There are a lot of trading terms out there let’s look at the main five, which are spot trade, margin trade, Limit order, Spot order, and Market order let’s go through them one by one.
1) Spot trading
A spot trade, also known as a spot transaction, refers to the purchase or sale of a foreign currency, financial instrument, or commodity for instant delivery on a specified spot date.
2) Margin trade
- Trading with borrowed money – margin mean borrowing money to trade a stock, currency or even a cryptocurrency. You’re giving up some ownership and control to the brokerage that gives you a margin loan.
- If the trade goes well, you get the profit margin and the modal goes back to the brokerage.
- If the trade goes bad, the brokerage can take the money out from your account without any consultation from you.
- Example :
- Let’s say Jerry has $5,000 cash on hand and there’s a stock he wants to buy that is worth $100 per share, so he goes ahead and buys 50 shares of that stock. One year later, the price of the stock rises to $120 per share and Jerry decides to sell all his shares for $6,000. That means Jerry made a $1,000 profit on his initial investment. Generally, that’s how stock trading works.
- But let’s back up to the beginning of the story. Under margin rules, Jerry could put down $5,000 and then borrow another $5,000 to buy 100 shares of that stock he was looking at. If Jerry executed that margin trade and then sold all of his shares a year later for that same $120-per-share price, he would make $12,000 on that margin trade. After Jerry pays back the $5,000 he borrowed (plus interest), he’d end up with a little under $2,000 in profit.
3) Limit order
A limit order is a type of order to purchase or sell a security at a specified price or better. For buy limit orders, the order will be executed only at the limit price or a lower one, while for sell limit orders, the order will be executed only at the limit price or a higher one. This stipulation allows traders to better control the prices they trade
4) Stop Order
A stop order is an order to buy or sell a security when its price moves past a particular point, ensuring a higher probability of achieving a predetermined entry or exit price, limiting the investor’s loss, or locking in a profit. Once the price crosses the predefined entry or exit point, the stop order becomes a market order.
5) Market order
A market order is an instruction by an investor to a broker to buy or sell stock shares, bonds, or other assets at the best available price in the current financial market.
So far this is the main 5 terms used in trade if u have any doubts you may join our telegram group and shoot your questions over there, we will go through more terms on Trading terms #2 stay tuned.