Starting to trade stocks, bonds, mutual funds, or ETFs can be even harder and scarier if you don't understand what all the investing jargon means! I mean, if you didn't know better, a “call” is what you make using a phone, not an options trade. There are so many different random words, from when you are researching a company to when you are actually placing a trade, that I thought it would be helpful to put together a quick guide covering all the different jargon you may encounter.
Placing a Trade Jargon
Buy – This is what you do when you want to purchase shares.
Sell – This is what you do when you want to sell the shares you own.
Sell Short – This is selling shares you don't own, with the plan of buying them back at a lower price to cover the difference. It is a very risky strategy.
Limit Order – A trade order that sets a specific price (the limit price) that is the highest a buyer will pay or the lowest a seller wants to receive. The buyer will accept a price lower than the limit and the seller higher than limit.
Market Order – An order to buy or sell a security at the next available price.
Stop Order – A market order to buy or sell a security if a specified price is reached or passed. It is typically used to protect a paper profit or to try to limit a possible loss.
Stop Limit – A combination of a Stop order and a Limit order. This type of order is placed to buy or sell a security at a specified price or better, but only after a given Stop price has been reached or passed.
Limit Price – The price at which a limit order is executed. This is the point it becomes a market order.
Duration (Day Only or Good Until Cancelled) – You can have a order be good for the trading day only, or have it stay in effect until cancelled. This usually applies to limit orders.
All or None – If you want to execute the total quantity of your order or none at all, check the All or none box to the left. This qualifier is NOT usually valid for quantities under 200 shares.
Researching a Stock Jargon
When it comes to researching a stock, there is even more jargon involved. That I why I put together the Key Value Fundamentals for Screening Stocks, and then put together a how-to video on How To Screen for Stocks.
The bottom line is there are several ways to look at a company:
Valuation – The current value of the company. It can be broken down by share, compared to sales, compared to earnings, and more.
Fundamentals/Financials – This looks at the financials of the company, including profitability, debt, asset use, and the balance sheet. There are many different ways to look at the fundamentals of a company and judge performance. The key tool to do this is to get the most recent annual report.
Technical – Technical trading looks solely at price movements of the stock over a certain period of time.
Options add another layer of complication to trading, and also come with their own trading jargon.
The basics of options trading are:
Calls – This is the right to buy a certain number of shares of an underlying security at a given price.
Puts – This is the right to sell a certain number of shares at a given price.
It continues to get more complex, which is why I've put together the following guides:
Other Strategies and Jargon
There are countless other trading terms and strategies that are well beyond the scope of the newbie's guide. However, if you're curious and want to learn more, I urge you to check out my Investing 101 page, where I've been putting together a comprehensive guide to investing, including more advanced strategies!
Anyone have any questions or want to highlight other terms people should know?