Introduction to trading: The most important basic terms

Basic concepts of trading

1. Share : Represents a share in a company. If you buy a share, you become a co-owner and are entitled to dividends.

2. Bond : A debt security in which you lend money to the issuer (e.g. a company or government) and receive interest in return.

3. Foreign exchange (Forex) : Trading in currencies. The foreign exchange market is the largest financial market in the world.

4. Commodities : Physical goods such as gold, oil or coffee that are traded on special markets.

5. Broker : A financial services provider that facilitates the buying and selling of securities.

6. Long and short positions :

• Long position : Buying a financial instrument with the expectation that its price will increase.

• Short position : Selling a financial instrument you do not own in the hope that the price will fall.

7. Leverage : Allows you to trade with more money than you actually have, which can magnify both profits and losses.

8. Margin : Security that must be deposited to open a leveraged position.

9. Spread : The difference between the buy (ask) and sell (bid) price of a financial instrument.

10. Volatility : The range of fluctuation of a financial instrument over a certain period of time.

11. Liquidity : The ability to easily buy or sell a financial instrument without affecting the market price.

12. Order types :

• Market Order : Immediate execution at the current market price.

• Limit Order : Execution at a specific price or better.

• Stop Order : Execution at a specific price that activates the order.

13. Stop-Loss and Take-Profit :

• Stop Loss : Limiting losses by closing a position at a specific price.

• Take Profit : Realizing profits by closing a position at a certain price.

14. Pips : The smallest unit of price change in Forex trading.

15. Candlestick charts : Representation of price movements using candles that show opening, high, low and closing prices.

16. Bull and bear market :

• Bull market : Market with rising prices and optimistic investor behavior.

• Bear market : Market with falling prices and pessimistic investor behavior.

17. Indicators : Mathematical calculations based on price, volume or other market data, such as moving average and RSI.

18. Diversification : Risk management strategy to reduce risk by spreading assets.

19. Portfolio : Collection of investments of a trader or investor.

20. Slippage : Difference between expected and actual execution price of an order.

21. Hedging : Strategy to reduce risk through offsetting positions.

22. Volume : number of units of a financial instrument traded.

23. Fundamental analysis and technical analysis :

• Fundamental analysis : Evaluation of a company or market by analyzing economic and financial factors.

• Technical analysis : Using historical price data to predict future price movements.

24. Return : Profit or loss on an investment, expressed as a percentage of the capital invested.

25. Arbitrage : taking advantage of price differences of the same financial instrument in different markets.

26. Benchmark : Standard for measuring the performance of a portfolio, e.g. the S&P 500 Index.

27. ETF (Exchange-Traded Fund) : An exchange-traded fund that holds multiple securities and is traded like a stock.

28. IPO (Initial Public Offering) : The first sale of a company’s shares to the public.

29. Bid and Ask :

• Bid : Price that buyers are willing to pay.

• Ask : Price that sellers ask for.

30. Liquidity : Ability to quickly buy or sell an asset.