While there are a number of day trading terms that you will pick up as you go, it is useful to have an understanding of some of the most basic terms used in trading. If for no other reason, knowing these terms will allow you to save time reading more about day trading as you look to improve your day trading skills.
Electronic Communication Networks (also called ECNs): these are electronic trading systems that automatically match, buy and sell orders at specified prices. Traders, institutional investors, broker-dealers, and market-makers trades directly with an ECN; if a subscriber wants to buy a stock through an ECN, their order is matched to a sell order.
Horizons: Important to your investment strategies, the term horizon refers to the length of time a sum of money is expected to be invested. The terms investment horizon and time horizon refer to the same thing.
Market Makers: These are generally brokerages or banks that buy or sell stocks at publicly quoted prices. These firms display bid and offer prices for specific numbers of specific securities (another word for stocks), and if these prices are met, they will immediately buy for, or sell from their own accounts. The work of market makers is very important for maintaining the value and status of a particular stock.
Spreads: The difference between the current bid and the current ask or offered of a given security.
Tick: The smallest possible movement in the price of a security. Also called minimum fluctuation.
Waves and Troughs: This basically refers to the shifts and changes of a stock’s value.
Volatility: The relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation of daily change in price. If the price of a stock moves up and down over dramatically short time periods, it has high volatility. If the price rarely changes, the stock has low volatility.
