Stock Market traders have their own language. They use words that might confuse stock market beginners or “newbies” that don’t know the stock market investing basics yet. Stock trading lingo is almost a type of secret handshake that lets other traders know that you’re a member of the club. There is a method to the madness of stock trading terminology.
Many of these stock trading terms allow a trader to express a concise thought in one or two very quick syllables. In any investing or stock trading discussions, you will usually hear something about the terms: long, short, and flat. In fact, usually every stock trader today is always long, short, or flat. What do these stock trading terms mean exactly?
- Going long – When a trader says he is “going long,” he is placing a trade that will become profitable if the exchange rate rises.
- Selling short – When a trader says he is “going short” or “selling short,” he is placing a trade that will become profitable if the exchange rate falls.
- Flat – When a trader says he is “flat,” he is neither long nor short. This trader has no open positions in the market.
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Stock Trading Terms
Why do traders use these weird stock trading terms? Why do they use some special stock trading terminology and not just use the word buy instead of long, and use the word sell instead of short?
The answer is actually very simple when you consider that traders can make money whether the exchange rate moves up or down. For example, suppose you walk into a stock market traders office ask me what sort of trade they will be making today. They might tell you that they are going to sell today.
It’s hard to understand but the truth is that the word “sell” could have two different meanings. Perhaps the trader is going to sell a stock that they bought last week, in order to take a profit. Or it could mean that they are opening a short selling trade; in other words, they are selling a stock today in order to profit from an expected drop in the stock price.
However, if you ask that same question and they answer, “I’m going short,” there can be no confusion as to my meaning. If they are selling short, they are am definitely going to make money if the stock price falls, and they are definitely going to lose money if the stock price rises. There can be no doubt about it.
Suppose you ask what are you planning to do today, and they tell you that they plan to buy. Again, this word has two potential meanings. Perhaps they are going to buy because they think the stock price is going to rise. Or it could be that they sold short last week, and the stock price has fallen. In order to take a profit and “close” the trade, they have to buy back the stock that they sold short last week. This is called “covering a short.” See short selling 101 for more information on how to short a stock properly.
If they do cover their short position, and they have no other open trades, they will be “flat.” They will have no open positions in the market.
If they were to tell you, “I’m going long today,” this can have only one meaning. It means that if the stock price rises, they’ll make a profit, and if it falls, they’ll lose money.
The use of these stock trading terminology removes the ambiguity in trading stocks because they describe trading activity in precise terms. To discover more stock market terminology, you can look up hundreds of terms at the stock market dictionary.Stock Trading Terminology,