Trading can be overwhelming, especially when you’re just starting out. There’s so much to learn about different instruments, charts, and indicators that the amount of information can leave you feeling confused, and maybe even a bit hopeless. If you’re new to trading, keep in mind the most successful, experienced traders all started somewhere — and you can too.
To help, we’ve put together a list of the top terms every trader should understand before making a trade. Note that some of these terms were combined into pairs. That’s because they are either opposites or tend to be mentioned together, so pairing them up makes it easier to see their role in trading. Now, without further ado, here are the top trading terms to know:
For a trade to take place there must be a buyer and a seller. Simply put, ask represents the lowest price a seller is willing to sell for, while bid is the minimum price a buyer is willing to buy for.
Also helpful to know: the difference between the bid and ask price is called spread. Most brokers charge a spread when you buy/sell from them.
Generally speaking, a trend is the direction of the market’s price movement. A period of falling prices is referred to as a bear market; it can also be described as a bearish trend. Oppositely, rising prices mark a bull market or bullish trend.
In trading, the battle between sellers and buyers — or in other words, supply and demand — takes place at support and resistance levels. This is one of the most important concepts to master after understanding the meaning of a trend. Resistance is the level at which selling pressure prevents prices from moving higher. Support, on the other hand, is where demand is strong enough that it prevents prices from falling further.
Traders keep an eye on support and resistance levels to find potential entry and exit points. When a price reaches a support or resistance level, it will either back away from this level or break through the level and continue in its direction.
Indicators are technical tools to help analyze market conditions and help find entry/exit points for a trade. There are several types of indicators measuring different factors, such as trend, momentum, volatility, and volume. It is often recommended to combine indicators rather than rely on one alone. Ultimately, it is up to traders to analyze this information themselves and make a trading decision accordingly. However, traders should be cautious and watch out for false signals.
Leverage means borrowing from a broker in order to increase profit. While leverage allows you to trade with more funds than you have on hand and thus potentially earn greater profit, unsuccessful trades may result in serious losses. Leverage should be used with discretion.
How much and how often a price changes is expressed as volatility. If an asset is called highly volatile, it means the price is constantly fluctuating, mostly with extreme highs and lows. On the one hand, high volatility allows traders to profit from spikes and dips. On the other hand, price movement may be unpredictable, meaning there is always the risk of losing the trade.
While this list is relatively short, it’s a great place to start. It’s true the trading world is full of complex terms, but taking it one step at a time will increase your knowledge little by little. Did we miss any important terms? Let us know what you would add to this list!