Below is a glossary of basic trading terminology. The day trading glossary may seem long but necessary for day traders learning to be one of the many market participants. Don’t worry! You will get used to all the lingo quickly once you start studying and the information will be second nature. This list may not be “complete” since it is meant for a novice trader rather than more experienced traders and will be updated as needed.
Good resources for terms and their explanation beyond this comprehensive list exist with various brokers such as TD Ameritrade. Also, Investopedia is great for learning about trading terminology. This website will also be a beneficial resource if you are looking to learn about trading stocks/options. If you feel a term and its definition or even an acronym needs to be included in our below glossary, please feel free to drop a comment! Thanks for your help and participation!
Abandon: The act of not exercising or selling an option before its expiration
Ask: The price of a stock or option at which a seller is offering to sell a security.
Assigned: To have received notification of an assignment on short options by The Options Clearing Corporation through a broker.
Assignment: When the seller of an option receives an exercise notice that obligates them to sell (in the case of a call) or purchase (in the case of a put) the underlying stock at the option’s strike price.
ATM (At The Money): An option is at the money when the price of the asset is at or near the option’s strike price.
Automated Exercise: A procedure the OCC, Options Clearing Corporation, uses to exercise in the money options at expiration protecting the owner of the option from losing the intrinsic value due to the owner’s failure to exercise unless otherwise instructed not to do so by the owner.
Backtesting: The process of testing a strategy based on prior market conditions and time periods.
Bear: A person who believes that the price of an asset or the market as a whole will go lower.
Bearish: An outlook that anticipates lower price movement/value.
Bear Market: Any market where the prices are trending lower. A bear market usually is categorized by a 20% decrease in an asset class or major index.
Beta: A measure of the return in percentage on a stock relative to the return in percentage of an index.
Bid: The price of a stock or option at which a buyer is willing to purchase a security.
Bid/Ask Offer Spread: The difference between the bid and ask prices for a stock or option.
Broker: An individual or firm that charges a fee or commission for executing trade orders submitted by a client.
Bull: A person who believes that the price of an asset or the market as a whole will go higher.
Bullish: An outlook that anticipates higher price movement/value.
Bull Market: Any market where the prices are trending higher. A bull market usually is categorized by a 20% increase in an asset class or major index.
Buying Power: The amount of money available in an account to buy stocks or options. In a margin account, buying power is determined by the sum of the cash held in the brokerage account and the loan value of any marginable securities in the account without depositing additional equity.
Call Option: A contract that gives the option buyer the right but not the obligation to buy a stock/asset at a specific price within a specific time period.
Canceled Order: An order to buy or sell that is canceled before executed. Note that limit orders are generally canceled at any time as long as the order has not been executed. Some brokers will not accept an order for cancellation on a market order. Good to know depending on your broker.
Candlestick: a bar, or several bars, that create a chart pattern that represents the highest, lowest, open, and close of a price for a given period.
Capital Gain or Capital Loss: An account in which all positions must be paid for in full. Naked short calls or short stocks are not allowed in a cash account.
Cash Account: An account in which all positions must be covered by your capital and paid for in full. Essentially, you can only trade with the amount of money you have in your account. Be aware of pattern day trade rules.
Closing Price: The price of a stock or option at the last transaction of the regular trading session.
Commission: A fee that may be charged by a broker to a client when a trade is executed. It is important to know what your broker will charge you per transaction.
Contract: The basic unit for trading options. Whether a call or put, it is an agreement between the buyer and seller to abide by the terms of the option contract. It is important to note that one option contract generally represents 100 shares of that stock.
Contract Size: The number of shares of the stock that an option contract would deliver if exercised. One options contract is generally 100 shares, 5 contracts would be 500 shares, etc.
Correction: A temporary reversal in the price direction of the overall trend. Some traders may refer to it as a pullback as well.
Day Order: A day order is a buy or close order that is “good for the day” only. It is automatically canceled if the terms of the order cannot be executed the day it was placed. (Compared to GTC, good till it was canceled.)
Day Trade: A stock or option position purchased and sold on the same day.
Day Trading: Buying and selling a stock or option in one day’s trading session ending the day with no open positions.
Delta: One of the Greeks. Measures the sensitivity of an option’s price to changes in the value of the stock.
Dividend Yield: The amount of money a company pays shareholders for owning a share of its stock divided by its current stock price.
Down-Tick: A term used to describe a trade made at a price lower than the preceding trade.
Downtrend: Successive downward price movements of an asset over time.
Early Exercise: No, this isn’t a 5 a.m. ab routine. 😊 A feature of options that allows the buyer to exercise a call or put at any time before its expiration date.
Equity: 1) the amount of ownership in a stock, 2) the amount of funds in a trader’s account after all positions have been closed.
Extrinsic Value (Time Value): The difference between the entire price of an option and its intrinsic value.
Federal Open Market Committee (FOMC): A committee of the Federal Reserve Board which operates by buying and selling government securities in the open market
Federal Reserve Board: A 7 member board of governors of the Federal Reserve System that is responsible for the monetary policy within the United States. It controls the supply of money and credit to try to control inflation and promote stability in the economy. The members are appointed by the POTUS and confirmed by the Senate.
Fill: The result of executing a trade order.
Floor: The physical location of an exchange where the buying and selling of stocks/options take place.
Gamma: One of the Greeks. Represents the rate of change of Delta relative to the change of the stock price.
Good Till Canceled (GTC): A limit order that is active until it is filled or canceled.
Greeks: Regarding options, it’s a collective term for the analytical measurements: Delta, Gamma, Theta, Vega, and Rho.
Hedge: A position in a stock/option that is established to offset the risk of another.
Hedge Funds: Financial partnerships that use pooled funds and employ different strategies to earn active returns for their investors. These funds may be managed aggressively or make use of derivatives and leverage to generate higher returns.
High (H): In reference to the O, H, L, C, it represents the High price of the session or referenced period of time.
Historical Volatility: The annualized standard deviation of percent changes in the price of a stock over a specific period, past performance.
HOTD (HOD): High (price) of the day acronym.
Holder: Someone who has bought an option or owns a security.
Implied Volatility (IV): A metric used to estimate future fluctuations (volatility) of a stock’s price. It is often used to price options contracts. High Implied Volatility results in options with higher premiums. IV usually increases in bearish markets and decreases in bullish.
Index: A group of stocks that are selected to represent all stocks in the stock market or market segment. The performance of the index gives an idea of how the individual stocks might perform. Two well-known indices are the S&P 500 (Standard & Poor’s 500) and the Dow Jones Industrial Average.
Index Option: An option that has a stock index as the underlying asset.
In The Money (ITM): A call option is ITM when the price of the underlying stock is greater than the call’s strike price. A put option is in ITM when the price of the underlying stock is lower than the put’s strike price.
Intrinsic Value: Any positive value resulting from the stock price minus the strike price (for calls) and the strike price minus the stock price (for puts). Only ITM options have intrinsic value.
Investment strategy: Refers to a plan designed to help an individual investor achieve their financial and investment goals. This can relate to age, risk tolerance, and overall desired future results.
Investor: Someone who purchases stock with the intent of holding it for a certain amount of time and profiting. Compare to day trading.
Last (Price): The price of the last transaction of a stock or option for a trading session.
Leverage: The ability to control a larger amount of assets with a smaller amount of money, typically using options. Buying stock using margin is also leverage.
Limit (Price) Order: An order that has a certain limit on either price and/or time of execution. Limit orders to buy are usually placed below the current ask price. Limit orders to sell are usually placed above the current bid price. Compared to a market order which is an instruction to buy or sell a security immediately at the current value.
Long: Refers to traders who have bought a stock or options. This position indicates bullish intent meaning they project an increase in value.
Lot: Another word for contract.
LOTD (or LOD): Low (price) of the day acronym.
Low (L): In reference to the O, H, L, C, it represents the low price of the session.
Margin Account: An account that allows a trader to borrow money from its broker to buy more with less money; margin trading, borrowing money for leverage.
Margin Call: A brokerage firm’s demand of a client to add additional equity in their account to bring margin deposits up to a required minimum level.
Margin Requirement: The minimum equity required in an account to initiate or maintain a position in stock or options.
Mark: The midpoint between the bid and ask.
Market Cap: market capitalization is the total dollar value of all outstanding shares of a company at the current market price. It is a reference to size up corporations and understand their aggregate market value.
Market Data: Collected price and other related data for a financial asset reported by a stock exchange. Market data allows traders and investors to know the current price and see historical trends for various stocks and other financial assets.
Market Maker: a dealer in securities or other assets who undertakes to buy or sell at specified prices at all times. Market makers provide the market with liquidity while profiting from the difference in the bid-ask spread.
Market Order: An instruction to a broker to buy or sell a stock immediately at the current price.
Moving Average: A moving average (MA) is a stock indicator that is commonly used in technical analysis. The reason for calculating the moving average of a stock is to help smooth out the price data over a specified period of time by creating a constantly updated average price.
Naked Position: A trade position, long or short, that is not hedged from market risk. Also known as uncovered.
Net Change: The change in a stock/option price from the closing price of the previous day.
Net Position: The difference between a trader’s open long or open short positions in any one stock/option.
New York Stock Exchange (NYSE): The oldest and largest stock exchange in the United States founded in 1792. Options are not traded on the NYSE.
Non-Marginable Security: A security that must be paid for in full. Call and put option contracts are an example of this type of security.
Offer: Another name for the asking price.
Open: References the opening price of a stock in a trading session.
Open Order: An order that is active until it is executed or canceled.
Open Position: An existing trade position a trader has in a stock/option.
Option: A contract, call or put, that allows the owner to buy or sell a number of shares of stock at a predetermined price (strike price) on or before an expiration date.
Option Chain: A list of options, calls/puts, and their prices, for a particular stock.
Order: An instruction to purchase or sell a stock/options.
Out of the Money Option (OTM): A call is OTM when the price is lower than the call’s strike price for a stock. A put is OTM when the price is higher than the put’s strike price.
Partial Fill: An order of some stock being bought or sold at limit price but not the total requested number of shares.
Premium: The price of an option.
Professional Day Trader: anyone who day trades creating enough profits to provide for their lifestyle on a consistent basis. This could be individual traders or traders working for companies.
Put Option: A put gives the owner the right but not the obligation to sell the underlying stock at the options strike price on or before expiration. A long put refers to buying a put option in anticipation of the price declining.
Quote: The bid to buy and the offer to sell a stock/option at a given time. It denotes the highest price any buyer wanted to pay and the lowest price any seller would take.
Range: The high and low prices of a stock/option for a specific time.
Rejected Order: An order that isn’t executed because it is unacceptable or invalid in some way.
Restricted Account: A margin account where the equity is less than the initial requirement. This account is restricted to closing transactions only.
Retail Investors: Non-professional traders who generally invest smaller amounts than larger, institutional investors. The retail investment market is enormous since it includes retirement accounts, brokerage firms, and online trading.
Reversal: When a stock’s direction of price movement stops and heads in the opposite direction.
Rho: One of the Greeks. Represents how sensitive the price of an option is relative to interest rates.
Scalp: A trade where you enter and exit a position quickly.
Settlement: The conclusion of a stock/options trade through the transfer of the security from the seller or cash from the buyer.
Shares: A unit of ownership in a company, stock, or other financial asset.
Short: Refers to traders who have sold stock/options without owning them first. This position indicates bearish intent meaning they project a decrease in value.
Spread: The difference between the bid and offer prices of a stock/option.
Stock Market: A collection of exchanges and other venues where the buying, selling, and issuance of shares of publicly held companies take place.
Stock Symbol: A unique identification of up to five letters that represents a corporation whose stock is traded on an exchange. Some may refer to it as Ticker. Example: Apple Inc is AAPL
Stop Loss: An allowable risk threshold strategically derived with the intention of limiting loss. Necessary for risk management.
Strike Price: A price at which a stock is purchased (call) or sold (put) when an option is exercised.
Swing Traders: Market participants/active traders who use swing strategy in attempts to profit.
Swing Trading: A speculative trading strategy in financial markets where a tradable asset is held for one or more days in an effort to profit from price changes or ‘swings’. A swing position is typically held longer than a day trading position, but shorter than buy and hold investment strategies that can be held for months or years
Technical Analysis: Tools (technical indicators) that use stock price and volume data to identify patterns of future price movements.
Theta: One of the Greeks. Represents the rate of time decay of an option.
Time Decay: Price erosion on an option prior to expiration.
Trading Platform: Software used for trading: opening, closing, and managing market positions through a financial intermediary such as an online broker.
Trend: Price movements of a security that either result in successive up or down movements over a period of time.
Up-Tick: A term used to describe a trade made at a price higher than the preceding trade.
Uptrend: Successive upward price movements of an asset over time.
Vega: One of the Greeks. Represents an option’s sensitivity to volatility.
VIX (Volatility Index): An index of volatility calculated from the extrinsic value of out-of-the-money SPX index options.
Volatility: Or market volatility, the size of changes in the price of a stock.
Volume: Or trading volume, the total number of shares of stock/option contracts traded in a time period or given day.
Volume Weighted Average Price (VWAP): is a technical analysis indicator used on intraday charts that resets at the start of every new trading session. It’s a trading benchmark that represents the average price a security has traded at throughout the day, based on volume and price.
YHOTD (YHOD): Acronym for yesterday’s high of (the) day.
YLOTD (YLOD): Acronym for yesterday’s low of (the) day
Summary | 100 + Key Terms for Beginners – Day Trading Glossary
As you begin your new day trading journey keep in mind that learning how to trade correctly is like learning how to speak a new language. It takes studying, coaching, and understanding key terms that will help build your confidence in order see the bigger picture.
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