Basic trading terms to know01 June 2020
Knowing trading lingo will not magically improve your investing game, but it will give you the tools to communicate and search for ideas that resonate with your short-term and long-term investing beliefs. Here are some of the basics you should know:
bull noun, bullish adjective
A bull is someone who believes a stock will go up in price. Bulls hold an optimistic view on a particular stock. You have a bullish view on a stock if you believe the price will go up. Bullish trading strategies assume the stock price will rise.
Example: I’m feeling bullish on TSLA.
bear noun, bearish adjective
A bear is someone who believes a stock will go down in price. Bears hold a pessimistic view on a particular stock. You have a bearish view on a stock if you believe the price will go down. Bearish trading strategies assume the stock price will drop.
Example: The bears have taken over recently.
Being long a security essentially means buying and owning the security. If you buy shares of APPL, you are long apple. If you buy a call option, you own a long call.
Example: Buy the long call.
short noun, adjective, verb
Being short a security typically means you borrowed a security from your broker and now have an obligation to return it. If you sell short 100 shares of APPL stock, you borrow the 100 shares from your broker, sell the shares, and now owe the broker 100 shares of APPL stock. This could also refer to a person who shorts a stock.
Example: I’m short AAPL. I sold short 100 shares of AAPL. The AAPL shorts are out in full force.
open (a position) verb
Opening a position refers to establishing a new trade by buying a security, or selling short a security.
Example: Buy to open one call, or sell to open one call.
close (a position) verb
Closing a position refers to selling a security that was previously purchased, or buying back a security which was previously sold short. The act of closing a position effectively cancels out the open position.
Example: Sell to close one call, or buy to close one call.
A debit is a price paid for opening a position, most commonly the price you pay for buying a security.
Example: Purchase one debit spread.
A credit is money received at the outset for opening a position. Money would be paid back when the position is closed, resulting in a net profit if the amount paid back was less than the credit received, or a net loss if the amount paid back was more than the credit received.
Example: You receive a credit when you short stock.