Trading

Trading is the buying and selling of securities, such as stocks, bonds, and commodities. Learn the nuances of trading in different markets and strategies to profit from.

Frequently Asked Questions

  • What is day trading?

    Day trading refers to buying and selling or selling short and then buying the same security on the same day. Day traders aim to take advantage of intra-day price fluctuations. Most common markets for day traders are stocks, forex and futures. Day trading is risky and even experienced traders don’t make consistent profits. There are strict regulations and capital requirements for pattern day traders.

  • What is options trading?

    An option is a derivative contract that gives its owner the right to buy or sell securities at an agreed-upon price within a certain time period. Traders buy and sell options based on their expectation of where the price of the underlying security is headed. Options can be used as a hedge and can have potential for big profits. But trading options is risky, in some cases, traders may face unlimited losses.

  • What is margin trading?

    Margin trading means borrowing funds from your broker to trade securities. For example, on a 50-to-1 margin, for every $1 in your account, you are able to trade $50. You need a margin account for that in which your broker requires a minimum balance. If the balance drops below that limit your broker can trigger a margin call which means you either need to deposit more funds or they can sell your holdings.

  • What is after-hours trading?

    The NYSE and Nasdaq are open for trading 9:30 a.m. to 4 p.m., Monday through Friday. However, you could still put in trade orders for stocks between 4 p.m. and 8 p.m. in what is called after-hours trading. It allows traders to respond to news (like earnings) outside of market hours, though lack of liquidity could cause trades to remain unfulfilled. Brokerages may also have restrictions for after hours trading.

  • What is swing trading?

    Swing trading means trying to profit from a security’s price fluctuations over a minimum of one day and a maximum of several weeks. It has a longer view than day trading and a shorter view compared to long-term investing. That means it requires some degree of active management of trades, although less than day trading and more than long term investing.

  • What is scalping in trading?

    Scalping is an ultra-short term trading strategy that takes advantage of small price movements. It aims to profit from a large volume of trades instead of a big gain on each trade. Such trades could occur within minutes as scalpers believe its less risky to make small gains that wait for big price moves. Though disadvantages of scalping include the need for a margin account and high commission cost due to high trade volume.

  • What is paper trading?

    Paper trading essentially means practicing trades without putting down actual money. You could write your trades on a piece of paper and follow how they perform in the markets. You could also do that with a simulator or demo account offered by your broker. While paper trading helps you hone your skills it has limitations. It does not account for factors like emotions, transaction costs and impact of broader markets.

  • What is dark pool trading?

    Dark pools are trading systems that allow participants to place trades without publicizing the size or price of the order to the general market or other participants. They are also called alternative trading systems. Typically used by institutional investors, the benefits of dark pools include ability to trade a large volume of stocks while minimizing information leakage. However, no disclosure of large volumes traded in dark pools means the supply and demand in open markets may not be accurate.

Key Terms

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Floating Stock
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Cost Basis
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What Is Technical Analysis?
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What Is a Dark Pool?
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Notional Value of a Derivative
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Price Target
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Forward Contract
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Uptick Rule
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Cost of Carry
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Securities Lending
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What Is a Strangle Option?
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Theta
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Limit Up
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Settlement Risk
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What Is a Short-Term Loss?
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Short Position
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Stonks, Apes, YOLO: Your Guide to Meme Stock Trading Slang
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Spot Rate
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Margin Debit Balance
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Trade Execution
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NYSE Arca
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Delta Hedging
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Trading Range
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Overtrading
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Average Daily Trading Volume
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Tracking Error
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What Are Friction Costs?
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Order Book
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Downside Risk
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Share Turnover
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Gun Jumping
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Short Hedge
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Pre-IPO Placement
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Dividend Yield on Cost
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Gordon Growth Model
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Canceled Order (Stock)
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What Are Forfeited Shares?
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Stock Loan Fee
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How to Day Trade With Less Than $25,000
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What You Need to Know: S&P 500 (ES) Futures Market
Pros and cons of free real-time stock charts. Pros: Real-time Excellent backup data source Great training tool for new traders Cons: Unofficial Usually comes from sole data provider Isn’t guaranteed for accuracy or timeliness
Best Free Real-Time Stock Charts
common trading terms you should know: bear(ish), short(ing), long (going long), bull(ish)
What Do Long, Short, Bullish, and Bearish Mean?
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Futures
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How to Read a Bar Chart for Day Trading
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Find the Best Day Trading Stocks Using These Stock Screeners
Dow Plunges Over 800 Points In Intraday Trading As Investors Dump Tech Stocks
Trailing Stop Loss in Day Trading
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Day Trading Tips for Beginners
Cup and Handle
How To Trade the Cup and Handle Chart Pattern
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Here Is a Look at Nadex Binary Option Basics in the U.S.
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What Are Fungible Investments?
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How Average True Range (ATR) Can Improve Your Trading
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Arbitrage
how to pick the best day trading stock: follow volume and volatility, consider trend and range to track uptrend and downtrend, only trade stocks with tendency to range if you prefer trading ranges, only trade stocks with trending tendency if you use trending strategy, and utilize stock screener to find stocks that conform to your trading method
Day Trading Stocks That Traders Love
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Scalping
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Retail Investor's Guide to Day Trading Taxes
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How to Start Day Trading in Gold
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Triangle Chart Patterns and Day Trading Strategies
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Day Trading vs. Swing Trading
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Which Time Frames To Watch While Day Trading Stocks
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Know What Is Involved in Becoming a Proprietary Trader.