Common Market Terminology
Bid – What you’re willing to pay for a stock
Ask – What a stock is selling for
Bullish – Stock prices are expected to rise
Bearish – Stock prices are expected to fall
Volatility – How fast a stock price moves up and down
Going long – Expectations that a stock will increase so you can buy low and sell high
Capitalization – What the market thinks a company’s value is
Why do companies go public?
Companies go public to raise capital to expand. If a company goes public, they provide liquidity for their shareholders because then the securities can be traded through a public market.
S&P 500, Dow Jones Industrial Average, and Nasdaq Composite.
What is an NFT?
A non-fungible token is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique. NFTs can be used for items like photos, videos, gifs, audio, and other digital files.
What are the types of derivatives?
A derivative is a value derived from the value of one or more underlying assets. Common types of derivatives include forwards, futures, options, and swaps.
What is a clearinghouse?
An entity that settles trades made at an exchange, reconciles clearing member firm accounts each day to ensure that gains have been credited and losses have been collected and adjusts the clearing member firm margins for changing market conditions as appropriate. The clearinghouse may be an independent corporation or exchange‑owned.
Who is FINRA and why do they exist?
FINRA is an organization that monitors and regulates the U.S. stock market. Their mission is to protect investors by ensuring the US securities industry operates fairly and honestly.
Who is the SEC and why do they exist?
The Securities and Exchange Commission is an agency that regulates securities markets in the US. They are responsible for enforcing securities laws, regulating the markets and related entities, and ensuring investors are treated fairly.
Trading Options vs Stocks
Options are contracts that give you the right to buy or sell a stock at a specific price by the expiration date. Stocks represent a small piece of ownership in a company.
Understanding Candlestick Charts
Candlestick charts are used by traders to watch price movements based on prior patterns. These patterns are sorted into bullish and bearish.
Understanding Bar Charts
Bar charts are used to visually showcase the open, high, low, and close prices over a specific period of time. Long vertical bars show a difference between high and low, meaning the volatility increased. Bar charts are similar to candlestick charts.
Understanding Line Charts
A line chart is a representation of historical price actions. This is the most basic type of charting used in stocks that typically shows the closing price over time.
Why don't stocks trade over the weekends?
The stock market is open 9 am to 5 pm, Monday through Friday, similar to bank hours. The market is also closed on federal holidays.
What does overbought and oversold mean?
When a stock is trading above its intrinsic or fair value, it’s overbought. When a stock is trading below its intrinsic or fair value, it’s oversold.
Why is meeting deposit requirements necessary for brokers?
Minimum margin is the amount required by investors to deposit into a margin account before trading on the margin or selling short. The initial deposit will cover a certain percentage of the value of the securities that are bought long or sold short and the minimum value must be maintained while the position is open.
What is short volume?
Short volume is data that can be used to understand investor sentiment. If an investor makes a short sale, they do this believing the security’s price will decline. If the short sale volume increases, then that suggests a bearish sentiment by the market.
What is a failure to deliver in stocks?
Failure to deliver is when one party in a trading contract does not deliver on their obligation. Whether it’s shares, futures, options, or forwards, if a party is unable to deliver all or part of the security, it’s a failure to deliver.
What is naked shorting?
Naked shorting is the illegal practice of short-selling a security without borrowing the asset from someone else.
What is a short ladder attack?
A short ladder attack is when both sides of the buying and selling of stocks are traded in an attempt to devalue the stock itself.
What is simple moving average?
The simple moving average (SMA) is a moving average of a stock price over a specified period of time.
Do hedge funds have an advantage over retail traders?
Hedge funds have a better credit rating than your traditional retail trader. This means they can gain better leverage and terms allowing them to weather through tough times and increase returns.
Why is it not necessary to disclose your short position as a hedge fund?
Because shorting can be risky, hedge funds may be reluctant to disclose this information so they don’t draw attention to trades that aren’t beneficial. Disclosing short positions could potentially cause the stock to move unexpectedly as other investors move on the short.
How do brokers make money on commission free trades?
Brokers make money on commission-free trades because of the payment for order flow. PFOF is the compensation and benefits a brokerage firm receives for directing orders for trade execution.
What are shares and float stock?
Shares outstanding is the total number of shares issued and actively held by stockholders. Float stock is the actual number of shares a company has available to trade in the market.