Basic Trading Terminology Every Beginner Should Know

The stock market can feel like a different language when you first start out. Don’t worry — once you learn a few key terms, everything begins to make sense. Here are some of the most important basics every new trader and investor should understand.

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💰 Bid and Ask

• Bid: The highest price someone is currently willing to pay for a stock.
• Ask: The lowest price someone is currently willing to sell a stock for.
• Spread: The difference between the bid and ask.

👉 Example: If Apple stock has a bid of $149.90 and an ask of $150.10, the spread is $0.20. Traders usually try to “buy at the bid” and “sell at the ask.”

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📉 Short vs. Long

• Going Long: Buying a stock or option because you think the price will go up.
• Going Short: Selling a stock you don’t own (borrowing it first), because you think the price will go down.

👉 Think of “long” as bullish (expecting up) and “short” as bearish (expecting down).

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📊 Options Basics: Calls and Puts

Options are contracts that give you the right (but not obligation) to buy or sell a stock at a certain price, before a certain date.

• Call Option: A bet that the stock will go up.
  • Buying a call = right to buy at a certain price (called the strike price).
• Put Option: A bet that the stock will go down.
  • Buying a put = right to sell at a certain price.

👉 Example: If Tesla is $250 and you buy a $260 call, you are betting it will go above $260 before the option expires.

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📈 Futures Contracts

• Futures are agreements to buy or sell an asset (like oil, gold, or stock indexes) at a specific price on a future date.
• They are often used for commodities (crude oil, wheat, gold) and indexes (S&P 500, Nasdaq).
• Futures are traded on margin (you only put up part of the value), so they are highly leveraged.

Key Futures Terms

• Contract: The unit being traded. For example, one crude oil futures contract = 1,000 barrels of oil.
• Tick Size: The minimum price movement a contract can make.
• Leverage: Small moves can mean large gains or losses because you’re only posting a fraction of the contract’s value.

👉 Example: A trader buys an S&P 500 futures contract betting the index will rise. If it goes up, they profit; if it drops, they can lose quickly because of leverage.

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🌍 Forex (Foreign Exchange)

• Forex = the market for trading currencies (like USD, EUR, JPY).
• Trades are done in pairs: e.g., EUR/USD = how many U.S. dollars one euro is worth.
• It’s the largest financial market in the world, open 24 hours a day during the week.
• Forex also uses leverage, which means small moves can create big profits — or losses.

Key Forex Terms

• Lot: Standard unit of currency trading.
  • Standard Lot = 100,000 units of the base currency.
  • Mini Lot = 10,000 units.
  • Micro Lot = 1,000 units.
• Pip: The smallest price movement (usually 0.0001 in most pairs).
• Leverage: Allows control of larger positions with smaller capital. Example: 50:1 leverage means $1,000 controls $50,000 worth of currency.

👉 Example: If you buy 1 mini lot (10,000 units) of EUR/USD at 1.1000 and it rises to 1.1010, that 10-pip move equals about $10 profit.

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🧾 Other Common Terms

• Ticker Symbol: The unique letters for each stock (e.g., AAPL = Apple, TSLA = Tesla).
• Volume: How many shares are being traded in a certain period.
• Liquidity: How easy it is to buy or sell without moving the price too much.
• Market Order: Buys or sells right away at the best available price.
• Limit Order: Lets you set the exact price you want to buy or sell.

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🎯 Quick Takeaway

Learning trading terminology is like learning the rules of a new game. Once you understand the basics — bid/ask, long/short, calls/puts, futures contracts, forex lots, and order types — you’ll be able to follow along with market news and trading discussions much more confidently.

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🔑 Next article in the Learning Center: Order Types (market, limit, stop, etc) Read next article here