If the past year has taught us anything, it’s the importance of investing our cash wisely – and a growing number of affluent, high-net-worth individuals are seeking to grow their carefully amassed fortunes through the world of online trading. Gone are the days of simply stashing your money in a savings account or ISA, and the savvy investors know all too well that you have to speculate to accumulate. While there’s no denying that there’s a certain level of risk involved with trading stocks and shares, those who take the time to learn the ropes can often make some impressive gains, and if you’re prepared to play the long game, then you might just manage it, too.
If you’re new to the concept of stocks and shares, then getting started can feel overwhelming – especially with the multitude of terminology you’ll need to get your head around before you can begin to make strides. But the good news is that, armed with the right knowledge, and by brushing up on a few of the most important terms, it’s easier than you think to embark on your trading journey. Here, we break them down for you in the simplest of terms.
What’s the difference between the bid and ask price
First and foremost, it’s important to understand that when you buy a stock on trading platforms, there is always a bid price and an ask price. The bid price is the highest price that a buyer is willing to pay for a share, a stock, or a security, while the ask price is the lowest price that a seller is willing to take for said stock – so you can see why both are important when it comes to making the right investments.
What’s the spread of a stock price?
The spread is another important term you’ll need to get to grips with early on in your trading journey. Essentially, it is the difference between the bid and the ask price of a stock. In other words, it’s the difference between the highest price a buyer is willing to spend for a stock and the lowest price to which a seller is willing to sell it. In general, a stock value with a small spread means the latter has good liquidity, so keep an eye out for any that meet this criteria for a potentially savvy investment.
What does it mean to ‘cover your position’ in trading?
When buying a stock at a certain price, this price then becomes your position. Now, when you sell the same stock at a different price point, you are closing your position. So, what exactly does it mean when a trader is said to be ‘covering their position’? Simply that they are trying to sell their stock before its price drops too low, and the risk of making a loss becomes higher.
What is a bullish or bearish market?
You will often hear these terms used when watching stock market news and reading about trades, and as such, they are important ones to get your head around. A bull market is generally a rising market, and is often described as being ‘bullish’ – while on the contrary, a bear or ‘bearish’ market is one that is on the decline.
What’s a dark pool?
A dark pool is a private exchange platform where important investors will carry out large transactions that won’t affect the prices on the public exchange. There have been a lot of debates surrounding dark pools lately, especially due to interest in the meme stocks like AMC, for example. Of course, there are many more terms to get your head around as you embark on your investment journey, as the world of trading knows no bounds – but armed with these basics, you’ll be able to get the ball rolling, and could soon be on the road to success.
Disclaimer: Investing money carries risk, do so at your own risk and we advise people to never invest more money than they can afford to lose and to seek professional advice before doing so.