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Trading Terminology
Build fluency in the language of trading so you can learn faster and avoid costly misunderstandings.
A
- Account Type: Cash
- A brokerage account where you can only trade with the cash you deposit. You must fully pay for purchases, and proceeds from sales must settle (T+2 historically; confirm current settlement rules with your broker).
- Account Type: Margin
- A brokerage account that allows you to borrow money from your broker to trade. It offers leverage and also comes with interest charges and increased risk.
- Acquisition
- A transaction in which one company purchases another, either by buying its stock or assets.
- After-Hours Market
- Trading after the regular session, typically from 4:00 PM to 8:00 PM ET. It can be more volatile around earnings or news.
- Analysts
- Financial experts who research stocks and issue buy, sell, or hold recommendations.
- Ask
- The lowest price a seller is willing to accept for a stock.
- Average Day Range (ADR)
- The average distance between a stock’s daily high and low over a set period. It helps traders anticipate potential movement.
B
- Bid
- The highest price a buyer is willing to pay for a stock.
- Blue Chip / Large Cap
- Large, well-established companies, typically with a market capitalization over $10 billion.
- Borrowing Shares to Short
- Borrowing stock from a broker so you can sell it short. This requires a margin account.
- Breakout
- When price moves above a defined resistance level with increased volume, signaling potential continued momentum.
C
- Catalyst
- An event that can drive price, such as earnings, a news release, an analyst action, or a major business development.
D
- Due Diligence
- The research you do before a trade: filings, financials, sector news, and risks.
E
- Earnings Winner
- A stock that rises after a company reports better-than-expected earnings.
- End of Day (EOD)
- The regular session close at 4:00 PM ET. EOD prices are used for planning the next session.
G
- Gap Down
- A stock opens significantly lower than the previous close, often because of negative news.
- Gap Up
- A stock opens significantly higher than the previous close, often because of positive news.
- Green on the Day
- The stock is trading above the previous day’s closing price.
- Green to Red (G/R)
- A stock opens above the previous close, then fades below it. That often signals weakness.
H
- HTB (Hard to Borrow)
- A stock that is difficult to borrow for short selling because shares are limited.
- High of Day (HOD)
- The highest price reached during the trading day. A break of HOD can signal momentum.
I
- IPO
- Initial Public Offering — the first time a private company sells shares to the public.
L
- Level 2
- A tool that shows real-time bid and ask prices from multiple market participants.
- Limit Order
- An order to buy or sell at a specific price or better.
- Low Float
- A stock with relatively few shares available to trade. Low-float names can move quickly on volume.
M
- Market Capitalization
- Share price multiplied by shares outstanding — the total value of the company’s shares.
- Market Order
- An order to buy or sell at the best available price.
- Micro Cap
- A company with a market capitalization roughly between $50 million and $300 million.
N
- Nano Cap
- A company with a market capitalization below about $50 million.
O
- Offering / Financing
- When a company raises capital by issuing new shares or other securities.
P
- PDT Rule
- The Pattern Day Trader rule. In a margin account, four or more day trades in five business days can require a $25,000 minimum balance. Confirm the current rule with your broker.
- Penny Stock
- A stock that trades under $5. Often speculative, with wide spreads and high volatility.
- Premarket
- The session before the open, typically 4:00 AM to 9:30 AM ET. Traders use it to react to news and earnings.
- Public Float
- Shares available for public trading, excluding restricted insider shares.
R
- Red on the Day
- The stock is trading below the previous day’s close.
- Red to Green (R/G)
- A stock starts the day below the previous close and then trades above it, often a momentum signal.
- Resistance
- A price area where selling pressure tends to stop price from moving higher.
- Reverse Merger
- A private company goes public by merging with an already-public shell company.
S
- Short Sale Restriction (SSR)
- A restriction on short selling after a stock drops more than 10% in a day.
- Short Selling
- Selling borrowed shares in anticipation of buying them back at a lower price.
- Short Squeeze
- A rapid rise that forces short sellers to cover, which can push the price even higher.
- Small Cap
- A company with a market capitalization roughly between $300 million and $2 billion.
- Stock Halt
- A pause in trading, often because of volatility or pending news.
- Support
- A price area where buying interest is strong enough to slow or stop a decline.
T
- Time and Sales
- A real-time record of each trade — price, size, and time — used to confirm momentum or reversals.
V
- Volatility
- How much a stock’s price varies. Higher volatility means larger swings and more risk.
- Volume
- The number of shares traded in a period. Higher volume usually means more interest.
W
- Wall of Buyers
- A large cluster of buy orders at a price, acting as support.
- Wall of Sellers
- A large cluster of sell orders at a price, acting as resistance.