Trading Lingo

24 Jun

Here you will find terms and lingo used at TJMacTrading and in the Trading World.

Ask – The price someone is willing to sell the stock for.

Ask Size – The number of shares/contracts in supply at that point in time.

Asset – An item of economic value owned by a person or company which can be converted into cash.

Bid – The price someone is willing to buy the stock for.

Bid Size – The number of shares/contracts in demand at that point in time.

Consolidation – A period of indecision in the market where a stock trades sideways. The upper range of this move would be considered resistance and the lower range considered support. The consolidation period is over when one of these two areas (support or resistance) is broken.

Equity – Ownership interest. The monetary value of a security, property or entity less any outstanding debts.

Inside Day – A day in which the entire days range is within the previous days range.

Leverage – The use of derivatives or borrowed capital, such as margin, to increase potential Return on Investment (ROI).

Liquidity – The ability to turn an asset into cash at fair market value.

Offer – See “Ask”

Open Outcry – Auction process where traders gather in the pits and verbally shout their bids and offers to one another.

OPEX – Options Expiration aka. Options Expiry. The third Friday of the month when options expire.

Quadruple Witching – Friday expiration where stock index futures, stock index options, stock options and single stock futures all expire.

Resistance – A price level which a stock or index has difficulty breaking above (ceiling). It is important to go out to larger time frames when looking at support and resistance in order to not overlook past historical congestion areas.

Return on Investment (ROI) – Used to calculate the return or expected return of an investment. The formula is ROI = Net (or expected) Return / Cost of Investment.

Slippage – The difference in the expected price of a trade, and the actual price you are filled at in the trade. (ex: If your order is set to execute at 900, but it actually filled at 900.25 your slippage would be .25)

Support – Price level at which a stock or index has difficulty breaking below (floor). Once support is broken it will typically become new resistance and vice versa, once Resistance is broken to the upside, it will typically act as new support.

Top Line Figures – The four broader market indices S&P500, Dow Jones Industrial Average, NASDAQ Composite, and Russell 2000.

Trader – Someone who buys/sells securities with the goal of profiting from short term swings in the markets.

Underlying – A derivatives base security. In option terms, the underlying is the stock that the option price is derived from. In futures terms it is the commodity the future is derived from.

Volatility Index (VIX) – The VIX is a measure of the market’s 30-Day implied volatility expectations. It is calculated using S&P500 index options traded on the Chicago Board of Options Exchange (CBOE). The VIX is most commonly used as a gauge of fear in the market, with a high VIX reading (typically over 30) seen as a highly uncertain and volatile market.

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