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Trading Terms List

This page has an in-depth list of the most popular trading terms. Have you ever listened to a podcast or read an article about trading and wondered why we use the words we do? Don’t worry. You’re not alone. Stock market language can be difficult. Sometimes, it feels like the language people use is from a completely different country. But don’t panic. There’s no shame in not knowing what certain words or phrases mean.

Everybody’s been new to trading at some point. As you can probably tell, the stock market is rife with unique terms and industry-specific phrases. Learning these terms can go a long way in helping you understand what people are talking about. These words can also help in general market analysis and individual stock analysis. Before you dive headfirst into trading stocks, make sure you familiarize yourself and learn the language of the stock market. We’ve collected some terms here to help you familiarize yourself, and we’re constantly adding new ones to this list. Take our trading courses if you need help getting started.

Dictionary of Trading Terms

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What Is Arbitrage?

Simply put, arbitrage is when traders buy and sell the same asset in different markets at different prices. They seek to buy it in one place at a lower price and then immediately sell it in another market for a higher price. They aim to profit from the price difference. This strategy requires quick execution and large trading volumes to make meaningful profits.

There are two straightforward explanations that rely on the arbitrage opportunity:

  1. You can buy a product at a lower price in market A, sell it at a higher price in market B, and earn a profit. Or,
  2. You can buy product A at a lower price, hold onto the asset, resell it at a higher price at a later time, and make a profit.

What Causes Arbitrage? 

Arbitrage opportunities can be due to various situations like differences in market inefficiencies, transaction costs, or trading restrictions. 

It’s essential to note that stock market arbitrage is a risk-free strategy in theory because it exploits price discrepancies in different markets. However, arbitrage opportunities are often short-lived, as arbitrageurs’ activities tend to eliminate the price differences quickly. Therefore, successful arbitrage requires fast execution and efficient trading infrastructure.

Arbitrage in the stock market can be challenging and may require an advanced understanding of the financial markets and trading methods. It’s important to keep in mind that it’s a complex process. It’s always advisable to thoroughly understand the risks associated with any investment strategy and seek professional advice if needed.

Where Can I Find Arbitrage Opportunities?

Stock market arbitrage traders depend on sophisticated trading systems and technology to quickly identify and take advantage of opportunities. Price irregularities are common in stocks, bonds, cryptocurrencies, currencies like the Euro or US Dollar, and commodities.

You’d think it would be relatively easy and risk-free as you buy and sell at the same time. Reality, however, paints a different picture. Traders can face challenges when dealing with high transaction fees and prices that fluctuate, as they must complete transactions quickly. Further to that, it takes a sizable chunk of cash to generate any significant profits. 

Example Of Arbitrage

Let’s consider a straightforward example of arbitrage: On the New York Stock Exchange (NYSE), a single share of company ABC is currently being traded for $20. At the same time, on the London Stock Exchange (LSE), a share of the same company is traded for $20.05.As you can see, there’s a price difference of $0.05. If you’re a savvy trader, you notice this and buy shares on the NYSE and immediately sell them on the LSE, pocketing the $0.05 difference. You can keep this up until there’s no stock left or the price gap closes. 

It Takes a Lot of Money to Turn a Profit

As you can see from the example above, The differences in prices between products are generally small, and traders must invest a significant amount of money to earn a significant profit. Additionally, as information spreads more quickly, opportunities for arbitrage are dwindling. These opportunities have already been exploited, making them more difficult to find as the market becomes more skilled at balancing out disparities.

Is Arbitrage Even Legal?

Yes. In fact, most countries encourage arbitrage trading as it helps to reduce market inefficiencies. By facilitating market corrections and eliminating market inefficiencies, arbitrage trading helps to improve the overall market condition. Additionally, it helps to ensure that prices remain more or less the same across different markets.

Frequently Asked Questions

There are many terms used in stock market trading. Knowing what they are is important for being an informed trader and investor.

Within the realm of trading and investing exists a unique set of terms and phrases known as stock market terms. These terms range from fundamental concepts such as "dividends" and "shares" to more intricate jargon, including "earnings per share (EPS)" and "over-the-counter."

If you're new to stock trading and investing, it may seem overwhelming to understand everything. However, it can be helpful to learn some basic terms to speed up your progress. Knowing the fundamental principles of the stock market is important for making informed investment and trading decisions. Understanding the terminology is the first step in building a solid foundation.

Some frequently used expressions in the stock market are bear market, bull market, dividend, ask, bid, short, long, calls and puts.

The are many different types of trading, not just 5. These include long-term, short-term, day, swing, and high-frequency trading.

If you do not agree with any term of provision of our Terms and Conditions, you should not use our Site, Services, Content or Information. Please be advised that your continued use of the Site, Services, Content, or Information provided shall indicate your consent and agreement to our Terms and Conditions.

If you would like to contact the Bullish Bears team then please email us at bbteam[@]bullishbears.com and we will get back to you within 24 hours.

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Disclaimer: We’re not licensed brokers or advisors. You’re 100% responsible for any trades that you make. Please read our full disclaimer.

Trading contains substantial risk and is not for every investor. An investor could potentially lose all or more of their initial investment. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not indicative of future results. Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.

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