Whether you are day trading or more interested in long-term investments, knowing the lingo is a vital part of learning how to day trade. There are terms you will need to master if you are going to be successful in day trading. Most of these terms not only apply to day traders but also to long-term traders who make their money investing for longer times in hopes of earning maximum return on their investment.
In This Post:
The Stock Split
Stock splits can have a significant impact on the price of the stock being discussed. For example, at one time Apple chose to do a 7:1 stock split. At the time their stock was valued at $700, so Apple split their stocks by 7, in doing so they reduced the value of a single share to $100. Thus, if you owned 1000 shares valued at $700 each, once the split occurred you would then have 7,000 shares valued at only $100 each.
The Reverse Split
This is the opposite of the standard split in that a company will combine shares into a single share. Example: If you were holding 1000 shares valued at $1.00 each and the company does a 10:1 reverse split, you would end up with 100 shares valued at $10.00 each. This also helps to increase the float.
The After-Hours Trade
This type of day trading is completed by using an ECN (electronic communications network) to bring buyers and sellers to complete transactions outside of the normal market hours.
The Day Trade
This occurs when you buy and sell a stock on the same day subject to particular rules and regulations.
The Beta Value
Beta is described as a numeric that value traders use to measure the variation in the value of a stock in comparison to what is currently going in the market.
What is High-Frequency Trading?
High-Frequency Trading occurs when a trader makes use of powerful computers and special programs to fully automate trading. This allows them to complete substantial orders at very high speeds.
What is Freeriding?
This occurs when you sell a stock before you have completed the initial purchase of the stock.
The Leading Indicator
This term is used to cover specific factors of economic performance that are measurable that show a shift ahead of an economic cycle for a stock before it has begun to follow a pattern.
The Lagging Indicator
Lagging indicators are referred to as technical factors that are known to be lower than the expected price of a fundamental security.
What is a Crossed Market?
This is an unusual and very temporary situation in which the current bid prices for a particular asset is more than the current asking price.
What is a Dividend?
The dividend is the amount paid to shareholders as a way of allowing the investor to share in the company’s successes.
What is Divergence?
This occurs when the price of a particular stock diverges from the “momentum oscillator” which is generally seen as an indication of price reversal.
The EPS or earnings per share it the portion of the company’s profits that have been allocated to each share of stock. Analysts consider this to a critical metric.
What is the Market Cap?
This is the market value of a company’s total outstanding shares and is a measurement of the company’s size, small, medium, or large cap.