5,000 at 5 and a teenie. 8 and a steenth for 3,000. WHAT?

That’s what I heard my first day on the trading desk. I had absolutely NO CLUE what was going on. (This was just before the conversion to quoting in cents, so stock prices were still traded in eighths and even sixteenths of a dollar, not pennies, UGH.)

I had a total of six screens in front of me which included orders coming in from brokerage customers, my Nasdaq feed, 3 other markets in which I could buy and sell, and a phone that was CONSTANTLY ringing, ringing, ringing.

It was absolute chaos. And, I absolutely loved it. Except the ringing phone.

We were ALL supposed to answer the phone and shout out orders across the busy room to the trader trading that stock (while we were still trading our list), and I always avoided that if I could.

By the end of six months I could see an order come in, check the various markets to see if I could buy/sell cheaper than the public market.

I would then check a chart to see where the stock was trending. And, decide if I wanted to take a position.

I’d also, look at the warrant if the stock had one to see if I wanted to put on an arb position. And then I’d execute the customers order. All in about 10 seconds.

And sometimes I would even answer the phone.

One of my regulator friends who stopped by to visit after a meeting said it was like watching a ballet. I thought that was kinda cool.

You don’t have to worry about losing a million dollars by pushing the wrong key, or having an overweight, waiting for a heart attack trader, curse you out for half an hour for a mistake.

But, if you want to make money for that next vacation, new home or retirement, you have to understand the language of the natives. Here are 50 terms you can impress your friends with at cocktail parties. (That’s a joke, don’t be THAT guy!)

Stock Exchange

A place where investors and traders exchange shares in publicly traded companies. Companies sell ownership shares of their company on the stock market to raise money, usually to grow their business.

After this initial public offering, or IPO, shares of the company then are sold back and forth between investors. The most well known exchanges in the U.S. are the New York Stock Exchange (NYSE) and the Nasdaq.

Market

The market for a stock is the accumulation of all of the bid and ask prices for the stock. There is a market for Apple (AAPL) stock and a market for Microsoft (MSFT) stock, etc.

Market also refers to the stock market and a number of large indexes, such as the S&P 500 Index and the Dow Jones Industrial Average. When you hear commentators or reporters talk about “the market” they are referring to these indices.

Open

The open is when the stock exchange opens each day. Stock markets in the U.S. open Monday through Friday, except holidays, at 9:30 am eastern time. The open is important because orders to buy and sell that are placed when the market is closed are executed at the opening price for each stock.

Close

The close is when the stock exchange closes each day. Stock markets in the U.S. close at 4 pm eastern time. The close is important because closing prices are used for indexes and a variety of other pricing mechanisms.

Many trading strategies are based on how a stock closes. Swing traders, who may hold for several days, may buy a stock rising in price into the close. The are anticipating the stock will open higher the next day, and can be sold at a profit.

Stock Symbol, Ticker

The stock symbol is series of letters an exchange assigns to a company to represent the company. Think of it as shorthand for the company name. When reading about, or doing research on companies, you’ll often see the company name with the symbol after it in parentheses. For example, Apple (AAPL) or Tesla (TSLA).

IPO, Initial Public Offering

An IPO, or initial public offering, is when a private company first lists shares on a public exchange, allowing the general investing public to own part of the company. Prior to the IPO the company may be owned by founders, early investors, venture capital firms, or other private investors.

More and more large companies are going through their hyper growth phase before going public. These means large companies that are going public for the first time often do not have the same growth prospects as companies that listed on public exchanges in prior years. The IPO process is expensive and opens the company to public scrutiny and the pressures of quarterly reporting.

Secondary Offering

A company that is already public may offer additional stock, warrants, or debt instruments for sale in the public market. This can be done when the company is growing rapidly, and needs additional cash to expand. Or in the case of small companies heavily engaged in research, like biotech or pharmaceutical companies, it can be to refill corporate funds that have been used for research.

A secondary offering will dilute current shareholders, or make their ownership stake worth less. It is important to understand why a company is doing a secondary offering. It may represent an opportunity to buy a growth stock if the stock falls on news of a secondary.

Portfolio

A portfolio is a collection of stocks. The combination of all the stocks you own makes up your stock portfolio. A “portfolio approach” refers to owning a number of different companies in different industries. The idea being that if one industry is doing badly, and stocks are falling, then another industry should be doing well. This should make your portfolio more stable over time and less risky.

Bid

The price which investors are willing to pay for a stock. Investor orders to buy a stock make up the bid. The highest bid is quoted, along with the number of shares investors are willing to buy at that price. But, there are also bids under that highest price. Think of it as buyers waiting in a line. The ones willing to pay the highest price are at the front of the line and those willing to pay less are further down the line.

To score brownie points the next time you want to buy stock and have to talk to your broker (as opposed to doing everything electronically), say your willing to pay X dollars for Y shares. Or, “$20 for 1,000” shares. Traders know that if the dollar amount comes first it’s a bid for stock.

Ask

The price at which investors are willing to sell a stock. Also called the “offer”, this is the lowest price investors will sell for. Like the bid, there are other investors willing to sell at higher prices, that make up the depth of the ask.

Spread

The spread is the difference between the bid and ask. Ideally you’ll have a tight spread between the bid and ask of a stock you are trading. This means there isn’t much difference between the two prices. Stocks that trade a lot of volume, like Apple and Microsoft, usually have spreads of one cent.

But, just because there is a wider spread does not mean you shouldn’t trade a stock. It doesn’t matter too much if you plan on holding the stock longer term, but can impact your profits if you’re going to be day trading or trading shorter term.

Market Order

A market order is an order to buy or sell a certain amount of stock at any price, until the order is complete. For example, if you place an order to buy 1,000 shares of XYZ, and there are 200 shares offered at $10, 400 shares offered at $10.50, and 400 shares offered at $11.00 you will buy your 1,000 shares at those amounts and at those prices.

Market orders are dangerous, especially in a fast moving stock, because you do not know at what price your order will be filled. You should almost never use a market order to buy or sell a stock.

Limit Order

A limit order is an order to buy or sell a stock that has both an amount and a price limit. For example, you may place an order to buy 1,000 shares of XYZ in which you are willing to pay $10. If the stock is trading at $11 you will not buy the stock. But when the stock trades down to $10 your order will be there ready to buy.

What if 500 shares is offered at $9.50, 200 at $10, and 300 at $10.50? You would buy the 500 and pay $9.50, as well as the 200 at $10 and pay $10, but your order would not purchase the 300 at $10.50. Until the stock trades back to $10 you would have a “partial fill” on your order of 700 shares.

Good ‘Til Cancelled Order

A good ’til (until) cancelled order (GTC) is an order that stays open until it is either executed or is cancelled (or expires). Your broker will have some limit, for example, six months, that it will leave an order open. So while an order is not really good until you cancel it, it can be left open for a considerable amount of time.

Day Order

Most of your orders will likely be limit day orders. This means the order is good until the end of the day. If it is not executed during the day, then it will be cancelled after the close. If you’re following your stocks on a regular basis you will likely use this type of order to enter a position, and then perhaps a GTC order to exit the position, depending on your trading strategy.

Annual Report

Companies file an annual report detailing how the company is doing each year. The annual report gives the company a chance to report how well they are doing, especially in reference to the previous year. The annual report includes financial information on the company as well as commentary from management about the strategy the company is following. The annual report is also called the 10-K.

Earnings Report

Every three months, or each quarter, a company reports its revenue and earnings. Securities rules require that companies report important information to everyone at the same time, and this quarterly report gives companies a chance to do that throughout the year. The quarterly report is also called the 10-Q.

Earnings reports can be very important because they have the potential to move the companies stock a large amount, either up or down. Analysts take their best guess at how much a company earns each quarter. You may hear the term “earnings surprise” which means the actual earnings for that quarter are either well above or below what analysts thought it would be.

Broker

A broker is someone who is licensed to buy and sell stock on your behalf. Brokers are regulated and must adhere to a wide range of rules. A broker may refer to an individual or a large company that acts as a broker.

Robinhood

Robinhood is an online broker that has become very popular with beginning traders recently, because it offers free trades. The trading platform is simple to use and is a good way for a beginner to see how the market works. If you sign up for a Robinhood account here there is a small chance you and I will get a free share of stock.

High, All-Time High, ATH

High refers to the high price of the stock for a specified time period. It can be a daily high, monthly high, yearly high, etc. The all-time high, or ATH, as you may see it abbreviated in chat rooms like Stocktwits.com, refers to the highest price the stock has ever traded at.

Low

Low refers to the low price for the stock in a specified time period. It can be the low price for the day, month, etc. A series of low prices are used to draw support lines for a stock which can indicate places to look for a bounce higher in price.

Blue Chip Stocks

Blue chip stocks are large companies that are listed on exchanges. These companies generally pay a consistent dividend, and have a long track record of doing well as a company. Blue chip stocks are generally considered safer investments.

But, even blue chip stocks can go down substantially, and damage your portfolio. A great example is General Electric (GE). GE was trading at almost $60 in 2000 and has recently traded under $10. The GE story shows why an investor should not just buy and forget a “quality” stock.

Pink Sheets

Pink sheet stocks refers to stocks that generally trade under $5. These are also called penny stocks. These stocks have less rigorous listing requirements and are considered more risky, in that their prices can move a large amount very rapidly. While this presents more risk, it also provides more opportunity.

The pink sheet stocks are named after the pink paper the stocks and their prices were printed on. Many years ago a book with these stocks and their prices was delivered to trading desks on Wall Street each day.

Federal Reserve

The Federal Reserve, or Fed, sets interest rate policy in the United States. This is important to stock investors and traders because interest rates compete with money that can be put to work in stocks.

Low interest rates generally mean you will get less return on your money putting it in bonds or a bank account than investing in stocks. The Fed maintaining low interest rates is one of the main reasons stocks have performed so well in the last 10 years since the 2007-8 financial crisis.

Dividend

A dividend is cash paid to holders of stock. There are two ways to make money in stocks if you are going to buy and hold shares. First, the stock can rise in price as the company becomes more valuable. You can sell your shares and take a profit.

Second, some companies pay part of their profit to shareholders, usually each quarter, in the form of cash payments. The dividend is expressed in terms of “yield”. If you own a stock that is trading at $100, and the company pays out a total of $5 in dividends each year, then the dividend yield on the stock is 5%.

Dollar Cost Averaging

Dollar cost averaging refers to buying a stock over time at multiple price points. This is often done in 401(k) accounts, or in dividend reinvesting, where you buy a certain dollar amount of stock at set time intervals, such as monthly.

Your “average” cost is calculated over all of the purchases you make. You’ll buy some stock when the price is falling and some when it is rising. The goal is to automatically buy, even when the stock is falling, to bring your cost down over time.

Day Trading

Day trading is buying and selling a stock, or option, or other instrument, and then selling in the same day. Day traders generally attempt to make small amounts of money on each trade, though there are numerous strategies that can be employed.

There are specific rules that must be followed to use a brokerage account to day trade. One advantage arbitrage traders have over day traders is that they can hold positions overnight with little risk, and then take advantage of volatility at the open the following day.

Algorithmic Trading

Algorithmic trading, often referred to as “machine trading” on CNBC, is using computer programs to trade stocks given specific rules. The programs can be simple or complex, and take the human factor out of trading. Algorithmic trading now makes up the majority of trading on U.S. exchanges.

While you may never do algorithmic trading it is very helpful to understand how it works and how it may impact the market, and stocks, you are trading. Kevin Davey has written a good book on algorithmic trading that is accessible to beginners and advanced traders alike.

Entry and Exit

Do not focus only on how much you can make in a trade. First, focus on how much you can lose. Where you enter, buy a long position or sell a short position, is very important to your trading success.

If you have entered at the correct time, e.g., near a support level, on a breakout, etc. your exit will take care of itself. You will either be stopped out of your position with a small loss as it moves against your entry criteria, or you will be able to take a larger gain as the stock moves in the predicted direction.

Trading System

A trading system is a series of rules designed to govern your trading. The system should cover at least when you will enter and exit a position, the size of the position, and the amount of risk you are willing to take on each trade.

A trading system can be very simple, or complex. But, most importantly, the system must fit your temperament and ability to execute it consistently. The exact same system may work very well for one person and horribly for another, because one person follows the system and the other does not.

Buy and Hold

Buy and hold refers to a strategy of buying and holding a stock for a long period of time, often years. This is a great strategy in a market that is moving higher, such as the one we’ve had the past 10 years, following the financial crisis of 2007-’08.

Volatility

Volatility refers to the speed with which a stock, or index, changes price. A volatile stock or stock market, can be moving either up or down, but most investors associate volatility with a declining market, and view volatility negatively.

Volatility is great for arbitrage because a trader is able to take advantage of movement in prices between trading vehicles. Volatility is also good for options traders who are seeking to sell premium. Higher levels of volatility generally mean more opportunity for these types of trades.

Liquidity

Liquidity means the number of shares being traded, and refers to being able to have an order placed and executed in a short period of time. Large stocks, like Amazon (AMZN) and Apple (AAPL) are very liquid and millions of shares are traded every day.

Smaller stocks often have very little liquidity and may trade as few as 100, or even no shares, in the course of a trading day.

A “liquidity event” refers to a time when a normally liquid trading vehicle becomes illiquid. Traders who believe they are trading an instrument that is easily entered and exited may panic if they believe liquidity is “drying up”.

Fundamental Analysis

Fundamental Analysis refers to looking at a companies financials and strategy to make an investment decision. If the company is growing revenue, the money it makes from customers, very rapidly, it may be a good investment.

Fundamental analysts look at revenue, costs, current company valuation, and market size, among many other things, when making investment decisions.

Technical Analysis

Technical analysis refers to looking at a stock’s past price and volume performance to predict where a stock will go in the future. There are a wide range of technical indicators which have been derived from this data. These indicators can be used in combinations that provide an almost infinite variety of options for traders.

Some indicators work better with some stocks than others. It’s a great idea to try out a number of indicators and find the ones that most closely fit your trading style. One of my favorite indicators is the MACD, or moving average convergence divergence. You can try it out here.

Chart

Charts are used to show the historical price, volume, and chart patterns used in technical analysis. There are several charting softwares you can use for free and for a fee. Some of the ones I use include Tradingview and Finviz. I like the ability to manipulate and draw on the Tradingview charts. And the financial data provided by Finviz. Most brokers also provide free charts.

But by far my favorite chart software is TrendSpider. This relatively new software automatically draws trends, and identifies patterns, that most new traders would never see. The alert system is top notch, and let’s you set and forget, so you don’t have to be in front of your computer all day.

Candlestick Charting

There are different forms of charts, including line charts and candlestick charts. Candlestick charts provide a lot of information about your stock, and also show patterns you can use to trade the stock. Being able to recognize patterns in stock charts can help you know when to buy and sell, enhance your profits, and help limit your risk.

There are several books available on Candlestick charting. I had the opportunity to train with Steve Nison many years ago while working on Wall Street, and like the way he lays out the psychology behind each pattern. His books are available here.

Arbitrage

Arbitrage is trading one instrument (like a stock) against another (like an option or warrant). A warrant may be trading too cheaply compared to the stock and how volatile it is. In that case you may want to buy the warrant, and possibly short the stock.

Another form of arbitrage, which has been popular in cryptocurrency trading lately, is to buy on one exchange and sell at a higher price on another. This is often available to traders in new or fragmented markets.

Short Selling

Short selling is borrowing a stock from your brokerage firm and selling it. At some point you will buy the stock back and return it to the brokerage firm. If you are selling a stock short your belief is that the stock will go down so that you can buy it back cheaper and profit from the decline.

Short selling can be used in combination with warrants and options to establish arbitrage positions.

Margin

Margin is borrowing from your broker to buy or sell stock in excess of the capital you have in your account. Trading on margin increases your risk because it adds leverage to your trade. There are specific rules governing margin accounts.

Margin can increase your returns in a relatively safe manner if your position is hedged in some way. For instance, you could sell a stock short on margin as long as you hold either a call option or a warrant that would protect you if the stock moved higher.

Option

An option is a contract that trades mechanically similar to a stock (on an options exchange), but is a contract to buy or sell a stock at a particular price for some limited amount of time.

Call Option

A call option gives the owner the right to buy a particular stock at a particular price (strike price) for a defined amount of time. If you own a call option you can demand that a stock be sold to you at the strike price of the call option. You want to own a call option if you believe the price is moving up.

If you sell, or are short, a call option, then the buyer of that option can demand that you sell them the stock at the strike price of the option. You want to be short a call option if you believe the stock is moving down, or will at least stay near the same price.

Put Option

A put option gives the owner the right to sell a particular stock at a particular price (strike price) for a defined amount of time. If you own a put option you can demand that the stock be bought from you at the strike price of the put option (even if the stock has gone down in price below the strike price). You want to own a put option if you believe the price is moving down.

If you sell, or are short, a put option, then the buyer of that option can demand that you buy the stock at the price of the option. You want to be short a put option if you believe the stock is moving up, or will at least stay near the same price.

Warrant

A warrant is similar to a call option. Warrants trade like stocks on stock exchanges, but are tied to the value of a common stock. Owning a warrant gives the owner the right to buy the common stock for a set price, the exercise price. Warrants also may be given to investors as part of private placements, in which case the warrant will not trade on an exchange.

Warrants, like options, have a defined time period in which they must be exercised. Warrants that trade on low priced stocks, which do not also have options, can often be mispriced in classical valuation models. This can make warrants a better option than owning a stock. Warrants also exhibit certain trading patterns that often repeat, making them great for trading.

Exercise Price

The exercise price for a warrant is the amount you must pay, in addition to owning the warrant, in order to receive a share of common. For example, a warrant with an exercise price of $5 would require that you give the company issuing the warrant $5 plus a warrant (bought on an exchange). In return you would receive one share of the common stock in your account.

SPAC, Special Purpose Acquisition Company

A SPAC, or special purpose acquisition company, is a unique type of stock. A SPAC lists on a stock exchange via an IPO, just like a regular company. But, the SPAC is not operating a business when it lists. The SPAC is in essence, a piggy bank, looking for a company to acquire.

SPACs have become extremely popular in recent years, and have captured billions of dollars of investor’s capital. SPACs are often run by management that is considered expert in the type of company the SPAC is looking to acquire.

Trend

The trend tells you the direction a stock price has been moving over some period of time. The stock is either trending up, down or sideways. Meaning the price has been moving higher, lower, or staying about the same.

The trend is important in that you generally want to trade with the trend. You want to buy a stock moving up, and short a stock moving down. There will be times when the trend is at an inflection point, and looks to be turning. You’ll generally want to wait for a change in trend to be absolutely clear before placing a trade in the new direction.

Support

Support is a price, or prices, at which a stock tends to trade down to and then move higher. Support can be a single price, or can be moving up in a stock that is trending higher.

You can identify support levels on a chart by drawing a line between the low points in the stock price during the time frame you are looking at. If you are trying to buy a stock that is moving up, one strategy is to buy at a support point when the stock drops in price, or pulls back to support.

Resistance

Resistance is the opposite of support. A resistance level is a price where a stock tends to stop moving up and then trades down. It’s like hitting a ceiling and then falling back down to the ground.

Resistance and support are very important from a technical analysis standpoint, because of the psychological impact they have on a stock price. Remember, even with all the algorithmic, or machine trading, markets are highly influenced by the psychology of investors.

A resistance point (same goes for support), or price at which a stock seems to stop going higher, becomes a stronger and stronger sell point for investors each time it is touched. When a stock does rise above a resistance point this can be a very strong buy signal, because all of the sellers at resistance could not keep the stock from rising. TrendSpider draws support and resistance lines automatically for you.

Moving Average

A simple moving average is calculated by adding together the price of a stock over some period of time. For example, a 20 day moving average takes the sum of the closing prices for a stock over the previous 20 trading days and divides it by 20. The result is a line which shows historic price trend.

Moving averages are a staple of technical analysis. Generally, if a stock trades above it’s moving average it is positive for the future price action of the stock. And, when it crosses below the stock may be turning negative.

A “Golden Cross” is a 50 day moving average crossing above a 200 day moving average, which is considered very positive. A “Death Cross” is the 50 day moving average crossing below the 200 day moving average, and is considered very negative.

Trading Riches

Trading can be very rewarding, allowing you to provide for yourself and your family for generations to come. But you have to start somewhere. Mastering these terms will start you on the road to many years of trading.