Trading Skills
Trading is different from investing, usually focused on more short-term movements in markets. Learn the essentials you'll need to know to be a successful trader.
Fundamental Trading Skills
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What is a stock?
A stock is a security that represents the ownership of a part of a company; it is also commonly referred to as a share, or equity, in the company. Stocks can be bought and sold on the open market via stock exchanges, and those transactions are governed by various regulations meant to protect the investing public.
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What is Volume-Weighted Average Price (VWAP)?
Also known as the VWAP, the Volume-Weighted Average Price is a trading benchmark that is used by traders to see the average price that a security has traded through the day, in both volume and prices of trades.
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What is a limit order?
A limit order is a kind of order that an investor makes when he or she wants to buy or sell a stock at a specific price. The two types of such orders are a buy limit order, whereby the order will be placed at the limit price or lower, and the sell limit order, where the order will be executed at the limit price or higher.
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What is the risk/reward ratio?
The risk/reward ratio is used by investors to measure the prospects of reward for their investments over the potential risk of losing that capital. The ratio helps assess the expected return and risk of a given trade.
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Market Risk
Market risk is the possibility that an investor may face losses due to various factors impacting one’s investments in financial markets. Traders and investors try to minimize market risk by diversifying their investments, and watching how changes in interest rates, exchange rates, local or global conflicts, and economic growth or contraction may impact their investments.
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Stop Order
A stop order is an order to buy or sell a security when its price moves past a particular point, so that once it hits that strike price, the investor can exit his or her position by limited the expected loss or locking in potential profits. Once the price hits that target, the stop order becomes a market order.
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Day Trader
Day traders are traders who have a very short time horizon for their investments to take advantage of volatile markets and intraday market price moves. Day traders aim to profit by making trades on very short-term price movements, which offers the possibility of quick gains, along with the high risk of losing one’s investments.
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Shareholders’ Agreement
Like the name implies, a shareholders' agreement is a document involving a company's shareholders that describes how the company should operate and details the rights and obligations of shareholders. The agreement, also known as a stockholders' agreement, helps protect the rights of those stakeholders.
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Trader
A trader is a market participant who buys and sells financial securities in what tends to be a relatively short time horizon. Traders differ from investors, who tend to have a longer-term investing horizon, and who are content to buy and hold securities to lock in longer-term profits.
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Trading Platform
Trading platforms in general are online software tools used to manage and execute market positions through an online broker. Such platforms can range from basic order entry screens for beginners to more sophisticated platforms with live quotes and charting capabilities.
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Whipsaw
Whipsaw is a trading term that describes a price movement that acts like a whipsaw, moving quickly in one direction, but then quickly moving back in the opposite direction. When trading securities, a whipsaw price movement often results in trading losses due to the price volatility.
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Fill
A fill is a market order that has been executed, or filled. For example, if an investor wants to buy a share at $10, and finds a willing seller who wants to sell at that price, the order is made, and the order is filled, completing the transaction.
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