Picture yourself as a brand-new trader, straight out of the womb, and you want to learn how to earn money trading stocks like the experts. But you want one location, one video series, to learn absolutely everything. No filler. Just raw knowledge. A to Z, every subject, a whole blueprint on how to learn the market from a beginner’s point of view.
I uploaded a video a while back called How to Start Trading Stocks as a Complete Beginner. I mentioned that if it hit 1,000 likes, I would do this as an entire series and take you from start to finish, teaching you all I can. And so let’s just say, you all reached the 1,000-like milestone within 20 minutes. So that indicates that there is great interest in this series.
I’m a man of my word, and that’s why I’m doing this video. This is Part 2 of the series. Let’s not waste any time; let’s get straight to it.
Common Trading Terminology
First of all, let’s cover some terminology that we traders use commonly. We traders have certain jargon that we use on a daily basis, kind of like a secret hello. If you’re a fresh trader, you must understand what these words mean, particularly because I’ll be referencing them during this series.
Long
To make it very simple, when you’re “long” in a stock, it means you’re profiting as the price of the stock rises. So, if you purchase stock for $10 and it rises to $20, you made money. It’s that simple.
Short
The reverse of going long is going short. When you short a stock, you’re profiting as the price of the stock falls. Here’s how it works:
Suppose the price is $10. You ask your broker, “Hey, can I short 5 shares at $10?” They reply, “Sure.” Now you have $50 worth of stock. You hope the price will fall. If the price falls to $5, you can cover those 5 shares at $25, making you a $25 profit. Basically, you’re short-selling shares, selling them for a higher price, and then re-buying them at a lower price. That’s how you make money if a stock loses value.
So, in short:
- Long: Get paid as the price rises
- Short: Get paid as the price drops
Bulls vs. Bears
You may have heard people trade mentioning bulls and bears. It sounds quirky, but it’s part of the jargon.
Bull: If you’re a bull, you think the market will rise. You make long trades. A bull charges ahead with its horns, so when people are “bullish,” they expect prices to rise.
Bear: If you’re a bear, you think the market will fall. You make short trades. A bear swipes down with its claws, so when people are “bearish,” they expect prices to fall.
The Spread
- Now, let’s discuss something slightly more technical — the spread.
- There are two primary prices when it comes to trading:
- The bid price: The most money a buyer would pay for a stock
- The ask price: The least money a seller will accept for the same stock
The spread is merely the difference between the two prices. For instance, if the bid price is $10 and the ask price is $11, then the spread is $1. The spread is the middle ground between sellers and buyers.
Frequently, while observing professional traders while watching live streams, you notice moving data along with these ask and bid prices, which is why they seem so cool and professional. That’s known as Level II data, and the moving numbers are the asks and bids.
Types of Orders
There are various orders you can use in a buy or sell of a stock. I’ll discuss four of them, but there are others. These four should do the job for the beginner:
Market Order
A market order is when you’re willing to buy the stock immediately, regardless of the price. You’re essentially saying, “I want in, and I want in now.” The benefit is that you’re sure to be in the trade, but the drawback is that you’re paying whatever the ask price happens to be, and that might be more than you wanted to pay.
Limit Order
Limit order is when you wish to buy a stock for a certain price or better. For instance, if a stock is quoted for $50 but you wish to buy it at $40, you issue a buy limit order for $40. The flip side is that if the stock never falls to $40, you may be out of the trade.
Stop Order
A stop order is where you would like to buy a stock when it reaches a particular price. As an example, if a stock has been going sideways and you would like to buy it when it breaks through a range at $55, you would have a buy stop order for $55. The disadvantage is that you are getting into the trade after the price has already moved, and you could potentially end up buying at a higher price than you were hoping for.
Stop Loss Order
A stop loss order is placed to close a trade if the price goes against you. Suppose you’re in a trade at $50, but you don’t want to risk the price falling below $40. You place a stop loss at $40, and if the price reaches that level, your broker automatically closes the trade for you, limiting your losses.
Recap
- Market Order: Buy immediately at the best ask price
- Limit Order: Buy at a particular price or better
- Stop Order: Buy when the price hits a particular level
- Stop Loss: Close the trade if the price drops to a particular level
This blog explained the fundamentals of typical trading terminology, the spread, and various order types. These are basic things that will enable you to comprehend the language of trading. Although we’ve only touched the surface, the aim of this series is to continue pushing forward and get you from a total novice to an expert.