Trading Terminology

When you hear the word volume do you reach for the remote control rather than the financial pages? When you read the words “stop order”, do you think your credit card has been rejected? If so, you had better read on, particularly if you are thinking of trading equities.

Ask Price/Spread -- The price at which an investor will sell a security. The price a buyer is willing to pay for a security is the bid. The difference between the ask and bid price is the spread. Market makers have to supply a spread as part of their market obligations.

Bull Market -- A market in which prices are in an upward trend. 'bear' refers to a market on a downward trend.

Close -- The period at the end of the trading session. Also used to refer to the last price a stock sells for on a given day.

Commission -- A fee that covers the stockbrokers charge for processing a transaction. It is either added to the amount you pay when you buy equities, or deducted from the amount you get when you sell. Online and discount brokers charge lower commissions than traditional brokers, but offer limited investment advice.

High -- The highest price paid for a security in a certain time period (i.e., a day, week, month, year). For example, the high for the day was $23, but the high for the year was $41. The low represents the lowest price of a security in the given period.

Limit Order -- An order to a broker to buy a certain stock at or below a specified price, or to sell it at or above a specified price. For example, if you want to buy ABC Company stock at no more than $12 per share and it is selling at $15 now, you can place a limit order for $12 per share. Some brokers charge a higher commission for limit orders than for market orders.

Margin, Buying on -- A transaction in which an investor borrows to buy additional shares, using the shares themselves as collateral. If the price of these shares drops below a certain level, the investor will get a “margin call,” meaning that he or she must deposit additional funds into their margin account.

Market Order -- An order for immediate execution given to a broker to buy or sell at the best obtainable price.

Market Price -- The current selling price of a particular stock.

Short Selling -- Borrowing a security from a broker and selling it, with the understanding that it later must be bought back, hopefully at a better price and returned to the broker. The major danger in “selling short” is that if the price of the stock goes up, you will have to pay more than you sold it for in order to cover your short position.

Stop Order -- An instruction issued to your broker to sell when the price of a stock has gone down to a specific price. This limits your losses should your stocks tumble and trigger further stop loss selling.

Volume -- The number of shares traded during a given period. A low-volume trading day can adversely affect the price at which stocks are bought and sold.