Stock trading is a highly specialized sphere of activity, the success of which depends on the understanding of the processes which take place on it. As in the majority of closed ecosystems, it has developed its own language, misinterpretation of these words and terms may well lead a novice trader to fatal errors. Knowledge and understanding of professional terminology is the key to competent behaviour on the stock exchanges and successful trading. So, we present to your attention a dictionary of the basic vocabulary, the meaning of which is set out in the most understandable, accessible language.
Share - is the most common type of securities. There are several types: ordinary or privileged, simple or voting. Depending on the type of shares, they give their owners the right to receive dividends (part of the company's profit) or to participate in the management of the company. The main difference between ordinary shares and privileged shares is that the amount of dividend payments on them is known in advance and does not depend on the economic indicators of the enterprise at the end of the year.
ASK - the price at which a seller of something was ready to make a deal.
BID – the minimum price that will satisfy a seller of an asset.
Exchange - in the broad sense - a platform (in most cases, a legal entity), where all operations related to the purchase, sale and exchange of securities, currency, goods and anything else take place. It is important to understand that exchange is a mediator which takes commissions from the participants of transactions for its services. The more transactions take place on an exchange, the higher its income.
Broker - is a person or a company to whom you, for various reasons, entrust you right to trade on an exchange. That is, a broker is a participant of the exchange trade, who makes transactions not on his own, but for other people's money, which he has in trust. To carry out brokerage activities, it is necessary to have a license. The broker's remuneration for the work can be either fixed or in a form of a certain percentage of the transactions.
Bulls- generalized designation of a certain category of players who are interested in the growth of the value of assets traded on the exchange. The name symbolizes the characteristic actions of bulls which raise objects with horns.
Volatility-this term describes the change in the price of any asset that is traded on the exchange. Volatility can be high or low. Investments in highly volatile assets are considered to be risky, in assets with low volatility – more reliable, but also less profitable.
Security or Margin – money that a client debit to a broker's account, and which further act as a guarantee for the fulfillment of a contract.
Gap - a sharp change in the value of an asset when the minimum value of the previous trading day exceeds the maximum value of the next or the maximum value of the previous day is below the minimum value of the next day.
Depository- is a place where a history of transfer of securities’ ownership, as well as their certificates, are stored. Nowadays, all this information is stored in electronic form on the servers of specialized legal entities.
Derivative - is a type of contract that specifies the selling price of an asset that is favourable to an owner of the asset, based on exchange rates. In a broad sense, it is an agreement between the two parties, in which they say that they transfer certain goods at a certain cost within the time frame specified in the contract. At the same time, the derivative itself can also act as an object of purchase and sale.
Diversification - is an investment strategy, according to which the money available to a person is not invested in one asset, but in several, usually with different risks and different returns. This is done in order to minimize the risks of losses if suddenly some of the investments do not justify itself.
Dividend - is a certain part of the company's profit that is distributed among shareholders. The amount of payment depends on a number of factors including the number of shares and their type, the decision of the Board of Directors. Anyway, the more securities a shareholder has, the more dividends he will receive.
Dealer - is a participant of the exchange trade who, unlike the broker, do not use other people's funds and assets that are in his trust, but his own.
Trust management - is an investment strategy in which individuals or legal entities do not conduct exchange trading themselves, but trust the right to carry out this activity to professionals. The reasons for this can be very different: from the lack of time to the reluctance to delve into the specifics of the process.
Closing position – the final settlement of a transaction, the full redemption of an asset.
Application - is a document that a trader creates on the exchange and which indicates how much goods and on what terms he wants to buy.
Investor - individuals or legal entities (as well as state institutions) that trade on the stock exchange in order to make a profit.
Equity index – is an index which reflects dynamics of stocks, grouped according to a particular principle. The grouping usually takes place according to the sectors of the economy: shares of the high-tech sector, oil and gas, machine-building and so on.
Insider - is a source of confidential information obtained through the use of official position or other means inaccessible to ordinary exchange players, which is able to have a serious impact on the securities market. The presence of such informed sources is very important for a trader who wants to achieve really serious results in his work.
Intervention - is a large-scale interference in the exchange trading of major players seeking to change the situation in the right direction. The intervention involves serious buying or selling of an asset.
Internet trading - is a remote way of working with exchanges through the world wide web.
Controlling stake – is a part of a total number of shares issued by a company or an enterprise, the possession of which provides control over the activities of the joint-stock company. In the classical form, the controlling stake is a package of 50 percent plus one share. In practice, with a wide distribution of shares among investors, a controlling stake may be 20 – 25 percent.
Quotation - is the value of the stock asset at a given time.
Correction – price movement (usually short-term) in the direction opposite to the established trend. That is if during the month the ruble against the dollar fell, and then three days grew, then this is a correction.
Liquidity - is an exchange term that is used to evaluate how profitable trading of an asset is. If you can buy something and then sell almost without loss, such a product is considered liquid.
Best price - is a price which is close to the market price of buying or selling an asset.
Margin - is the money that a client holds on a broker's accounts as security for his traces. In addition, the margin gives a person the right to take money to make transactions on credit from the broker. The size of such a loan depends on how risky assets are and how much the client is going to trade.
Bears - is a generalized designation of exchange players who are interested in the decreased value of assets traded on the exchange. The name was born from the analogy with the actions of bear in the fight when each of the animals is trying to pin the other to the ground.
Bond - is security that, unlike a share, provides its owner with a guaranteed income. The decision to pay dividends is made by the Board of Directors of the company annually and can be both positive and negative, and the yield of bonds is known to the investor even before their acquisition.
Option - is a type of contract that establishes the right to buy or sell anything within the terms specified in the contract. It is important to understand that it is a right, not a duty. An option to buy, say, 20 tons of apples, does not oblige the investor to buy the product itself. If necessary, the option can be resold.
Support - is the price level of an asset traded on the stock exchange at which investors are willing to buy it, thus pushing its value to further growth.
Portfolio-a set of assets that an investor has.
Breakthrough - the growth of quotations above the last support or resistance level. It is important to understand that a breakthrough can be considered only the movement of quotations, which has received a continuation in time and not a short-term surge.
Bull market - the situation in the market when the value of assets increases in price under the influence of high demand.
Bear market-the situation in the market when the value of assets falls under the influence of large-scale sales.
Session-in a broad sense, this is the time of the exchange, when transactions with certain assets can be concluded.
Scalper – is a stock market player, who specializes in the sale of assets, the cost of which changes frequently, albeit slightly.
Resistance-the antonym of the term support denotes the level of prices for goods, for which the activity of sellers exceeds the activity of buyers, and the increase in the cost goes after its decline.
Speculation - is obtaining financial benefits from the difference in the price of buying and selling of an asset.
Speculator - is a person engaged in speculation and who is not interested in the real market.
Spread-the difference between the best prices for buying and selling an asset at a given time. The smaller the difference, the more liquid the asset is.
Technical analysis - is an exchange strategy based on the analysis of changes in the value of an asset in the past and the assumption that these fluctuations may be repeated in the future. The accuracy of technical analysis is influenced by a huge number of factors and the analysis can be carried out both manually and automatically.
Trader-a specialist who directly enters into transactions on the exchange.
Trading - is the process on the exchange.
Trend - is the movement of asset prices in a particular direction, not changing for a long time.
Flat- is a long-term situation in which there are no significant fluctuations in the value of an asset.
Stock market- is a collective concept of the set of operations with shares, both on exchanges and outside them.
Fundamental analysis - in contrast to technical analysis implies knowledge not only of the history of changes in the value of, for example, shares, but also the current material and technical condition of the company, the qualification of its personnel, management talents, market prospects for development and many other things.
Futures- is a popular form of contract, concluding which the parties stipulate the value of the goods for the transaction which will be made in the future. By analogy with the already mentioned apples, a seller and a buyer agree that the first party will sell, and the second will buy apples of the new crop at a price of 50 rubles per kilogram in May. Futures, as well as derivatives and options, are self-trading.
Charts - are graphic materials used to reflect the current market situation.
Issuer - is a company or enterprise that issue securities. In a broad sense, any entity that owns the right to issue anything.