Trading Glossary

Here listed is a list of Stock Trading terms or Terminology used in Stock Trading.

Arbitrage: Simultaneous purchase of cash commodities or futures in one market against the sale of cash commodities or futures in the same or a different market to profit from a discrepancy in prices. Also includes some aspects of hedging.

Bar Chart: A charting method which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line to the right of the bar.

Bear Call Spread: A spread designed to exploit falling exchange rates by purchasing a call option with a high exercise price and selling one with a low exercise price.

Bear Put Spread: A spread designed to exploit falling exchange rates by purchasing a put option with a high exercise price and selling one with a low exercise price.

Bid-Offer Spread: The difference between the buy (bid) and sell (offer) price of a currency or financial instrument.

Breakaway gap: A price gap which occurs in the beginning of a new trend, many times at the end of a long consolidation period. It may also appear after the completion of major chart formations.

Break-Even Point: The price of a financial instrument at which the option buyer recovers the premium.

Buying Rate: Rate at which a bank is prepared to buy foreign exchange. Also known as the Bid Rate.

Day Trading
Buying or selling the same share or commodity within the same day. Day trading usually involves closing out all your positions by the end of the trading day.

Dow Jones Industrial Average (DJIA)
Measure of the performance of the collection of 30 Blue Chip stocks, considered the leaders of the market.

Good Till Canceled (GTC)
An order placed with your broker meaning that it is good until either filled or cancelled.

Lagging Indicator: A measure of economic activity which tends to change after change has occurred in the overall economy e.g. CPI.

NASDAQ Composite Index
A market-value weighted index of all common stocks listed on NASDAQ.

Price Earnings Ratio (PE)
The ratio of the stock's price to the earnings per share.

Standard & Poor's 500 (SP 500)
The SP500 is a market value weighted index of 500 blue-chip stocks, considered to the benchmark of the overall stock market.

Short: To go `short` is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit. 

Short position:  When one sells a currency, their position is short.  

Stop Order:  An order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed. 

Overbought:  A technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bullish and long have turned bearish. 

Oversold:  A technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bearish and short have turned bullish. 

Spread (or Straddle): The purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market against the sale of the commodity in another market, to take advantage of a profit from a change in price relationships. See also Arbitrage, Switch. The term spread is also used to refer to the difference between the price of a futures month and the price of another month of the same commodity. A spread can also apply to options.