[Trading Newbie Course] Lesson 1: Understanding basic trading concepts and terminology

New to trading and feeling overwhelmed by all the technical terms and jargon? Understanding basic trading concepts and terminology is crucial for anyone looking to enter the world of trading. In this post, we’ll break down some of the most common terms you’re likely to encounter as a newbie in trading.

First, let’s start with the basics. A security is a tradable financial instrument such as a stock, bond, or option. A stock represents ownership in a company, while a bond represents a loan to a company or government entity. An option is a contract that gives the holder the right, but not the obligation, to buy or sell a security at a specific price on or before a certain date.

Trading takes place on exchanges, which are platforms where securities are bought and sold. The overall environment in which buying and selling of securities takes place is called the market. Brokers act as intermediaries between buyers and sellers of securities.

When buying or selling a security, you’ll encounter terms such as bid, which is the price at which a buyer is willing to purchase a security, and ask, which is the price at which a seller is willing to sell a security. The difference between the bid and ask price is called the spread.

Long and short positions refer to owning or borrowing a security with the expectation that it will increase or decrease in value, respectively. Margin is borrowing money from a broker to buy securities.

To limit potential losses, traders can use stop loss orders, which automatically sell a security when it reaches a specified price, or limit orders, which buy or sell a security at a specified price or better. Alternatively, a market order buys or sells a security at the current market price.

By familiarizing yourself with these basic trading concepts and terminology, you’ll be better equipped to navigate the trading world and make informed decisions.

Here are some basic trading concepts and terminology that a newbie in trading may come across:

1. Security: A tradable financial instrument such as a stock, bond, or option.
2. Stock: A security that represents ownership in a company.
3. Bond: A security that represents a loan to a company or government entity.
4. Option: A contract that gives the holder the right, but not the obligation, to buy or sell a security at a specific price on or before a certain date.
5. Exchange: A platform where securities are bought and sold.
6. Market: The overall environment in which buying and selling of securities takes place.
7. Broker: An individual or firm that acts as an intermediary between buyers and sellers of securities.
8. Bid: The price at which a buyer is willing to purchase a security.
9. Ask: The price at which a seller is willing to sell a security.
10. Spread: The difference between the bid and ask price of a security.
11. Volume: The total number of securities traded in a given period.
12. Liquidity: The ease with which a security can be bought or sold in the market.
13. Long position: Owning a security with the expectation that it will increase in value.
14. Short position: Borrowing a security with the expectation that it will decrease in value, selling it, and then buying it back at a lower price to return to the lender.
15. Margin: Borrowing money from a broker to buy securities.
16. Stop loss: A trading order that automatically sells a security when it reaches a specified price, limiting potential losses.
17. Limit order: A trading order that buys or sells a security at a specified price or better.
18. Market order: A trading order that buys or sells a security at the current market price.