10 Important Trading Terms Every Trader Must Should Know
Before you start online stock trading, here are 10 trading terms you must know:
1. Annual Report
Annual reports give shareholders a holistic view of the company. It includes the balance sheets, profit and loss statements, and cash flow statements of the company. However, the most important thing in the annual report is the management discussion and analysis section, which helps us understand the management’s view of the way forward in the company.
2. Bull Market
When markets are in an uptrend for a sustainable period, it is called a bull market. It is any trader or investor’s dream to be a part of a long, sustainable bull market.
3. Bear Market
When markets are in a downtrend for a sustainable period, it is called a bear market. This is when the markets are dull, and the patience of investors is tested.
4. Blue-Chip Stocks
The Nifty 50 stocks are generally considered blue-chip stocks. These are the top-most companies by market capitalization and do not face huge volatility. It is also known as a safe haven during market corrections, and many investors resort to blue-chip stocks in bear markets.
There is an order book that is built in any exchange. Bid-Ask offers are buy and sell offers. When any online trader puts a buy transaction, his position will be triggered at the lowest ask price and when any online trader puts a sell transaction, his position will be triggered at the highest bid price.
6. Day Trading
Intraday or Day trading is where traders have to square off their position on the same day. Most of the exchanges have this feature for online trading, where they square off positions automatically 15/30 mins before the trading session ends.
7. Stop Loss
Stop Loss is one of the most important trading terminologies. It is a shield to your capital. Say, you bought a position at Rs. 100. If your maximum loss appetite is Rs. 1000 and your Stop Loss level is Rs. 90, you will buy 100 shares of that script. If at any time Newshunttimes during a trading session, the price breaches Rs. 90, the position will be squared off, and you will bear a loss of Rs. 1000.
8. Moving Average
To average out the price movements, traders calculate the moving averages of the last 5, 10, 20, 50, 100, and 200 days and plot those lines on their online trading charts. Based on the time frame, the trader uses the moving averages to trade in the markets.
Volatility is also called risk in stock markets. The higher the volatility, higher the risk, and vice-versa. This usually increases when there is fear in the markets and subdues when markets are stable.
10. Beta and Alpha
Beta measures the expected move of a stock as compared to the index. For example, a Beta of 1.5 means that if the index is up by 1%, the stock will be up by 1.5%. Alpha is the excess return on investment as compared to the index. For example, if the index return is 12% and the portfolio return is 15% the investor generated an Alpha of 3% (15%-12%).