Category: trading basics
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Emotions in trading and how to control them
Humans are emotional beings. Good news makes us happy, bad ones cause sadness. We feel proud of our successes and regret our mistakes. We may be thrilled to see a celebrity on the street and would fear missing our flight if we leave the house too late. Given that emotions have such a central place […]
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What is liquidity in stocks?
Liquidity is a fundamental concept in finance and trading. But, what is liquidity in stocks in particular and financial markets in general? What is the definition of liquidity risk? In this post, we address these questions by offering a definition of liquidity in economics and finance. Jump to: Definition of liquidity in economics and finance […]
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Order book – trading stocks and other securities
We know that a key feature of markets is that they bring buyers and sellers together. Markets facilitate trades between these two parties. One method markets can use to match buyers and sellers is through an order book. And, this is the topic of this post. Learning objectives Define what an order book is within […]
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Arbitrage opportunity – How does it work?
In financial markets, investors compete with each other to exploit arbitrage opportunities that often quickly disappear once they are discovered. But, what exactly is an arbitrage opportunity and how do you exploit it?Learning objectives: Define the concept of an arbitrage opportunity. Understand how investors follow the “buy low, sell high” strategy to exploit arbitrage opportunities. […]
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Short selling – What are the benefits and risks?
In most cases, investors or traders would first purchase a security (stock, bond, etc.), hold it for some time (from seconds to years…), and, finally, sell it with the hope of realizing a profit. However, beginner investors may be unaware that the sequence of buying and selling can actually be reversed. That is, you can […]
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Long position vs short position – How to interpret?
For a beginner trader, it may be easy to get lost quickly listening to a conversation by seasoned traders. Trading and investing involve lots of technical terms and specific jargon. Sometimes, you hear traders say “I’m long on company X” or “short on company Y.” What do traders mean by long positions and short positions? […]
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Bid price vs ask price – What do they mean?
Beginner investors can easily get confused when confronted with bid prices and ask (or offer) prices. Which one is to use if you’re buying a security? And, which one when selling the security? Learning objectives: Define the concepts of bid prices and ask prices. Interpret bid prices and ask prices from the perspectives of investors […]
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Market order vs limit order – Liquidity, uncertainty
Imagine that you own shares of Twitter, Inc. and are thinking of selling those shares to help finance the purchase of a new car. What type of trade order should you submit if you want to purchase the car as soon as possible? And, what type of order is more suitable if you would prefer […]
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Trade order – Which are the essential features?
In order to trade securities, investors need to submit trade orders, typically through their brokers. Making a mistake when submitting a trade order can be very costly for investors. But, how does a typical trader order look like? What are its essential elements? Learning objectives: Define the concept of a trade order. Understand its essential […]
