Are you a newbie in the stock world? If so, knowing about terms and concepts related to stock trading is essential. Stock traders have their stock market terminology. And beginners need to get in on the language too.
So, in this post, we will be showing you six key stock market terminologies every beginner should know. Don’t worry; we will also take our time to explain what these terms mean and how they can impact your trading journey. Let’s get into it!
Why Should You Learn Stock Market Terminology?
High investment yields start with understanding the ins and outs of the stock market. Hence, learning the market terminology may help you to get started.
Like a courtroom or medical language, stock market terminology allows you to interact freely with your colleagues. You will be able to ask useful questions from investors and brokers or seek advice and cooperate with others. If someone else is handling your portfolio, it becomes particularly imperative to familiarize yourself with these terms.
Also, stock market terminology is a tool that can help you analyze ongoing events or news in the stock market. They help you decipher financial statements, gain an interpretation of charts, and leverage indicators. It’s the knowledge you need when making buying, selling, and holding stock decisions.
Basic Trading Terms for Beginners
#1: Bull market
A bull market refers to the period when stock prices increase. It gives investors a sense of confidence. As such, investors may invest in the upward trend during this phase. It’s associated with exponential buying activities and investors taking advantage of profit opportunities.
During a bull run, there is typically an expectation of strong economic growth, favorable market conditions, and increased corporate profitability.
#2: Bear market
The bear market is the inverse of a bull run. This term signifies the falling of stock prices and comes with that feeling of pessimism amongst investors. In a bear market, traders predict stock decline and focus more on selling. Identifying the bear market can help you improve your loss-preventing strategies.
It’s important to note that a bear market does not mean that all stocks are declining. Some sectors or individual stocks may still perform well or even experience gains during a bear market. However, the overall market trend is downward, and most stocks tend to face selling pressure.
#3: Volatility
Volatility is a stock market terminology that refers to the degree of variation or fluctuation in the stock market. If the market is too volatile, then there are major price shifts. Lower volatility could signify stable stock prices. It is also a benchmark of the market’s expectation of the potential price movements of an asset and is often expressed as a percentage.
#4: Market order
The market order is imperative to buy and sell stocks at their current estimated market value. By making the market order, you are commanding your brokers to perform the trade immediately before the market value changes.
A market order is a common strategy for traders looking for fast entry and exit without waiting for particular prices.
#5: Limit order
Limit order tends to be similar to a market order, but it’s different since it permits investors to set the target value upon which stocks can be bought or sold. The trade is only performed when the stock reaches the targeted value. Limit order, therefore, means more control over trade. However, there is no guarantee of execution if the stock fails to reach the target.
#6: Stop loss
Stop loss refers to a risk management function. It’s initiated by investors to limit anticipated losses. It’s like an order placed by a broker to sell stock when they reach a certain level. Implementing it means your trade stops immediately in the wake of losses in the market.
You may need this function when the market is highly volatile. It can improve your chances of success in stock trading by providing you with more control over the execution price of your trade.
Final Note
Stock market terminology exists to serve as a guide even for the most experienced traders. Understanding their meaning improves your trading strategies. It gives you an angle on when to trade, when to limit your trade, and when to pack your stocks and go home.
Whether it is the market order, stop loss, or bear and bull markets, these six stock market terminologies are key in making informed decisions and achieving financial goals.