Essential Vocabulary for Novice Traders – Part 2

Essential Vocabulary for Novice Traders – Part 2
TradeGM Analysis date_range January 11th, 2021

Following Essential Vocabulary for Novice Traders – Part 1, we are back with another list of crucial terms to remember if you are starting out in trading!

Leverage – A tool that allows you to multiply your trading capital by borrowing from your broker, therefore exposing you to higher gains or higher risks. Leverage is the use of debt (borrowed capital) in order to undertake the investment. The result is to multiply the potential returns from a project. At the same time, leverage will also multiply the potential downside risk in case the investment does not pan out.

Long – Or more correctly, ‘going long’. In trading, this refers to an instruction you give your broker to execute a trade at a certain level that is ‘better’ than the market’s current position.

Lot – A standardized group of assets that is traded rather than a single one.

Margin Call – When a broker requests for an increase in the maintenance margin from a trader so that the leveraged trade is kept open.

Market maker – An individual or organization that purchases and sells significant amounts of a certain asset to earn a profit.

The moving average convergence/divergence (MACD) – a technical indicator that is used to understand share price’s momentum.

Net change – It is the difference between the closing price of a trading session compared to the closing price of the previous trading session.

Non-current assets – These assets represent a company’s long-term investments, and their value will not be represented in the current financial year.

Non-farm payrolls – Monthly statistical report that indicates how many people are employed in the US in construction, manufacturing, and goods companies.

Open position – A trade which is able to create a profit or a loss.

Option – A financial instrument that gives the trader the right, however not the obligation, to either buy or sell an asset when its value increases past a certain set price and time period.

OPEC – The Organisation of the Petroleum Exporting Countries. Its actions have traditionally impacted global financial markets.

P/E ratio (price-to-earnings ratio) – The process of calculating a company’s value by dividing the company’s market value per share by its earnings per share (EPS).

Pip – A measurement of movement in forex trading, described as the smallest move that a currency can make.

Portfolio – A group of assets held by a trader or trading company.

Rollover – Represents the process of maintaining a position open beyond its expiration.

Risk management – The process traders use to distinguish potential risks in their trading strategy and taking steps to alleviate them accordingly.

Resistance levels – The point on a price chart where an upward price trend is hindered by an overpowering inclination to sell the asset.

Stay tuned for part 3 of our guide to the essential vocabulary for new traders!

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. X