If you’re a new trader, navigating the stock market can seem intimidating. A new hobby, a new platform, and most of all—a new vocabulary.

There’s no escaping it: stock trading is full to the brim of trade terms you’ll need to memorize. Without understanding the fundamentals, you’ll never be able to keep a pulse on the market and make smart investing decisions.

The good news: there aren’t that many essential terms to keep in mind. Here’s a list of 10 core trading terms and what they all mean!

Bid-Ask Spread

The bid is the highest price a trader will pay for a stock or other asset. The ask is the lowest price a seller offers for their stock. Any online trading platform will have the bid and ask prices displayed prominently.

The bid-ask spread is the difference between what the buyer wants to pay and what the seller wants to sell the stock at. For a trade to occur, one or both of them will need to come to a compromise regarding the price.

Margin

Margin involves investors borrowing money from a broker to buy stocks. To do that, they’ll need to open a margin account. Much like getting a loan, the margin will likely incur some interest over time.

If you’re using Forex trading platforms, margin allows you to trade with leverage. For instance, you can open a trade by putting forward a percentage of its value. As such, margin can magnify both profits and losses.

Bull/Bear Market

As far as stock market terms go, the bull and bear markets may see the most use on this list. They both tell you how a certain market is doing. You can use this market condition as an indicator of how confident you should be.

In the bull market, the prices of stocks are rising. In the bear market, those same prices are falling. An easy way to memorize the difference is to keep in mind that bulls toss things in the air (going up!) when provoked.

Currency Pair

On Forex exchange online, you’ll come across 180 recognized currencies. You can use a range of research to determine their performance. Ultimately, the key factor is how these currencies perform against each other.

That’s where currency pairs come in. Every currency pair is the quotation of the value of a certain unit against another unit. For example, trading EUR/USD means you’re betting on the EUR performing well against USD.

Currency pairs come in three groups: major, cross, and exotics. Major pairs use USD as the base currency, and cross pairs don’t, which makes them more volatile. Exotics are lesser-known currencies that are even more volatile.

Fund Types

Whether you’re using Forex trading platforms or not, it’s important to keep track of mutual funds. These funds are financial vehicles where investors mutually invest money in securities like bonds, stocks, and other assets.

Another common fund type is the exchange-traded fund (ETF). This is also an investment fund that pools together capital from several investors. The main difference is that you can buy ETFs directly rather than invest in a fund.

Then there are index funds, which follow the performance of a specific index. Examples include the S&P 500 and Dow Jones. By investing in an index fund, you invest in every company in that index.

Going Long/Short

When you go long on a stock, you’re betting on its price continuing to rise. In this case, buying a stock at a lower price allows you to sell it at a higher price later. In other words, it’s the classic “buy low, sell high” formula.

Going short involves selling stocks that you expect will fall in price. You essentially borrow the asset, sell it, then buy it later at a lower price. If the stock’s price rises, however, you’ll need to buy it back at a higher price.

Liquidity

Liquidity measures how easily you can buy or sell a stock without impacting its price. Stocks that have a high trading volume tend to be fairly liquid, allowing you to buy or sell your shares at a moment’s notice.

For instance, cash is generally considered to be the most liquid asset. The reason is simple: you can always exchange cash at face value. With something like a car, you’ll need to wait to get the best price.

Market/Limit Order

A market order is another key part of the stock market vocab. Think of it as an instruction to buy or sell stock right away. If you use a market order, you’ll execute your trade at whatever market price is available.

Using a limit order means executing your trade at a fixed price. You’ll set the price at or below the price you’re prepared to pay. Limit orders take more time to fill, but they give you more control over how much you’ll pay.

Averaging Down/Up

Averaging down is one of those trading terms that doubles as an investing strategy. Doing so involves buying more shares of a stock after its price falls. As a result, you’ll get a lower average purchase price for it.

When you’re averaging down, you’re betting on the stock to rebound. Well, averaging up is the opposite of that. You’re increasing your stock’s average purchase price since you believe it will keep rising.

Price-Earnings Ratio

The price-earnings ratio is best known as the P/E ratio. This part of the online trading vocab refers to the ratio of a company’s share price to its earnings per share. It tells you how valuable a company’s current shares are.

If a company’s stock has a high P/E ratio, that could mean two things. First, the company’s shares are overvalued and it’s a good time to sell. Second, the investors believe the company has a lot of future potential.

Learn Your Trading Terms!

As you can see, there are plenty of trading terms you need to keep up with. That said, this is the essential step toward becoming a well-rounded trader. The above guide will help you get started with the stock market vocabulary!

Looking to get started with the Forex exchange online? Our Liquidity market can help you make the most of your trading opportunities! Start your journey with Liquidity by creating an account here!