Trading stocks and shares has never been easier, largely thanks to high-speed Internet that enables trading real-time on a secure platform and if you are considering trying your hand at shares trading, you need a sound understanding on the terminology used.
The following are commonly used in the share trading world.
Arbitrage – This is when a trader buys shares in one market and sells them in another for a higher price, thus making a profit.
Ask – The ask is the price a trader is offering.
Averaging down – This is when a trader buys additional shares at a lower price, which brings down the average cost. A good thing about Australian share trading is having the ability to buy more shares at a lower price and smart traders usually average down if the opportunity presents itself.
Bear market –A bear market is one where prices are expected to fall.
Bid – The price a trader is prepared to pay for stock or shares.
Bid/ask spread – This is the difference between the asking price and the bid offer.
Blue chip stocks/shares - Blue chip stock/shares are well-known companies that attract traders due to a solid track record.
Bull market – A bull market is one where prices are expected to rise.
Buyback – Buyback is when a company buys outstanding shares with the aim of reducing the number of shares on the market.
Day trading – Day trading is when assets are bought and sold in a single day.
Diversification – It is never a good idea to put all your eggs in one basket and diversification minimises risk.
Dividend – A dividend is a portion of profit that is paid to shareholders. The dividend yield is a dividend represented as a percentage of the stock price.
Earnings per share – This is when a company’s profit is divided by the number of outstanding shares, which is used to measure corporate profitability.
Equity income – This is income generated by the dividends paid on shares.
Exchange Traded Funds – ETFs are a collection of stocks and shares that are combined in a single fund. ETFs can be bought and sold on major stock exchanges.
Futures trading – Trading futures means predicting prices over an agreed period of time; all assets can be traded in this way.
Going long – The term going long refers to the act of buying shares in the belief that prices will rise in the future.
Going short – This means selling shares that are expected to lose value.
Initial Price Offering – An IPO is when a private company decides to go public and sell shares to traders and investors.
Margin – A margin is when a trader borrows money from their broker to acquire stocks/shares, similar to a loan.
Market index – This tracks the performance of a collection of stocks and this tool helps traders to gauge performance.
Stock option – A stock option is a contract that gives the buyer the right to buy or sell shares at pre-determined prices within a specific time period.
Stock split – This is when a corporation increases the number of available shares by splitting shares. By splitting shares, the company becomes more profitable.
Time horizon – This is the time an investor plans to hold stock; generally speaking, the longer the time horizon, the less risky the trade.
Volume – The volume is a measurement of how much an investment has been traded over a given time period.
52 week range – A technical indicator to measure the highest and lowest trade prices; traders use this to analyse stock and share prices over a one year period.
Entry point – The entry point is a price point that is suitable for the trader to buy stock. The trade point is decided after research and analysis, which is something competent traders would use.
Volatility – Volatility measures the rate of share price change and this is used by traders to measure risk.
Once you have a sound understanding of the terminology used in share trading, the next step is to register with a leading Australian trading broker. You can make good use of their amazing learning resources and when you are ready, open a demo account for some hands-on experience, then you can open a live trading account and trade for real!
Australian traders typically trade on the ASX where you can trade shares of more than 2,000 top companies and with the backing of a leading trading broker, you can trade with confidence and hopefully, your trading skills will develop and you will become an established private trader.
As with most things, the more you apply yourself, the better the results will be and trading with a demo account helps you gain a better understanding of real-time trading in stocks and shares.
