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Glossary: Terms a day trader must know

Investing » Glossary: Terms A Day Trader Must Know

Ask price (or offer)

The lowest price a seller is willing to accept for an individual security. Put another way, the price at which the security is offered for sale.

Bid price

The highest price a buyer is willing to pay for an individual security, i.e., the best price the seller will receive.

High-frequency trading

A computerized trading strategy that uses complex algorithms to make short-term trades at fast speeds.

Intraday

Within one trading day, as in a stock's "intraday price movements."

Limit order

An order to buy or sell a stock within price limits. You declare the maximum price you are willing to pay or the minimum price at which you are willing to sell the individual security.

Liquidity

A measure of how quickly you can get into and out of a security at the same price level.

Margin account

A type of brokerage account that allows you to borrow cash from the broker to buy securities.

Market indicator

A technical, sentimental, fundamental or economic indicator that gives signals to future market direction.

Market order

An order to buy or sell stock at the current market price.

Pattern day trader

Under U.S. Securities and Exchange Commission rules, a trader who buys a security and sells it the same day and does this at least four times over the course of five business days. The SEC requires these traders to follow certain rules.

Scalping

A day-trading strategy that allows you to make profits on extremely small price movements. That is, you enter and exit a stock within seconds or minutes for quick profits. You'll make many trades and aim for smaller profits on each.

Shorting

A strategy that allows you to borrow shares of stock from a brokerage, sell them to another buyer and then buy them back later at a lower price to return to the lender.

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Risk tolerance: What's your threshold? Whether aggressive or conservative, most people share the same goal: seeing their money grow. Here's how to manage risk.
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