Common Trading Terms Everyone Must Know in 2022: Trading Terminology

Last Updated on Mar 4, 2022 by Gayathri Ravi

A stock market is a place where participants buy and sell equity shares of companies. Traders and investors invest in the stock market to make a profit in the short or long term according to their needs and understanding of the market. However, the same stock market can be an intimidating place for newcomers.

Trading can now be easily done online, but a lot of young people do not have much knowledge of the stock markets. Nevertheless, to understand how the stock market works, one of the first things you need to understand is the basic terminology that is most commonly used in online trading.

Let us read a few commonly used online trading terms and their meaning so that you do not feel lost when you make your debut into the world of online trading.

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Why is it important to know online trading terminologies?

The first thing a person needs to do before getting into any form of investment is research. This holds true for the stock market and especially online trading. In online trading, people use many jargons that newcomers or those not related to the stock market wouldn’t understand. These jargons are understandably very industry-specific and used by experienced traders regularly.

These terms are used in order to explain indices, stock market patterns, trading strategies, and much more. If you are new in the world of online trading and do not want to spend too much time looking up unfamiliar terms daily, you need to learn the terms and what they mean.

Common terms used in online trading

It is very important for you to learn the basic online trading terms before you jump headfirst into the stock market. So here are some day-to-day jargons that you should be familiar with to navigate through the markets.

Agent: An agent is also known as a broker or a stock brokerage firm. They usually are the ones that buy and sell the stocks on behalf of the investor. The investors are their clients on whose behalf they take an active part in buying and selling stocks according to need. The agent or the broker does not own any part of the share during the entire transaction.

Ask/Offer: The term ‘Ask’, also known as ‘Offer’, is the lowest price, which the owner of any equity shares asks for his shares when they are selling their shares in the stock market.

At the money: This is a situation in the stock market in which the stock price of any option is the same as the underlying securities market price. High options trading activity can be seen when ‘at the money’ options occur.

Bear and bull market: The terms bull and bear market are often used in news articles related to the stock market. These terms are used to describe the current trend that can be seen in the stock market at that given time.

A downward trend or low mood in the market is known as a bear market. This means that the price of stocks is constantly falling. On the other hand, a bull market refers to an upward trend in the stock market, meaning the prices of the stocks are increasing.

Bid: This term is related to ask/offer. Basically, a bid refers to the amount of money any potential buyer is willing to pay for a share of any stock. If multiple buyers bid on the same stock, this will lead to a bidding war. The highest bidder will be able to buy the stock.

Call option: This is an offer that a buyer of an option gets. They get the right, without any obligation to buy a particular asset within a particular time limit and with a set price.

Close price: This is the final price at which any stock is traded or sold at the end of a trading day.

Equity: This is one of the most common terms in online trading. ‘Equity’ refers to ownership. In other words, it refers to how many shares of a company are owned by an investor.

Spread: An ask-bid-spread basically refers to the difference in price that the seller asks for a stock and the price that the buyer wants to pay for it. Often, the bidding price is lower than the asking price. The difference between these two prices is known as the spread.

Trading account: A trading account is essential for anyone participating in online trading. It is an account that links an investor’s Demat and bank account. Through a trading account, one will be able to buy and sell shares at their will and speed.

Volatility: This term refers to fluctuations in the stock price. Stocks with high volatility have a lot of ups and downs in their prices. The opposite is true for low-volatility stocks.

Yield: The end goal of anyone trading stocks is to get good returns. This is referred to as yield. This is calculated in percentage and basically refers to the return on a stock investment.

Conclusion

These are some of the most important terms you need to know when you are planning to get into the world of online trading anytime soon. A stock market is an ever-changing place that you need to keep up with. If you are willing to take investing seriously, you should learn all the important jargon before diving into it.