There’s a lot of lingo in the Stock Market. It seems like it’s a different language at times. This guide is designed to be your trading dictionary for Stock Market terminology.
If there’s some terms that you’ve heard that you think we’ve missed, drop us a line in the comments. We’ll be sure to add it!
Advance – Decline
The Advance – Decline is the measurement of Stocks that are moving up on the day compared to the amount of Stocks that are moving lower on the day.
Averaging is the process of adding to a position that’s going against you to lower your cost basis (your breakeven). There’s a hallmark photo of Paul Tudor Jones with a reminder behind him that says, “Losers Average Losers”. Here’s a copy of that photo.
A Bar Chart is a way of charting price movement over a specific period of time. It involves drawing a vertical line that includes the time period’s high and low price. Then drawing notches on the line to denote the opening and closing price of the bar.
A Bear Market means that the trend has shifted from going up to going down. A classic Bear Market is denoted by a 20% decline from the most recent 52-week high to the most recent low.
To be Bearish means you want the Stock to go down in price.
Beta is a measurement of a particular Stock’s price movement, in relation to another Stock or the market as a whole. For instance, a Stock with a Beta of 1.30 will move 1.30% for every 1% in the market as a whole.
A Stock with a negative Beta will actually go down when the market goes up.
The Bid is the highest price that someone is currently willing to pay for a Stock.
Breadth is the measurement of Up Volume – Down Volume.
The term “break” refers to a drop in the market on whatever timeframe you are trading. There’s intraday breaks, and longer term breaks.
A Breakout is different from a “break”. A Breakout means that the market has been coiling up for a period of time in a range bound environment, and finally makes a large move in one direction.
A Broker is the intermediary between you and the market. They “broker” the trades that you make. For a review of the trading industry’s 3 best brokers, check out this article we wrote.
A Bull Market is a market that is progressively moving higher.
Bullish means that you want the Stock to go up.
Buying Power has to do with margin. It’s essentially how much margin you have available in your account.
Catching a Bid
This phrase refers to when a Stock has an expansion in range, and rallies quickly.
Day Trading is the practice of trading during the trading day, but going home flat (no position) before the market closes. Essentially day trading means you don’t hold anything over night.
Depth of Market – DOM (Pronounced “dome”)
The DOM is the price ladder that displays the current Bid and Ask, along with the volume of orders at different price levels above and below the market.
A Dividend is the portion of earnings that a company pays out to its shareholders. Some companies pay dividends, and some don’t.
An Exchange is a physical building where trade transacts. This is the place where your broker sends your order to buy or sell. The exchange is the central hub of trading activity where orders to buy and sell actually get “exchanged”.
The Expected Move has to do with the Options Market. It’s an expected price range that a Stock should trade within over a given period of time. It’s calculated by pricing models and incorporates things like the Stock’s price and Volatility.
Fill-or-Kill refers to bulk trading orders that are designed to be executed in one trade, or not at all. For instance a trader who is trading 250 /ES contracts might use FOK. If he can’t get filled on all 250 contracts at once, the order is cancelled.
A Futures Contract is just like a Stock, except you get to decide how much leverage you use. Futures typically deal in Commodities, however there are Bond and Stock Index Futures Contracts as well.
A Hedge is a trade that’s place to protect the main asset, or Stock. For instance, buying a Put Option to protect Long Stock is considered a hedge against a price drop. You’ll lose on the Long Stock position, but if the price break is big enough you’ll profit on your Put Option.
Hit the Bid
The phrase “hit the bid” means to sell a Stock or Future at the market price.
An index is a measurement of a select group Stocks as a whole. For instance, the S&P 500 is an index of the largest 500 companies in America.
An Indicator can really be anything. Typically when someone talks about Indicators they’re referring to technical indicators such as RSI’s, MACD’s, etc. Most people who use Indicators are using them to try to predict future price movement. However, most indicators are crap.
Initial Public Offering (IPO)
An IPO is when a company goes “public”, meaning that it’s Stock is now available for anyone to purchase.
The Level I is the current price quote of a Stock.
Level II includes Level I information, but it also adds the current trading size on the Bid and the Offer.
Leverage is when you take a Stock position and borrow margin to trade a bigger position. By using leverage you can amplify your gains, but you can also amplify your losses.
Lift the Offer
The phrase “lifting the offer” refers to when someone buys a Stock at the market price, rather than using a limit order.
A limit order is an order to buy a Stock at a particular price or better. It’s different from a market order in that the Stock has to move to your price, and most likely through your price, for you to get filled on your order.
A Line Chart is a common form of charting a Stock’s price movement. The advantage to using a line chart is that it’s very simple to use. The disadvantage to a line chart is that it only plots one data point.
When you are Long something it means you’re expecting it to go up.
Margin can be thought of a performance bond, a credit line, or a loan. If you want to gain leverage on a Stock, you can put up a small amount of money as a performance bond and your broker will put up the rest of the money. If the Stock moves against you, you can remain in the position as long as you have enough money to cover your position. If you run out of margin, your broker will close you out of the position. In order to trade on margin, you will need a Margin Account and a minimum $2,000 in funding for the account (regulatory thing).
Market Maker Move
The Market Maker Move is similar to the Expected Move. It’s the price movement that Market Makers are expecting.
A Market Order is an order to buy or sell at the current market price. When you enter a Market Order you’re essentially saying that you don’t care what the price is, you just “want in”.
The Market Profile (MP) is a charting method that’s similar to Point and Figure charting. However, the Market Profile is much better. While simple looking at first, it’s the secret weapon of many traders who know how to read it.
The Market Profile plots the high and low of each time period, and forms a distribution curve from a collection of those bars. The MP allows traders to see the game field clearly, and focus on the important things.
Mean Reversion is concept behind “sell high, and buy low”. It’s a strategy that’s used in rotational markets that are not trending.
A Moving Average is the average price over a specific period of time. Many institutions will use the 20, 50, and 200 period Simple Moving Average.
Net Liquidation Value (Net Liq)
Your Net Liq is your total portfolios liquidating value if you were to close out of every single one of your positions. It’s the amount of money you would have in your account if you were to do that.
The Offer (of Ask), is the lowest price that someone is willing to sell a Stock.
OHLC a shorthand for writing Open, High, Low, and Close.
Open Interest measures the amount of open positions that exist in a Stock, Futures Contract, or Option. For instance, if you bought 100 shares of Stock, the Open Interest would reflect a change of 100 shares. The Open Interest would show 100 until you closed out of your position, at which time the Open Interest would drop to zero.
Percent Change refers to how much a Stock has moved over the course of the day. Percent Change is measured by taking the current price and subtracting prior day’s closing price. You then take the difference in price and divide it by yesterday’s closing price to get your percentage.
Point and Figure Chart
A Point and Figure Chart is a simple way of charting the high and low of price in a given period of time. Upward price movement is recorded by hatch marks for every tick. Downward price movements are recorded by circles.
A portfolio is a collection of Stocks, or other assets.
Position Trading refers to trading positions that are held for longer periods of times than Swing Trades, but still short enough to not be considered Value Investing. The time horizon with Position Trading could be considered 1-6 months.
Probability is the quantifying the of odds around a particular outcome.
A Stock Quote is the current price that you can buy or sell a stock for.
A Rally refers to the range expansion and price movement to the upside.
This is when a Stock isn’t moving in a clearly defined direction. Rotation refers to when a Stock is range bound.
A Sector is a group of businesses that all are in the same industry. For instance, Goldman Sachs and Wells Fargo are both in the Financial Sector.
Short means you want the Stock to go down. To short a Stock means that you borrowed someone else’s Stock, and sold it with the expectation that you will be able to buy back the Stock in the future and repay the Stock to the person you borrowed it from. It sounds complicated, but it all happens pretty quick these days.
A Spread is the difference in price between two correlated assets. Typically Spreads are common in Options trading, but they also exist in Treasury trading and whatnot.
Stock Options are contracts between two parties that allow the purchaser of the Option the right by not the obligation to buy/sell Stock at a predefined price before a specific date. The Seller of the Option receives money in exchange for the agreement.
Swing Trading is short-term trading that spans holding a position for just one night all the way to a few weeks.
A tick is the minimum price movement in an asset. For instance, in Stocks the value of 1 Tick equates to a $0.01 move in the Stock. In a Futures Contract, Tick values can be vastly different. In an /ES contract 1 Tick would represent 0.25 points, and has a dollar value of $50.
The Ticker Symbol is the set of letters that identify a Stock. For instance, AAPL is the ticker symbol for Apple, Inc. TSLA is the ticker symbol for Tesla Motors. You can easily find the ticker symbol of a Stock by going to Google and typing in “Ticker Symbol for” plus the company you’re searching for.
The Trend is the overall direction that a Stock’s price is moving in. If it’s a Bull Market, the Trend is likely to be moving higher. If it’s a Bear Market, the Trend is likely to be moving lower.
Volatility refers to how much the price of a Stock moves on a percentage basis. For instance, a Stock that moves 3% up or down on any given day is much more volatile than a Stock that moves 1% up or down on any given day.
Volume is the number of shares of Stock, or the number of Futures Contracts that were traded over a certain period of time. For instance, if you bought 100 shares of Stock, the volume in the Stock would reflect an increase of 100 in its volume
Volume is different that Open Interest in that Volume is the total number of shares traded, where Open Interest is the total number of open positions.
Volume Profile measure the amount of volume that has been traded at a certain price. Some traders like to use the Volume Profile as a way to identify trading levels that might act like magnets for price.
Yield refers to how much money a dividend paying stock pays out in the form of a dividend. If you bought a Stock for $50/share and it has a dividend yield of 2% per year, that means it pays out $1 for every share you own at $50.