Trading Terminology

Suppose you are planning to get into online trading. In that case, you certainly are not alone, as many Australians already make a good living by trading shares, crypto, and precious metals using secure trading platforms managed by leading brokers.

The world of trading can seem complex, and there are a lot of terms and acronyms that you need to learn.
  • Day trading – This refers to buying and selling on the same day. Day traders are looking to make short transactions and when you invest in shares, you need to set investment goals.
  • Swing trading – Swing trading means holding the position for at least 24 hours, a popular short-term trading strategy. Overnight positions are more common than day trades, indeed most traders are looking further ahead than a single day.
  • Bullish market – A term given to a market on the up; if a trader is bullish, he/she expects the price to go up.
  • Bearish market – When the trend is for prices to fall, this is known as a bearish market.
  • IPO – Initial Public Offering – When a company issues an IPO, it wants to raise capital to use within its organization. They release a specific number of shares to the market.
  • Share buyback – When a company floats shares on the market and then rebuys them, this is called share buyback.
  • Long side trading – A trader holding a long position predicts that share prices will go up at a specific time. The trader would profit if the stock went up and suffer a loss should the stock go down.
  • Short Position: Selling an asset with the expectation that its price will fall. Traders aim to profit by repurchasing the asset at a lower price.
  • Scaling in/out - To ‘scale in’ means to buy at intervals, perhaps of 5 minutes, while scaling out is selling at intervals.
  • Cost average – The cost average is the average price of shares that you buy.
  • Borrowing is borrowing shares from your broker, which might have a 5–7-day term.
  • Covering – To close a short position, the trader must cover, which means buying stock to repay the broker.
  • Days to cover – The number of days a broker gives a trader to cover a position; it might be 7,14 or 21 days, depending on the broker.
  • Bid Price: The price at which a trader can sell an asset.
  • Ask Price: The price at which a trader can buy an asset.
  • Spread: The difference between the bid and ask prices.
  • Liquidity: The ease with which an asset can be bought or sold in the market without affecting its price.
  • Volatility: The degree of variation of a trading price series over time. High volatility implies larger price fluctuations.
  • Market Order: An order to buy or sell an asset at the current market price.
  • Limit Order: An order to buy or sell an asset at a specified price or better.
  • Stop Order: An order to buy or sell an asset once its price reaches a certain level, known as the stop price.
  • Margin: Borrowing funds to increase the size of a trading position.
  • Margin Call: A demand from a broker for additional funds or securities to cover possible losses.
  • Swing Trading: Holding a trading position for a period ranging from a day to several weeks.
  • Portfolio: A collection of financial assets owned by an investor.
  • Diversification: Spreading investments across different assets or asset classes to reduce risk.

Trading accounts

Of course, there are demo accounts that allow new traders to ‘practice’ by using pretend money to trade. This is the best way to learn, and let’s not forget you have the support of a leading broker.

Trading account types

  • Cash account – A cash account is when you deposit money for stocks; it typically takes 3 days for a trade position to close, and there’s nothing you can do but wait, much like waiting for a cheque to clear.
  • Margin account – A margin account is when the broker and the trader agree to allow the trader to use funds that are not yet covered.
There is a lot more to learn and when you make the decision to start trading; make contact with an award-winning trading broker, they have all the resources you need to get started.