Stock Trading Terms Flashcards
(32 cards)
Strike Price
The price of the underlying security an option owner can buy or sell at.
Ticker Tape
Shows completed trades.
Call option
A call option gives the owner the right, but not the obligation, to buy a security at a predetermined price within a specific time. A call option is bought for leverage or for limiting your risk.
Put Option
A put option gives the owner the right but not the obligation to sell a security at a predetermined price within a specific time. A put option is sold for leverage or for limiting your risk.
Short Selling
Speculating that the security will drop in value by selling a not yet owned security and then looking to buy it back at a lower price. The short seller then returns the borrowed securities.
Paper Trade
When a trade is not taken with real money but merely “written down” in order to keep a record. A risk free way of testing a trading strategy.
Net Worth
The sum between a company or person’s total assets and total liabilities.
Market Order
An order to buy or sell at best available price at the current price.
Market Capitalization
Also referred to as Market Cap. The total value of a company which is calculated by multiplying total amount of shares with stock price.
Margin Account
An account that uses credit from the brokerage firm to buy or sell short securities. The client will be charged interest on the credit. The client will have to deposit a margin amount to get the credit.
Long
Owning the security.
Short Selling
Speculating that the security will drop in value by selling a not yet owned security and then looking to buy it back at a lower price. The short seller then returns the borrowed securities.
Mutual Fund
A fund which invests in any available instrument, stocks, bonds etc. Mutual fund units can be bought and sold through a brokerage firm.
Hedge Fund
A fund which invests in any available instrument but more aggressively than a mutual fund as the hedge fund is exempt from many rules so it can both short sell, use leverage etc.
Leverage
- The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
- The amount of debt used to finance a firm’s assets. A firm with significantly more debt than equity is considered to be highly leveraged.
Derivative
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
Commodity
- A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.
- Any good exchanged during commerce, which includes goods traded on a commodity exchange.
Subsidiary
A company whose voting stock is more than 50% controlled by another company, usually referred to as the parent company or holding company. A subsidiary is a company that is partly or completely owned by another company that holds a controlling interest in the subsidiary company. If a parent company owns a foreign subsidiary, the company under which the subsidiary is incorporated must follow the laws of the country where the subsidiary operates, and the parent company still carries the foreign subsidiary’s financials on its books (consolidated financial statements). For the purposes of liability, taxation and regulation, subsidiaries are distinct legal entities.
Merger
The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock.
Securities And Exchange Commission - SEC
A government commission created by Congress to regulate the securities markets and protect investors. In addition to regulation and protection, it also monitors the corporate takeovers in the U.S. The SEC is composed of five commissioners appointed by the U.S. President and approved by the Senate. The statutes administered by the SEC are designed to promote full public disclosure and to protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce, through the mail or on the internet must be registered with the SEC.
Liquidity
- The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.
- The ability to convert an asset to cash quickly. Also known as “marketability.”
There is no specific liquidity formula; however, liquidity is often calculated by using liquidity ratios.
Spread
Definition of ‘Spread’
- The difference between the bid and the ask price of a security or asset.
- An options position established by purchasing one option and selling another option of the same class but of a different series.
Ask
The price a seller is willing to accept for a security, also known as the offer price. Along with the price, the ask quote will generally also stipulate the amount of the security willing to be sold at that price.
Sometimes called “the ask.”
Bid
Definition of ‘Bid’
- An offer made by an investor, a trader or a dealer to buy a security. The bid will stipulate both the price at which the buyer is willing to purchase the security and the quantity to be purchased.
- The price at which a market maker is willing to buy a security. The market maker will also display an ask price, or the amount and price at which it is willing to sell.
