Trading Terminology

It is crucial that you know and understand important trading terminology for a successful trading experience. Being familiar with the terms will help you to make informed choices designed to maximize your returns, protect your profits and/or mitigate losses.

Trading Terminology

It is crucial that you know and understand important trading terminology for a successful trading experience. Being familiar with the terms will help you to make informed choices designed to maximize your returns, protect your profits and/or mitigate losses.

Definitions of durations

Day: For US securities, day orders are live for the day and are canceled at the end of the day.

GTC (good ’til cancel): For U.S. securities, the orders are open during market hours through multiple days, and remain open until they are fully executed, or are cancelled.

GTC orders filled on multiple days will incur a separate commission each day. Remember to check your GTC orders consistently and re-enter when necessary.

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Stop & stop limits

Stop order: A trade sent to market at a price other than the current market price. You are requesting the order be filled only when it reaches your stop price.

Note: when your stop price is triggered a market order is sent to the exchange. Exchanges have different criteria when triggering a stop price. Some exchanges use the last trade price, while others use the bid/ask method – a matching bid (ask) will trigger your stop sell (buy) order.

Stop limits: When a stop limit is triggered, it is sent to the market as a limit order, as per the limit setup. When buying (selling) U.S. stocks, the limit must be equal or higher (lower) than the stop. For Canadian stocks, the limit price must be equal to the stop price.

Trailing stop: These orders are trailing stops that adjust as the stock price moves. When entering the stop, enter the trailing amount not the desired price.

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Market & limit orders

Market orders: These orders are routed directly to the exchange and executed at the best available price.

MOC (Market on Close Order): Allows the trader to buy or sell in the post market auction at a market close price.

MOO (Market on Open Order): Allows the trader to buy or sell in the market open auction at a market price.

Limit orders: A limit order allows you to set the maximum buy price you would pay and the minimum sell price you would accept. Limit orders are routed to the exchange and add liquidity to the books unless they are immediately executable.

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Options

Options: A call or a put, an option is a contract that entitles the buyer to buy (in the case of a call) or sell (in the case of a put) a number of shares of stock at a predetermined price on or before a fixed expiration date.

Strike Price: The pre-determined price at which underlying stock is purchased (in the case of a call) or sold (in the case of a put) when an option is exercised.

Buy to open: Used to open a long option position, be it a call or a put.

Sell to close: Used to close a long option position, be it a call or a put.

Sell to open: Used to open a short or naked option position, be it a call, put, or a covered call.

Buy to close: Used to close a short or naked option position, be it a call, put, or a covered call.

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Short & cover

Shorting: This strategy is selling stock you do not own. You would borrow stock in hopes the price will fall and you can buy it back at a lower price. Please be aware that not all stocks are available to short and there is a risk that you could be asked to buy the stock back at anytime.

Covering: this is closing a short position i.e. buying back the shorted (borrowed) shares.

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Miscellaneous Terms

After-Hours Trading: This refers to stock trading outside of the traditional trading hours of the major exchanges. This is not a new phenomenon, but has generally been reserved for high net-worth investors and institutional investors, such as mutual funds. The emergence of ECNs has allowed individual investors to participate.

Bear Market: Any financial market in which prices of a security or a group of securities keep falling.

Brokerage: Brokerage is the commission charged by the broker. The maximum brokerage chargeable is determined by the stock exchange controlling authority of each country.

Bull Market: Any financial market in which prices of a security or a group of securities keeps rising.

Capital Gain: The amount by which an investment’s selling price exceeds its purchase price.

Capital Loss: The negative difference between the selling price of the stock and the purchase price of the stock.

Closing Price: The last traded price of a security at the end of a trading day.

Day Trading: Buying and selling the same stock or option position in one day’s trading session, thus ending the day with no position.

Demand: The desire, ability and willingness on the part of consumers to buy goods or services. Typically demand is determined by income and by price, which are, in part, determined by supply.

Diversification: The allocation of assets among various types of investments.

Dividend Reinvestment: Dividends that are reinvested in the security that generated them.

Earnings Per Share (EPS): This measure expresses how much the company is earning for every share held. It is calculated by dividing pre-tax profit by the number of shares issued. Earnings per share is more important than the overall reported profit, because the EPS provides a better measure of profitability.

Exercise: The act of an option holder who chooses to take delivery (calls) or make delivery (puts) of the underlying interest against payment of the exercise price.

Fiduciary: One who is legally required to manage assets in the best interest of a trust of a beneficiary or minor.

Hedge: A strategy used to limit investment loss by making a transaction that offers an existing position.

Level I: Will display the current best bid and ask prices, volume, close price from the previous trading day, open price, high and low price for the day, and perhaps the ratio of shares or market participants between the bid and ask. Use the SureTrader 2.0 platform for Level I data.

Level II: Level II provides a view of all market makers and ECNs making a market in a particular security. It will display the different price levels, market maker and/or ECNs participating, and for how many shares. It may also show the times that they posted their bids and asks, plus their market status (open or closed for trading). This can give some insight into the depth of a security’s trading. Use the SureTrader Pro platform for Level II data.

Penny Stocks: Low-priced speculative issues of stock selling at less than $1.00 per share.

Stock Exchange: The place where stock trading takes place and where your transactions are executed through your broker.

Technical indicators: These indicators show the direction of the market, when you should likely buy and sell, when to book profit and when to not to anything. They are derived from the price and volume values.

Value Investing: A method of stock trading, where an investment is made in undervalued companies that have high intrinsic value.

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