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Winning T > Important Trading Terms > Flashcards

Important Trading Terms Flashcards

1
Q

RVOL

A

This compares current volume to normal volume for the same time of day, and it’s displayed as a ratio. So for example, a stock trading 5 1/2 times its normal volume would have a Relative Volume display of 5.5.

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2
Q

High bid

A

When a market maker, ECN, or NYSE go to the bid and indicates a higher price than the current bid. If this is repeated, take serious note.

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3
Q

When a market maker, ECN, or NYSE goes to the offer and indicates the lowest price. If this is repeated, take serious note. What is this called?

A

Low Offer

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4
Q

Where the stock is trading. The highest bid and the lowest offer together make up the?

A

Inside Market

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5
Q

What is “Holding the bid”?

A

When a market maker, ECN, or NYSE stays on the bid and continues to buy stock. Is a strong buy signal.

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6
Q

When a market maker, ECN, or NYSE stays on the offer and continues to sell stock. This Is a strong sell signal. What is this process called?

A

Holding the Offer

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7
Q

the simultaneous purchase of a security in one market and the sale of it or a derivative product in another market to profit from price differentials between the two markets is called?

A

Aribitrage

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8
Q

Explain what a Basis Point is

A

The measurement of a change in the yield of a debt security. One basis point equals 1/100 of one percent.

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9
Q

What term refers to the stock of a large, public company that is considered to be financially sound and having stable fundamentals, including profitability and earnings.

A

Blue Chip Stock

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10
Q

Explain what a Bond is:

A

A bond is a debt security, similar to an IOU. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency, or other entity known as the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due.

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11
Q

What is Dollar Cost Averaging?

A

Dollar cost averaging refers to the practice of purchasing securities at predetermined intervals and at set amounts, protecting the investor against dramatic movements in price.

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12
Q

What is Front Running?

A

taking a position in a security based on non-public information such as an impending transaction by another person in the same or related security.

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13
Q

What is inflation?

A

the rate at which the general level of prices for goods and services in an economy is rising.

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14
Q

What is an Option?

A

A contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific price within a specified period of time, regardless of the market price of that instrument.

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15
Q

What is a Qualified Investor?

A

Qualified Investors are individuals, trust accounts or institutional funds with at least $5 million in assets to invest with.

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16
Q

What is an aspect of the economy that has companies in related businesses called?

A

A Sector

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17
Q

Explain what a Stock is

A

An instrument that signifies ownership (called equity) in a corporation and represents a claim on part of the corporation’s assets and earnings.

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18
Q

What is an Underwriter?

A

A financial firm that brings private companies public by assisting in the initial offering of shares to the public.

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19
Q

Explain Stock Splits:

A

When a company declares a stock split, the price of the stock will decrease, but the number of shares will increase proportionately. For example, if you own 100 shares of a company that trades at $100 a share and it declares a two for one stock split, you will own a total of 200 shares at $50 a share after the split. A stock split has no effect on the value of what shareholders own. If the company pays a dividend, your dividends paid per share will also fall proportionately.

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20
Q

What happens during a Takeover?

A

When a publicly traded company is purchased via a LBO or by another public company.

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21
Q

What is “Premium”?

A

The amount in excess of a stock’s price. A firm usually gets taken over at a premium to its traded price.

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22
Q

What does it mean when an Option is Out-of-the-Money?

A

A term used to describe an option that has no intrinsic value.

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23
Q

What is an LBO?

A

When a publicly traded company is taken private.

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24
Q

What is a Bond Yield?

A

The return received when bond is purchased and held to maturity. The yield is calculated by dividing the interest rate by the purchase price of the bond.

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25
Q

What does the term “Oversold” refer to?

A

A technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors.

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26
Q

What does the term “Overbought” refer to?

A

A technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors.

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27
Q

Describe a Gap:

A

When the high of the day is below the low of the previous day or when the low of the day is above the high of the previous day, leaving a break between prices.

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28
Q

Describe an Unusual Hold:

A

Either a bid or offer that buys/sells an unusually large amount of shares at the same price.

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29
Q

What is a Ticket?

A

A lot of 1000 shares. 50,000 shares traded = 50 tickets.

30
Q

What is a “Tick”?

A

The minimum fluctuation/movement (up or down) in the price of a security.

31
Q

What is a “Rip”?

A

A trade that turned out badly. An unprofitable trade.

32
Q

Describe what the term “Range” refers to:

A

The difference between the high and low price of a commodity, futures, or option contract during a given period.

33
Q

What is Printing on the Bid or on the Offer?

A

When a stock trades at the inside bid or inside offer.

34
Q

Describe the term Lift/Get Up

A

When the** Low Offer** disappears from the Box because its order to sell is complete.

35
Q

Describe a “Hunt Order”

A

An order to buy or sell that automatically executes against a particular price.

36
Q

What is a Hidden Order?

A

An order placed through NSDQ that doesn’t appear on the Box.

37
Q

What does it mean to “Decrement”?

A

An order decreasing in size as people execute against the order.

38
Q

Describe the term “Drop”

A

When the Best Bid disappears from the Box because its order to buy is complete.

39
Q

What is a “Chop or Chip”?

A

A good trade. A profitable trade.

40
Q

What is a Security?

A

A security is an ownership or debt with value and may be bought and sold.
The term “security” refers to** a fungible, negotiable financial instrument that holds some type of monetary value**. A security can represent ownership in a corporation in the form of stock, a creditor relationship with a governmental body or a corporation represented by owning that entity’s bond; or rights to ownership as represented by an option.

41
Q

What are Quantative Factors?

A

Quantitative factors refer to the financial numbers that reflect the health and profitability of a company, such as the company’s assets, liabilities, revenue, and price-to-earnings (P/E) ratio.

42
Q

Explain Qualitative Factors:

A

Qualitative factors, refer to non-numeric aspects of the company that are somewhat more intangible but nonetheless affect the potential value of a company.
Examples of qualitative factors include customer satisfaction with the company’s products, pending litigation that harms a company’s reputation, a change in a company’s management, or a new technology that gives a company a competitive advantage.

43
Q

What is an inside Quote?

A

Inside quotes are undisplayed orders where the inside bid is higher than the displayed bid and inside ask is lower than the displayed ask price.
Inside quotes are commonly associated with market makers, but anyone with access to certain advanced order types, dark pools, or hidden orders could create an inside order.
Inside quotes are not visible on the order book, but when there is a transaction at an inside quote price it will show up on the time and sales.

44
Q

What is Price Improvement?

A

Price improvement is when a securities order is filled at a better price than quoted.
Price improvement is more likely to occur in highly-liquid, actively-traded securities.
Many brokers use their purported ability to gain price improvement for their clients in marketing materials, but these claims are never guarantees.

45
Q

What is an ECN?

A

The simplest way to describe an ECN (Electronic Communication Network) is to think of a completely electronic stock exchange—buyers and sellers are matched by computer without the need for a human middle person. Orders are executed directly from the trader’s DAT and transmitted electronically to the ECN almost instantaneously, sometimes within a fraction of a second.

46
Q

What are Direct Access Trading Systems?

A

Direct access trading systems allow traders to trade stock (or virtually any other financial instrument) directly with a market maker or specialist on the floor of the exchange, or immediate order execution.

47
Q

What is a Market Maker?

A

The term market maker refers to a firm or individual who actively quotes two-sided markets in a particular security by providing bids and offers (known as asks) along with the market size of each. Market makers provide liquidity and depth to markets and profit from the difference in the bid-ask spread. They may also make trades for their own accounts, which are known as principal trades.

48
Q

When a market maker makes trades for their own account, what is this called?

A

Market Makers make trades for their own accounts, which are known as principal trades.

49
Q

Describe a brokerage firm?

A

A brokerage firm or brokerage company is a middleman who connects buyers and sellers to complete a transaction for stock shares, bonds, options, and other financial instruments.

50
Q

What is a discount brokerage?

A

A discount brokerage is an online brokerage. The online broker’s automated network is the middleman, handling buy and sell orders that are input directly by the investor.

51
Q

Which exchange is a fully electronic Exchange?

A

**The NASDAQ **is a fully electronic exchange where all trading activity occurs over an extensive computer network.

52
Q

What four roles does a specialist perform?

A

A specialist allows for the trading of a specific stock by serving four roles:** auctioneer of stocks to investors, agent for investors in stock trades, catalyst to instigate trades from interested parties, and principal who buys, holds, and sells shares of stock with their own capital** when necessary.

53
Q

How does regulation NMS affect trading in today’s market?

A

In today’s market, due to regulation NMS,** investors receive the best bid or offer available when making a trade.**

54
Q

What type of securities are financial assets that entitle their owners to a stream of interest payments?

A

Debt securities

55
Q

True or false, debt securities require the borrower to repay the principal borrowed?

A

True

56
Q

The interest rate for a debt security will depend on what factor?

A

The perceived creditworthiness of the borrower.

57
Q

Name some common types of debt securities.

A

Bonds, such as government bonds, corporate bonds, municipal bonds, collateralized bonds, and zero-coupon bonds.

58
Q

Describe how a Debt Security works:

A

A debt security is a type of financial asset that is created when one party lends money to another. For example, corporate bonds are debt securities issued by corporations and sold to investors. Investors lend money to corporations in return for a pre-established number of interest payments, along with the return of their principal upon the bond’s maturity date.

59
Q

Why are debt securities also known as fixed-income securities

A

Because they generate a fixed stream of income from their interest payments.

60
Q

Explain the difference between Debt Securities vs Equity Securities:

A

Equity securities represent a claim on the earnings and assets of a corporation, while debt securities are investments in debt instruments.

61
Q

Who usually issues Debt Securities?

A

The most common issuer of debt securities are corporations and governments. Both issue debt securities to raise money: governments to finance projects or for day-to-day operations and corporations to fund growth, pay down other debt, and also to finance day-to-day operations.

62
Q

How is the yield for a stock formulated?

A

The yield would be the appreciation in the share price plus any dividends paid, divided by the original price of the stock. The yield for the example would be:
Cost Yield = (Price Increase + Dividends Paid) / Purchase Price

63
Q

How do you calculate the yield based on the current market price, instead of the purchase price?

A

Current Yield = (Price Increase + Dividend Paid) / Current Price

64
Q

The yield on bonds that pay annual interest can be calculated in a straightforward manner—called the nominal yield, which is calculated as?

A

Nominal Yield = (Annual Interest Earned / Face Value of Bond)

For example, if there is a Treasury bond with a face value of $1,000 that matures in one year and pays 5% annual interest, its yield is calculated as $50 / $1,000 = 0.05 or 5%.

65
Q

Explain Yeild:

A

Yield is a return measure for an investment over a set period of time, expressed as a percentage.

66
Q

What types of companies tend to pay dividends?

A

Larger, established companies with predictable profits are often the best dividend payers.

67
Q

What industry sectors maintain a regular record of dividend payments?

A

Basic materials
Oil and gas
Banks and financial
Healthcare and pharmaceuticals
Utilities

68
Q

When is Price Improvement most likely to occur?

A

Price improvement is more likely to occur in highly-liquid, actively-traded securities.

69
Q

Explain Fungibility

A

Fungibility implies that two things are identical in specification, where individual units can be mutually substituted. For example, specific grades of commodities, such as No. 2 yellow corn, are fungible because it does not matter where the corn was grown; all corn designated as No. 2 yellow corn is worth the same amount.

70
Q

What is Cross-Listing?

A

Cross-listing is when a company in one country becomes listed on more than one exchange or an exchange in another country. A business would typically want to become cross-listed if it needed access to more capital than is available on one exchange or if the move was part of its strategic growth plan.

Winning T (8 decks)

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