In a previous article about how to start an online investment account, I mentioned that lots of people in the Philippines have become more interested in saving and investing. Unfortunately, the world of investing has many complicated words and terms that people don’t normally use and they tend to scare off a lot of newbies. A lot of people likely give up once they come across sentences and phrases that they don’t understand, and because of that they lose an excellent opportunity to learn how to improve their financial life.
That is the reason why I created this short guide. Here are a few stock and forex trading terms that newbies should learn!
*By the way, “forex” means foreign exchange and it refers to trading currencies.
Trading Basics: Stock and Forex Trading Terms for New Investors
1. Buy or “Long” trades – The most common way to invest and profit from stocks or other investments. You buy some stocks, bonds, mutual fund or ETF shares, piece of real estate, or some other investment, then you wait for the price to go up and then sell it at a profit. Buy low, sell high. If you hear someone say something about “go long” or “long trade” when investing, they mean this.
2. Sell or “Short” trades – This is another way you can profit by trading stocks or forex. This is the “opposite” of a long trade and this is how you profit if the price of a stock, currency pair, or some other investment’s price is going DOWN. We have a guide on how short selling works here on this link.
3. Candlestick Chart – In highschool math we used to use line graphs to show changes in numbers. For investing, on the other hand, one of the most commonly used charts is the “candlestick” chart. The candlestick chart shows the open (starting price) and close (ending price) and the highest and lowest values per selected time periods. It also gives an overview of how the investment’s price moved over time.
4. Trends – Most people know the term trends from fashion (“fashion trends”) or social media (“trending” or “viral”), but trends in investing refers to the general direction of price movement. When prices continuously go up, you can say there’s an “uptrend”. When prices keep going down, you can call it a “downtrend”.
5. Bull Market – If you’ve read or listened to some economic reports, you’ll often hear the terms “bullish” or “bearish”. If you’ve ever wondered what they mean, a “bullish” or a “bull market” means a market is doing well and the prices or value of investments in that market (e.g. stock market, real estate market, etc.) are increasing.
6. Bear Market – On the other hand, “bearish” or a “bear market” means the investments in a particular market is doing badly and the prices are declining.
7. Support – Imagine buying some salmon or tuna at the market. How low can the price go before people it keeps getting sold out? That is the support price, and it works for investments like stocks, mutual funds, and most investments too. If the downtrend reaches a price that’s too cheap to ignore (causing people to buy until it sells out), that price becomes a “support level” for the price.
8. Resistance – The resistance level is the opposite of support. When the price of something becomes too expensive that people don’t want to buy it anymore, that price becomes a resistance level for the investment.
9. Bid, Ask, and Spread – When you travel to other countries, have you noticed that there are two prices in currency exchangers/forex? Let’s use USD/PHP as an example at the price of 1 USD = 53.40 PHP / 53.60 PHP. The lower number is the “bid” price, and the higher one is the “ask” price. If you have $100 and you need to turn it into pesos, the currency exchanger or dealer will buy it from you (“bid”) for P53.40 each for a total of P5,340. If you’re traveling to the U.S.A., on the other hand and you need to buy $100 using Philippine peso, the dealer will sell you $100 for P5,360 at their “ask” price. By the way, the difference between the two prices is called the “spread” or “bid-ask spread”. Aside from currencies, stocks and other investments also have “bid-ask spreads”.
10. Fees – We all know that fees talk about an expense you have to pay, but if you’re new to investing you might not notice how fees will eat up your investment money. They seem small at the start, but as you keep using your investment account you’ll notice how much the fees add up. Some of the most common fees that you’ll need to pay when you start investing and trading are initial deposit fees, annual fees on accounts, maintaining balance fees, early withdrawal and cancellation fees, withdrawal fees, transaction fees, and more. The broker’s commissions and transaction fees are some of the most notable by the way. Every time you buy or sell a stock, currency pair or some other investment, your broker will almost always receive a commission PAID FOR BY YOU. This is why you should beware of brokers who keep suggesting trades (“buy this, sell that, buy, sell, buy, sell,…”). If a broker or investment manager makes a lot of unnecessary trades, this is called “churning” and it is illegal in certain places.
There are a lot more words and terms in the investing world that you’ll need to learn, but we’ll end with these for now. If you try to learn too much, you’ll likely suffer from information overload.
None of us learned the entire alphabet all at once when we were young. We had to learn it one letter at a time. We have to do the same thing if we want to become more effective at learning how to manage and invest money well.
That’s it for now. I hope you enjoyed this short guide. We’ll have more for you soon!