Bull market and Bear market – A bull market is defined as a sustained period of uptrend in the market while a bear market is a sustained period of downtrend.
Beta and Alpha – Beta is called market returns. If you invest in an index fund or if you buy all the stocks in the index in the same proportion, what is the return that you will earn? The risk that you take vis-à-vis this particular return is called Beta. Alpha is excess return that you earn over and above what you desire. It is called excess returns and is used to measure performance.
Day trading and margin trading – Both are short term forms of trading. Day trading is also a form of margin trading wherein you put a small margin and take a leveraged position that is 6-7 times the value of your margin. Intraday trades have to be closed out on the same day necessarily and they do not result in delivery. Margin trades can also be carried forward and they entail interest cost.
Averaging – When you buy a stocks and the prices falls, most of us are tempted to buy more to reduce our cost of purchase. That is called averaging.
Trade Execution – Trade execution is actual placement of your trade order on the stock exchange.
Stop Loss – Stop loss is like insurance on your trade. Say you bought 100 shares of a stocks at Rs.90. If your maximum risk appetite is Rs.1000, then your stop loss should be placed at around Rs.80. At that point, the loss is booked and the position is closed.
Moving Averages – This is a popular technical term. To smoothen out the price movements, the moving average for the last 5, 10, 50 or 100 days is considered. The moving average line gives useful inputs for traders when it cuts above or below the actual price line.
Bid and Ask – The exchange basically builds an order book. A “Bid” is an offer to buy and “Ask” is an offer to sell.
Volatility – Volatility is another name for risk of a stock. Greater the volatility, greater is the risk in the stocks. It is calculated using statistical measures like variance and standard deviation.
Algorithmic trading – This entails placing automatic orders through algos. These algos are nothing but computer programs to automatically place orders at great speeds if certain conditions are met.
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