. This increases the supply (supply) of shares on the market and the value of these shares decreases. This is generally not something long-term investors like to see.
Stock Splits: Stock splits can change the price of a stock. Apple conducted a 7:1 stock split. The $700 stock multiplied all shares x 7 to reduce the price of the stock to $100. This means that you now own 7000 shares at $100 if you previously owned 1000 shares at $700. This increased the float (free float). Some companies conduct a REVERSE stock split. In a 10:1 reverse stock split, a stock trading at $1.00 is converted to $10.00. 1000 shares at $1 become 100 shares at $10.
After Hours Trading: After hours trading is conducted through electronic communication networks (ECNs) programmed to automatically match buyers and sellers and trade outside normal market hours (930AM -4PM EST).
Beta: Beta is a numerical value used to measure the fluctuation of a stock relative to changes in the stock market.
High Frequency Trading (HFT): High Frequency Trading (HFT) means that a trader or institution uses powerful computers to automate trading and execute large orders at very high speeds.
Lagging Indicator: A lagging indicator is a technical factor known to follow the price action of an underlying security.
Leading Indicator: A leading indicator refers to measurable factors of economic performance that move ahead of the economic cycle, before it begins to follow a certain pattern.
Crossed Market: A crossed market refers to a temporary situation where the bid prices associated with a particular asset or security are higher than the ask prices.
Dividend: A dividend is money paid out to shareholders who hold shares of the company until the ex-dividend date to share in the company's success.
Divergence: Divergence is a trading concept that arises when the price of a stock diverges from a momentum oscillator, typically indicating a reversal.
Earnings Per Share (EPS): The definition of Earnings Per Share (EPS) is a portion of a company's profit that is allocated to a person's share of the stock and is an important metric for analysts.
Market Cap (Market Capitalization): Market capitalization is a metric for classifying the size of a company, which can be divided into Small, Medium, or Large Cap and is based on the market value of all outstanding shares.
NYSE Tick Index: The NYSE Tick Index is calculated by taking all stocks on the NYSE that had an uptrend, minus all stocks that had a downtrend, and then plotting the result on a chart.
Merger: Mergers are deals that combine two separate companies into a single new company. There are a number of different types of mergers.
Penny Stocks: According to the SEC, penny stocks are considered any stock that trades below $5 per share and can be a publicly traded security or traded Over The Counter (OTC).
Profit/Loss Ratio: A profit/loss ratio is a measure of a particular trading system's ability to generate profit rather than loss and is based on a percentage basis.
Return on Investment (ROI): Return on Investment (ROI) is a metric that measures the profit or loss of an investment relative to the funds invested.
Shares Outstanding: Outstanding shares refer to the shares of a company that are currently held by all shareholders, including restricted shares and institutional shares.
Market Trend: The market trend represents the general direction of a market or a security over a certain period, which can last from a few days to many months or years.
Volatility: Volatility is a measure of the stability of the security and is usually calculated as the standard deviation over a certain period.
Support Level: A support level is the price level at which the demand for a security is strong enough to prevent a price decline beyond it.
Resistance Level: A resistance level is the price level at which the selling of a security is considered strong enough to prevent the price increase beyond it.
Stock: A stock is a type of asset that gives you ownership in a company and entitles you to a claim on the company's assets and earnings.
Price Target: A price target is the price of a financial instrument predicted by an analyst and is used to determine under- and overvalued stocks.
Pump and Dump: "Pump and Dump" is an investment scheme where false statements about a stock are published to artificially inflate the stock price.
Recession: A recession refers to the moment when a country's economy experiences a decline over a certain period due to various factors.
OTC Market: The OTC market allows for the trading of assets without the formal structure of an official exchange and is considered a riskier area for investing.
Mutual Fund: A mutual fund is an investment vehicle where funds are pooled with the goal of investing in securities like stocks, bonds, and others.
Hard To Borrow: The "Hard to Borrow" list refers to a stock of securities that the broker cannot provide for short sales and are only available for purchase.
Cryptocurrencies: Cryptocurrencies are digital currencies that use cryptography for security and can be sent from one person to another anywhere in the world.
Derivative: Derivatives are securities whose prices depend on or are derived from one or more separate underlying assets like options or futures contracts.
Equity: Equity refers to ownership of assets after liabilities and debts have been settled, or it can refer to shares or ownership of shares in a public company.
ETF (Exchange Traded Fund): An exchange-traded fund, or ETF, is a marketable security that replicates bonds, commodities, or other baskets of assets, such as an index fund.
Ex-Dividend: Ex-dividend is one of the most important dates to watch for when a company announces a dividend, as this is the date by which you must own the stock to receive the dividend.
Blue Chip: Blue-chip stocks are companies that are often worth billions of dollars, pay dividends, and have a long history of reliable operations.
Bond: A bond is a debt security where investors lend money to a company or government for a certain period and at a variable or fixed interest rate.
Capital Gains: Capital gains are a taxable event that occurs when an asset such as a stock or option is sold for more than the original purchase price.
Trading Terminology: Account Types
Cash Account: When you trade on a cash account, the amount of money in the account is the same as the amount you deposited. When you make a trade, you have to wait T+3 (Transaction + 3 days until settlement). For stocks, it takes 3 days for transactions to settle. It's like waiting for a check to clear. In the meantime, you can do nothing to speed up this process. Options trades are T+1 and only take 1 day to settle, meaning you can trade with the money the next day.
Margin Accounts: A margin account requires a margin agreement with the broker. With a margin account, trades still take T+3. But, instead of waiting 3 days before you can trade with the money, the broker gives you credit to trade with the money as soon as the trade is completed. This is what allows day traders to make 10+ trades in a single day. We can trade the same money 1000x a day if we want. All we need is a margin account. This is the way our participants choose.
Binary Options Accounts: Binary options are a way to bet against a stock price. These are highly unregulated and illegal in many countries. You make a bet that the stock will be above/below a certain price at a certain time. Instead of trading, you simply place bets on the value of the stocks.
CFD Accounts: A Contract-For-Difference account is banned in some countries, such as the USA. When you buy a CFD, you are not actually buying stocks. You buy a contract to buy a certain number of shares. You can then sell the contract again when the price rises. Instead of buying actual (physical) shares, you buy contracts to buy shares. The advantage is that you could theoretically buy a contract to buy 1 million shares even if there were only 100,000 shares available at that price. The downside is clearly that these accounts and execution prices are neither centralized nor very regulated.
Margin: When a trader opens a margin brokerage account, they receive a margin. In addition to allowing you to trade with borrowed money, they grant your account a line of credit for trading. Brokers in the USA always give you a 4x leverage (leverage), meaning you have a total of $400k in buying power if you've deposited $100k. Of this, $300k margin is borrowed money from the broker. There are no fees for trading on margin during the day, but holding with margin overnight is subject to interest charges. This is called the margin rate.
Leverage Rate: The rate at which your cash deposit is multiplied to give you the total buying power. All US brokers have a 4x leverage, TradeZero offers a 6x leverage. CFD accounts can offer leverage of up to 50x, which can quickly multiply losses.
Overnight Leverage: Most brokers reduce the overnight leverage to only 2x cash balance, as there can be trading gaps (gaps) overnight (during swing trading).
Buying Power: Your buying power is your cash balance plus your margin. In the case of 4x leverage with a $100k cash balance, you have $400k in buying power. If you make a trade for $250k, you still have $150k in buying power.
Margin Rate: The percentage a trader must pay his broker in return for borrowing money. This fee is charged by most brokers when holding positions with margin overnight.
Margin Call: Traders who receive a margin call owe money to their broker. The broker will demand that you repay the debts and may force you to sell other assets to get the money.
Trading Terminology: Placing Orders
Bid Price: The bid price is the current price at which traders are offering a stock. Every stock has a bid. Let's say traders bid $10.00 (limit). Traders can place a buy order at $10.00 and then wait for a seller to sell them shares. Alternatively, they can simply buy from a seller sitting at the ask price of $10.02 (via market order).
Ask Price: The ask price is the price at which traders currently want to sell the stock (limit). Every stock has an ask price. Suppose traders ask for $10.02. Traders can place a sell order at $10.02 and then wait for a buyer to buy the shares from them. Alternatively, they can simply sell to a buyer sitting at the bid of $10.00 (market).
Level 1: Level 1 is the current bid price versus the current ask price. In the above example: $10.00 x $10.02
Spread: The spread is the difference between the bid and ask prices. In the above example, we have a spread of two cents.
Market Maker: Market makers create the spread. They are large institutional banks that are both buyers and sellers of a stock. They thus operate on the bid and ask price. They generate the spread and profit by selling shares between the spreads. The larger the spreads, the more market makers can profit.
ECNs: Electronic Communication Networks. If you imagine the stock market as an island, there are many bridges we can take to get to the island. These bridges are called ECNs or market makers, and they charge "tolls" or fees (ECN Fees) to use their networks.
Routes: Market makers offer a route that connects individual traders to the market. When traders choose to use certain market makers or ECNs, it's called direct routing. The advantage is that this can increase order speed. To go back to the island analogy, ARCA is a popular route. Other popular routes include NYSE, EDGX, and INET.
Smart Routing: Most brokers offer smart routing (TradeZero). Instead of asking you to route your order directly, they choose the route they think is best. If they have negotiated a discounted rate with a particular broker, they may use that route as a preferred route. They can also see if they have shares available from traders within the firm before forwarding your order to the "island". This is not always in the trader's best interest.
Dark Pools of Liquidity: Dark pools of liquidity are like harbors of the "island" holding shares, but no one can see them. Sometimes these shares are held by firms or institutions and they trade internally from this pool of shares. This has a downside for small retailers, because if you want to buy 10k shares, you don't have access to the dark pool where 10k might be available. As a result, you pay a higher price. With dark pool routing, you can now ping the dark pools to see if they have shares available.
Level 2: In addition to understanding Level 1 and the bid/ask, day traders must also understand Level 2. Let's first talk about the bids. If the bid is at $10.00, there is a buyer waiting to buy shares at $10.00. But are there other buyers also waiting? By using Level 2 data, we can see buyers at $9.99, $9.98, $9.97, and so on. The bids on Level 2 may be densely stacked, or we can see them at intervals, such as $9.95, $9.89, $9.74, $9.64. When we see the full market depth on both the bid and ask sides, we see a complete Level 2. In addition to the prices at which the orders are listed, Level 2 also shows the number of shares for each order and the market maker or ECN (electronic communication network) that forwards the order.
Times & Sales: Next to the Level 2 window is usually a Time & Sales window. This shows every transaction that occurs and lists the price, shares, route, and time. These transactions are displayed in red if they take place at the bid price (ask), green if they take place at the ask price (bid), and white if they take place between the spread. Remember that the market is a closed system, every buyer has a seller, and every seller has a buyer. We consider transactions as "sales" or "purchases" depending on whether the transaction is settled at the bid price (bid) or the ask price (ask).
Volume: Volume is a measure of the number of shares traded. A stock that trades 1 million shares in a day has a volume of 1 million. Some stocks trade tens of millions of shares per day, while others trade only a few hundred thousand shares or less. When we watch the Times & Sales, we can see the volume in real time.
Thin Market: A thin market means that not many traders are actively trading a particular stock. It can also mean that not many market makers are actively making the "market" for these stocks by offering a reasonable bid/ask spread. Thinly traded stocks can have spreads of 20-30 cents or even larger, making trading very difficult. These stocks often have a low float (public float - few shares that can be traded). If they experience strong demand, these stocks can quickly move by 50-100%.
Thick Market: Thickly traded markets and stocks will be crowded with traders. Often these stocks have a very large float, are optimally capitalized, and trade slowly. This makes them great vehicles for long-term and low-risk investments. At the same time, it makes them unattractive to day traders. Even with high demand, they rarely move as quickly.
Circuit Breaker Halts: Stocks can be stopped and paused from trading for various reasons. During circuit breaker halts, traders cannot trade the stock in any way. Halts can last from five minutes to hours or days.
Market Orders: A market order tells the broker to get you shares at the current market price. If you send the order to buy 1000 shares at $5.00, the broker will get you 1000 shares, but since you haven't said how much you're willing to pay (i.e., a limit), you may end up getting shares at a higher price. If you accidentally enter 100,000 shares, you may end up getting filled at $5.50 or higher.
Slippage: Slippage is the difference between the price you planned and the price at which the trade was actually executed. This is often a consequence of fast-moving markets, volatile stocks, and wide spreads.
Limit Orders: A limit order is when you ask your broker to buy your shares and specify the maximum amount you are willing to pay. A limit order of 1000 at $5.05 will not be filled higher than this price. This means you may not get all 1000 shares if the price moves quickly.
Stop Orders: A stop order is an order that is triggered when a stock exceeds a certain price. Many traders use a stop order to reduce risk (function of a stop loss). They set a stop at their maximum loss price. If the price exceeds this level, the order is automatically sent. Stop orders can be sent as both a market order and a limit order.
FOK Order: This means Fill or Kill. Either your entire order is filled or the order is not filled at all. According to the motto: All or nothing.
GTC Order: Stands for "Good Till Cancelled". This means that the order stays on the broker's servers until you cancel it or it is executed.
Fill Price: This is the price at which trades are executed at your broker. This becomes your average cost.
Partial Fill: Here only part of your limit order is filled. The remaining order must either be canceled or you must continue to wait to see if the price comes back to give you the rest of your fill.
Trading Terminology: Bulls & Bears
Long Trading: When traders are "long" in a stock, they are buying shares. This means they have a long position and expect the stock to rise. These traders will profit if the stock rises. In turn, they lose if the stock falls. Those with a long position also have a "bullish" position. To exit a bullish or long position, a trader can "scale out" or sell their shares in small portions.
Scaling In or Scaling Out: To enter or exit a position, a trader can "scale". This technique, when used for "Scale In", means buying a partial position at $5.50 and supplementing with a second position at $6.00 (or scaling). By scaling with equal sizes, the trader has an average price (Cost Average) of $5.75.
Cost Average: The cost average is the average price of the stock you paid. This means if you first bought the stock at $10.00, then it rises to $11 and you double your position, you will have a cost average of $10.50.
Averaging Down and Up: This is essentially the same process as scaling, only that averaging down is not something many traders do. It is generally not considered a wise trading style. If you buy a stock at $10, the price drops to $8.00, so you add more shares and bring your average cost down to $9.00. If you add 2x or even 3x at $8.00, you could lower your cost average to $8.50. The risk is that you are increasing a position where you are already losing money. Be careful to apply this method only if you have a clear plan and adhere to your other risk parameters.
Short Trading (or Short Selling): Traders who are "short" in a stock are short selling shares and creating a negative stock balance. This means they will hold -1000 shares. Once they sell the shares, they make a profit from the sale, BUT, they must buy back the shares. The shares were borrowed from the broker to sell them in advance, with the intention of buying back the shares in a short period of time.
Borrowing: You must borrow shares from your broker (called short locates) to short. If your broker does not have shares available to lend, you cannot borrow the stock and cannot short. IPOs can never be shorted, as brokers still do not have shares available to lend.
Covering ("Covern"): To close a short position, a trader must cover their position. That means he has to cover the shares he previously borrowed from his broker. Like a trader on the long side, he can exit the short position in small steps.
Days to Cover: Brokers give traders who borrow shares a certain number of days to cover. This could be 7 days, 14 days, etc. If the trader has not covered his position by the end of this period, the broker can do this manually and will charge the trader a liquidation fee.
Short Interest: Short interest refers to the number of shares all traders around the world currently hold as a short position against the stock. If a company has 10 million shares outstanding (float) and 1 million of these shares are short, the short interest is 10%. If stocks have a short interest of 30% or higher, there is potential for a short squeeze.
Short Squeeze: A short squeeze exists when a stock suddenly starts to rise and traders holding short positions start buying to cover their position. Alternatively, brokers can cover their position for them if they have reached a maximum loss on their account. This leads to an extreme imbalance between buying and selling and can cause stocks to move by 50-100% within a day. Best examples are the stocks of Tesla and Gamestop.
Short Sale Restriction (SSR): The Short Sale Restriction (SSR) occurs when a stock falls by 10% or more in a single day. Once a stock has SSR, traders cannot enter short positions unless the stock moves up. Positions can only be entered on "upticks" (via limit order). In other words, when the stock moves up. This means that traders short sell at the ask price and have to wait for a buyer to fill them, in that they buy. The rule carries over to the next day and is only lifted the following day if the price does not reach -10% again.
Trading Terminology: Fundamental & Technical Analysis
Fundamental Analysis: In fundamental analysis, a trader (or more often an investor) looks at a company's fundamental metrics. These include annual and quarterly earnings per share, book value (total value of company assets), sector strength, and growth potential. This is a complex analysis based on many factors. In the end, a trader will take a long or short position in a stock.
Technical Analysis: Unlike fundamental analysis, technical analysis does not focus on a company's fundamental metrics, but solely on the price of the stock. Technical analysis requires a complex understanding of chart patterns and technical indicators. This is the type of trading that most day traders and active swing traders will practice.
Line Charts: Line charts are the simplest type of charts. These charts simply draw a line. This can give a good understanding of price action over long periods of time, but for shorter periods of time it does not provide the necessary insight that traders need.
Bar Charts: Like line charts, bar charts also provide very little information that active traders need. They show the opening price and closing price for a particular period, but that's about it. If the chart is a daily chart, you will see that each bar represents a single day in time.
Candlestick Charts: Candlestick charts are what most active day traders will use to establish a basis for opening a trade. A candlestick contains four pieces of information: the opening price, the closing price, the highest price of the period, and the lowest price of the period. When these four pieces of information come together, candlesticks can take shapes that communicate market sentiment. For instance, a candlestick that opened at 10.00, reached a high of 10.50, closed at 9.90, and had a low of 9.90, will appear very weak or bearish. The stock shot up but couldn’t sustain those levels and was sold off. A simple line or bar chart wouldn’t have been able to convey the same meaning.
Doji Candlesticks: A Doji candlestick has a long upper or lower wick. The wick refers to the daily high or low. The body of a Doji is smaller than the candle gain, meaning that the opening and closing prices were quite close together. These candles are considered candles of indecision.
Hammer Candle (Hammerkerze): A hammer candle often occurs at the bottom of a long downtrend and looks like a hammer. It has a long lower wick (like a Doji), which forms the handle. The small body at the top is the hammer swinging downwards. This is seen as a stock hammering out its base. The wick of the candle shows that the price fell but then shot up quickly.
Inverted Hammer Candle: An inverted hammer is an upward hammer that more often appears at the top of a bullish run. Like the regular hammer formation, this candle shows that the stock was pushed up but was unable to hold these high prices and was sold off. This suggests that a reversal might be imminent.
Multiple Candle Stick Patterns: When multiple candlesticks are lined up next to each other, they can form patterns like Flat Top Breakouts, Bull Flags, or Bear Flags.
Chart Time Frames (Chartzeitebenen): Traders can use a variety of time frames. We use different time frames for different purposes, in which we view the charts. The exact templates can be found in the respective strategy course.
Gaps (Handelslücken): Gaps on a daily chart occur when a stock opens higher or lower than it closed the previous day. This happens when there is overnight news or some kind of catalyst (even when the market itself gaps).
Technical Indicators: Technical indicators or studies help us interpret current price action. These lag behind the price action somewhat, so candle stick patterns are almost always more valuable than technical indicators.
Moving Averages (Gleitende Durchschnitte): Moving Averages are a technical indicator that tells us the average price of a stock over a certain period. They can either be simple moving averages or exponential moving averages. An exponential moving average weights recent price movements more heavily than older ones. This means that the moving average will move faster in response to recent movements. The respective averages can again be found in the templates of the strategy course.
Relative Strength Index: Relative Strength Index (RSI) is an oscillating indicator that moves between 0 and 100. A stock with an RSI of 0 is oversold and might be due for a bounce. A stock with an RSI of 100 is extremely overbought and could be due for a turnaround. Combined with candlestick patterns, this can be a helpful indicator.
MACD: The Moving Average Convergence Divergence (MACD) Indicator is another oscillating indicator. It measures the distance between moving averages. When the moving averages diverge, a stock is moving fast; when they converge, a stock has changed direction and is returning to equilibrium. When they are close together, the stock is moving in hardly any direction.
Bollinger Bands: Bollinger Bands are moving averages that are offset by a standard deviation. This means that 95% of all price movements will occur between the upper and lower bands. Some traders look for stocks trading outside their Bollinger Bands, as this indicates an extreme situation (5% status). The idea here is that these stocks are very extended and a reversal is imminent.