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What is electronic trading?Electronic trading refers specifically to that infrastructure that these brokerages have built that allow them to connect their clients with markets around the world. [Read More]
What is a day trader?Day traders are those traders who seek to maximize profits by capitalizing on the price fluctuations within a stock over the course of a single trading day. [Read More]
What is a swing trader?Swing traders are very similar to day traders, with one noticeable distinction: They hold positions for days or weeks instead of hours. [Read More]
What is a trading strategy?Before starting to trade securities, it is imperative that traders develop one or more trading strategies that will serve as the guidelines for making trading decisions. [Read More]
What is technical analysis?Technical analysis focuses on the trends in a stock’s price and trading volume in order to assess its future value and determine whether or not it is an investment worth buying or one worth selling. [Read More]
What is trading on margin?Margin trading is a form of trading that involves not only the trader, but the brokerage that he/she is trading through acting as a lender in addition to a broker. [Read More]
What is a high-frequency trader?High-frequency traders are those large institutional traders that utilize complex proprietary trading platforms to place large numbers of trades in a small amount of time. [Read More]
What are hedge funds?Hedge funds are exclusive financial investment vehicles that seek to deliver above average returns for their clients through a variety of active management strategies. [Read More]
What is a proprietary trader?Proprietary traders are financial companies that choose to invest in the market directly and generate revenue from those activities instead of earning revenue through commissions charged to clients to execute trades on their behalf. [Read More]
What is commission?Commission is one of several methods that brokers and advisors in the investment industry use to charge clients for their services. While it is a word that is used in many other industries, there are some aspects that are particular to the financial sector. [Read More]
What is fundamental analysis?One of the two main types of securities analysis, fundamental analysis does exactly what its name states: It analyzes the fundamentals of everything from the broader economy to those of a specific company in order to ascertain whether or not the stock price of that company accurately reflects its true value. [Read More]
What is a broker-dealer?In simplest terms, a broker-dealer is a one-stop shop for financial investments. A broker-dealer can and does sell stocks to clients like a broker would as well as purchasing stocks on its own behalf like a dealer, or prop trader, would. [Read More]
What are market orders?Market orders are orders placed by investors to either purchase or sell a security at the best price that exists the moment the order is placed. They are considered to be the simplest order type and usually filled almost immediately upon placement. [Read More]
What is a limit order?Limit orders are orders placed by investors to either purchase or sell a security at a specific price. The key point of note with limit orders is that they guarantee an order will be executed at a specific price but cannot guarantee that the order will be executed with market conditions. [Read More]
What is a short position? In its most basic terms, a short position is a bet that a security will DECREASE in price, and then using that bet to generate a profit. There are two different types of short positions: Naked and covered. [Read More]
What is a long position?The opposite of a short position is a long position. While the term has several different meanings dependent upon the context, the core definition is that it is a bet that a given security will INCREASE in price over time, and that buy purchasing the security now at the lower price, it can then be sold at a later date at a higher price. [Read More]
What is a trade/tax lot?A tax lot is grouping for accounting purposes of all shares purchased at the same time. Even if additional shares of the same security are purchased, if they are purchased on a different day, they are then put in their own tax lot. [Read More]
What is 'Held-to-Maturity'?A security that is purchased with the intent to own it until it matures is also known as a Held-To Maturity (HTM) security. This designation is important, as it has direct impact on a company’s tax liabilities. [Read More]
What does 'thinly-traded' mean? Thinly traded securities are those that are traded in low volumes and have high bid-ask price spreads. Due to the items listed above, thinly traded securities are rarely traded on major stock exchanges, and almost exclusively reside in over-the-counter exchanges. [Read More]
What is trading psychology? Trading psychology is the mental and emotional component of trading stocks. Like other activities such as sports, understanding the psychological aspects of trading as well as one’s pre-depositions is almost as important as the trading strategy that it implemented or the technology that it utilized. [Read More]
What is the pattern day trader rule? The pattern day trader rule, or “PDT” regulatory designator, is applied to those traders who close four or more day trades in a single business week (five business days) utilizing a margin account. In addition, anyone who buys and sells the same security from the same margin account in a single day is also considered a pattern day trader. [Read More]
What does UTP mean? Unlisted trading privileges (UTP) were created to help companies that do not meet the minimum requirements for trading on a large national exchange have access to trading markets in order to secure investor capital. So called “pink sheets” are the most common example of unlisted trading. [Read More]
What does suspended trading mean? The suspension of trading occurs when either the Securities and Exchange Commission (SEC) stops the trading of a particular security for a variety of reasons, or the exchange itself stops all trading for a set period of time following a drop in the market index by a specified percentage. [Read More]
What is batch trading?Batch trading is a specific type of trading where multiple orders are bundled together and are executed at the same time. For markets in the United States, batch trading occurs only at the start of the trading day, and includes orders placed after the close of the previous trading session. [Read More]
What does 'trading flat' mean? The best way to define “trading flat” is to picture a road crossing the prairie. It does not go up or down; it simply stays flat as far as the eye can see. When a security is said to be trading flat, it is just like that road; the price is neither increasing nor decreasing. It is simply flat. [Read More]
What are dark pools? Started in the late 1980s, dark pools are the term given to trading exchanges that are not available for public and for use only by institutional investors. The exchanges were given the name “dark pools” because they lack any type of transparency when it comes to the trades that are placed through them. [Read More]
What does illiquid mean? Illiquid is a descriptor that is given to any security that cannot quickly and easily be converted to cash without incurring a substantial decrease in its value. When applied to a company, it implies that the company does not have the ability to pay its short or long-term liabilities. [Read More]
What does 'locked' mean? When the bid-ask spread is zero between two different exchanges, the market is said to be locked. Even though this is a rare occurrence, when it does happen, the Securities and Exchange Commission requires the exchanges to stop the processing of automatic orders and only process manual ones. [Read More]
What is options expriation (OPEX)? Options expiration, or OPEX, is the date that an options contract expires. In order to not lose any money, investors must have made a decision on what to do with the contract prior to that expiration date. [Read More]
What does front month mean? Front month is a term that refers to the closest futures contract expiration date. Front month contracts are usually in the same month as the calendar month and have the distinction of being the most heavily traded and most liquid contracts. The price on a front month futures contract is usually what is quoted as a particular security’s futures price. [Read More]
What is the lag between transaction and settlement?The settlement period is the time between when a security sold (known as the trade date) and when that transaction is considered complete (known as the settlement date). In today’s current markets, the settlement period is relatively instantaneous, but per Securities and Exchange Commission guidelines, the buyer and seller have two days to complete their transaction from the time that it is executed. [Read More]
What is a stop-loss order? A stop-loss order is specific type of order that an investor makes in order to minimize potential losses and/or lock in realized gains. Once entered into a brokerage platform, stop-loss orders will automatically execute when the price of a security falls to the price specified in the order. [Read More]
What does fill or kill mean? Fill or kill orders (FOK) are special types of orders that are placed in securities markets. Usually involving large numbers of a security, a FOK order states that the order must be executed in its entirety or be immediately killed or canceled. [Read More]
What does good until cancel (GTC) mean? Orders that are considered “good until cancelled” (GTC) are actually not held open indefinitely. Most are placed with a preset expiration period between 30 and 90 days from the day they are placed. This type of order assists those who may not be able to monitor their trades on a daily basis and want to ensure that they purchase or sell a particular security at a particular price. [Read More]
What does good for day (GFD) mean? A “good for day” order, also known as a day order, is an order that is placed that expires at the end of the trading session if the stipulations in that order are not met. Like “good until cancelled” orders, day orders can be placed to purchase or sell securities.A “good for day” order, also known as a day order, is an order that is placed that expires at the end of the trading session if the stipulations in that order are not met. Like “good until cancelled” orders, day orders can be placed to purchase or sell securities. [Read More]
What does All-or-Nothing mean? An “all or nothing” order, also known as an AON, is an order that is placed that states that the entire order must be filled at the price specified, and if that condition can not be met, then the order is cancelled at the end of the trading session or sessions if the trader specifies a longer duration. [Read More]
What is a wash sale? A wash sale is when an investor sells a security that has lost money with the intention of claiming a loss on that security for tax purposes. Wash sales usually occur near the end of a calendar year, and have become so prevalent that the IRS created a rule named after them to prevent investors from abusing the opportunity. [Read More]