A Glossary of terms and concepts

The first blog as you can tell was written in haste during the close of the market. Now that I have time on my hand I guess it is important to explain certain terms and concepts for those who are not familiar with the trading world.

Long or going Long: This is when you have bought a certain amount of shares of a stock (e.g AMD). This is the classic example of buy low sell high concept.

Short: A little trickier than the previous definition and the best way to explain this would be through an example. Basically this occurs when you know the price of a share is going down in value. So lets assume Mr. Sam has item X worth $10 today and you know that tomorrow it is going to go down to a market value of $5. You simply borrow item X from Mr. Sam (promising to return it to him tomorrow) and sell item X on the market today for $10. Tomorrow you simply go to the market and buy item X which has gone down in value for $5 and return the item X to Mr. Sam while pocketing that extra $5! That is how traders make money regardless of the market going up or crashing.

Rip: A rise in the price levels of a certain equity (stock value is going up)

Tank: A decline in the value of the equity (Stock value is going down)

Level 1:The current Bid and Offer price of the stock on the market (e.g Citigroup is currently 27.80 – 27.81; 27.80 is the Bid while 27.81 is the Ask).

Level 2: Orders sitting at prices below or above the Market price (Level 1) of the stock.

Punch: To hit into the next price level, indicating that you are willing to take the amount of shares instantly instead of waiting on the Bid or Ask level.

Ask Level: This is  the lowest price an investor will accept to sell a stock. In the case of Level 1 ask, that is the current price an investor will accept to sell a stock.

Bid: This is the current bid (level 1) or minimum bid that investors seek to buy a stock.  

Futures: Legally binding standardised agreements to buy or sell a commodity, currency or security at a fixed time in the future, at a price agreed upon today (source: www.nzsuperfund.co.nz/index.asp)

S&P: An Index of the 500 widely held US Stocks. (Standard & Poor; think of it as a basket of major stocks which may indicate the condition and movement of the market).

DOW: Same as the above but a different index.

Feel free to add any terms that you think are missing or unclear.

- Danial Jameel (www.daytraderlog.com)