One of the most intimidating parts of getting into investing and trading is the language barrier you need to break. It seems as if every page you open contains language you haven’t yet grasped, at least not entirely. Even worse, different trading types can use different terminology, leading to even more confusion. A trader that’s comfortable with forex terms might find themselves entirely lost in the crypto sphere—as such, getting through such issues can be a daunting task, especially when you’re new.
To make matters worse, most beginner education takes it that you’re already familiar with the language. Because of that, it’s not difficult to get caught in a vicious cycle and abandon the idea of trading as a whole. We’re aware of those issues and would like to take a few steps to mend them. As such, we’ll present some very basic trading terms for beginners.
Calls, Puts, and Short Positions
The two terms are the basis of stock trading, as they mean the user either buys or sells a stock. Additionally, the price at which you buy a stock is often called a bid, while we refer to the sell price as an ask. The latter is quite important for “shorting” stocks. Shorting, or going short, means you borrow a stock from a bank and sell it off immediately. That way, you get profits when the share price goes down since you’re buying it later at a reduced price.
It’s important to note that short trades come with a timeframe in which you must finalize them. Otherwise, you could theoretically hold indefinitely, eliminating any chance of a negative investment. It’s vital to know when to get out of a short position since, unlike long ones, the losses are theoretically indefinite.
Holding and Long Positions
Long positions are the basic form of trading, where you buy a stock and wait for its value to grow. Although they are not exactly the same thing, both definitely find a spot between trading terms for beginners. However, if you’ve invested without exploring the trading space too much, you’ve likely taken a long position. Holding is the action of not selling a security, meaning it can theoretically apply to short positions as well but is mostly used for long ones.
A trading platform is one of the simplest sales and trading terms you can learn. A platform represents the specific software you use to trade. Some like to use it interchangeably with brokers, often causing confusion among newer investors. Even Google is to blame for that since trading platform searches often come up with brokerage results. However, once you know the distinction, it’s simple to differentiate between the two.
Remember, “online broker” refers to the entire service, while platforms are the software you use to execute trades.
Leverage is another commonly-used term that often goes underexplained. It magnifies your initial investment, allowing you to boost your overall profits. Leverage is among the most popular forex trading terms, as it can create significant gains on small investment levels. However, keep in mind that it’s a double-edged blade, meaning it can also produce massive losses.
(Visible) Fees and Spreads
Fees are a very intuitive trading term for beginners to grasp. They’re simply charges that you need to pay in certain situations. With online brokers, that’s most often when you withdraw, deposit, or make trades. Some also have account maintenance fees, and overnight commissions on positions aren’t uncommon either. On another note, fees and commissions are often interchangeable terms.
Now, what’s with the (visible) in this section’s title? Well, the direct fees are often called visible since they’re often fixed either at an amount or percentage. However, there are also spreads which often come up as day trading terms. Spreads mean there’s a difference between the bid and ask price that the broker pockets to profit.