Home Trading Strategies Stock Market Terminology Every Trader Must Know

Stock Market Terminology Every Trader Must Know

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Stock Market Terminology Every Trader Must Know

all right so moving on I want to share with you a few common stock trading terminologies that you’ll probably you know come across so if you understand what these means right then hey you can just move on right and don’t have to watch this video but if you have no idea you’re clueless then hey pay attention this is important first things first what is long and short so when you hear traders you know say that hey I’m long or I’m short it simply means the direction of the tree that they are taking right when someone says he’s long it means that he will make a profit when the stock price goes up so for example let’s say someone says I’m long Apple shares $100 it means he buy Apple shares at Hearne dollars and if Apple shares goes up to a 120 dollars he makes a profit of $20 per share so that is what you mean by going long on the other hand right when the traders is that I’m sure it means that he will make a profit if the stock price goes down so how does this work so when a trader is short what actually happens is that he will borrow shares from the broker so let’s say you know I’m short Apple shares and hundred bucks so I’m gonna borrow $100 worth of share from my broke broker okay I will borrow this hundred dollars worth of and let’s say the stock price of Apple does goes down right let’s say it drops down to $90 okay so what will happen is that since I borrowed this $100 worth of share I need to return back right the share of Apple because I bought one share of Apple money to return back this one share so let’s say I buy this one share of Apple at the open market for $90 and I return it back to my broker so in this case or in this example you can see that after the transaction is completed I borrow the shares and I return back the share at the end of the day at the end of the day I made a profit of $10 per share okay so this is how short-selling works all right you borrow the shares you sell it at the market you collect the proceeds although you will release it right because they did the broker will manage all this transaction right and once you buy back the shares every turning back to your broker you would then you know collect the difference and in this case since the stock price goes down right you make a profit of ten dollars but what if rightly stock price goes up it moves against you right then the loss right will will be a explained right let’s see you again you shot hundred dollars worth of Apple shares and it moves up to $200 this means right you collect hundred dollars upfront by borrowing the shares of Apple and then when you need to pay back the shares of Apple you buy it in the open market for 200 bucks so you can see that this is a loss of a hundred dollars to you because the price of the stock when against you it went up higher so one thing about short selling is that your losses is technically unlimited because what if the share price of Apple moves up to $500 thousand dollars ten thousand dollars you can see that your losses can you know exceed right your even your initial deposit so short selling is a it’s not it’s a it’s not very common compared to traders way really long but there is this so-called feature available right your broker might offer it so again if you want to dive deeper into short selling this is something that you have to know okay so with that said moving on what is a bit and ask so when you are dealing in stock trading on or futures trading right you will see that a price there’s no one price in the market there’s always two prices well in fact making me more right but basically there are two key prices that you’ve to pay attention to the bit and ask so what this means is that the bid right if you know if you know let’s talk about us furs right the ask is simply right let’s say you want to buy a stock right now okay you have to look at the ask price because that is the price that you have to pay if you wanna buy the stock right now and on the other hand if you want to sell the stock right now you will pay attention to the bit price right this is the price that you can sell right now okay so there’s always two prices in the market all right the ask price and the big price the ask price is the price that if you want to buy the stock there’s a price you have to pay the big price is the price that you can sell right now if you want to sell a stock so this is what we mean by the bit and ask so what is the spread right a spread is simply means right the difference between the bit and ask so let me share with you an example so let’s say again apple stock side that’s the easiest to talk about right let’s say Apple has the asking price of hundred dollars and 20 cents let’s ask price okay and the big price is a hundred dollars and ten cents for example so the the spread right of Apple right now is ten cents right the difference between the ask and a bit and that to you my friend is a transaction cost to you this is a cost that you have to incur okay because right now if you think about this if I buy Apple shares right now I gotta pay a her dollars in twenty cents and let’s say that the stock price did move and I want to sell it immediately I can only sell it at a high rollaz and tension that is an immediate loss of $0.

10 to you and that is the spread that you have to pay and then and this is not even taking into consideration your Commission’s or fees to the exchange etc this is just a so-called the bid-ask spread a transaction cost that is borne by you the trader okay and one thing to note is that large cap stocks right they are typically more liquid so this means that you can expect a title bit of spread so for example let’s say I’m just giving it hypothetical example again say Apple it’s a large cap stock right so the spread over here what I share with you is let’s say a hundred dollars twenty cents the ask and hundredths win $100 ten cents the beat so this asked mr.

B and your bid a spread is ten cents a large cap stocks right they are usually more liquid you have a tighter bit of spray but let’s say you deal with a small cap stock they are usually less liquid and you can expect a larger bit as spread and this would be right a higher transaction cost to you so for example a stop off let’s say five dollars and fifty cents right this is the ask an example and a bit is five dollars so we can see that a bit aspirin now is 50 cents and you have to you know again realize that the more you treat this top side bit you know buying and selling right you have to pay a larger bit ask spread and that will eat up into your returns so this is on something that you must know okay usually the larger cap stocks they are more liquid the tighter the bid are spread and when you’re trading smaller cap stocks right they are less liquid and a bit spread tends to be wider and the reason is being because there’s just lesser people trading the smaller cap stocks so this is why you know it’s not as liquid there are less orders in the market and that’s why this the spread tends to widen all right so with that said let’s do a super quick recap number one you’ve learned know what is long and short it simply means right what is your trading direction number two what does the beat and ask the beat is the price that you can sell it right now the ask is the price that you can buy it right now and finally we talked about the spread right what is the bid-ask spread and how will Lodge get stocks right then to have a tighter spread and less liquid stocks are you know small cap stocks right they are spread tends to be wider okay you

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