If you are curious about the world of stocks as a profession or a hobby, there are some basic terms that you should become familiar with before you begin your journey. Having a working knowledge of what leaders in the industry know as commonplace will help you to develop your skills and identity within the fast-paced world of trading stocks. Depending on which type of activity you plan to engage in there may not be time to do research in the moment so spend time on the front end studying these terms to cultivate a well-informed approach once you enter the active trading space.
Before You Begin
Certain phrases associated with the stock market come into play before you will even start to consider your first trade. Terms associated with the types of trading such as day trading, swing trading, and position trading, should all be fully understood on the front end. Researching these terms will help you identify which style of trading best suits your goals and how to approach the market successfully. The stock market has open and closed times the same as any traditional business so learning about premarket trading early on will allow you to cultivate the habit of familiarizing yourself with off hours news and events. Although trading is allowed in certain capacities during off hours there will be understandably less buyers are sellers present during this time frame. Both individual traders, as well as institutional, can take part in premarket trading.
A trading account shows the income from sales as well as the direct costs of making those sales. So, it will be an essential element of your overall strategy to know the definitions associated with the different types of accounts. With cash accounts the amount of money in the account is the same as how much you deposited. When you take a trade, you will have to wait for the cash to settle like having to wait for your bank to clear a check. Margin accounts do not require the two-day clearance period, but they do however require a margin account agreement. These accounts provide flexibility with trading amounts based on a predetermined total of credit to trade. Trading in this fashion enables traders to be able to trade the same cash as many times a day as they would like if it is in accordance with the margin agreement.
There are two types of analytical approaches to trading, one is fundamental and the other is analytical. Fundamental analysis is when a trader looks at the fundamental metrics of a company. Their earnings per share, and their potential for growth. While technical analysis, in contrast, focuses solely on the price of the stock. This type of analysis requires a complex of both chart patterns and technical indicators, as well as quick thinking and a sharp mind. Fundamental analysis is most associated with investment style trading while technical analysis typically refers to those who participate in day trading. Bar, line, and candlestick charts are all commonly used tools for both types of analytical strategies.
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