Orders & trading mechanics: glossary

The terms

• Bid-ask spreadThe bid-ask spread is the gap between the best price to sell (bid) and the best price to buy (ask). Buy at the ask, sell at the bid, and you are…
• Circuit breaker (US)A US circuit breaker halts trading. Market-wide, an S&P 500 fall of 7% or 13% stops all stocks for fifteen minutes and 20% ends the day; single…
• Day trading and the PDT ruleDay trading is opening and closing a position in the same session. The PDT rule is FINRA's pattern day trader rule: a US margin account under…
• Dollar-cost averagingDollar-cost averaging is investing a fixed amount at fixed intervals whatever the price, so you buy more units when cheap and fewer when dear. It is…
• Gap up and gap downA gap is a price opening far from where it last traded, with nothing in between. US stocks gap at 7:00 PM IST because news lands after the close…
• Hard to borrowA hard-to-borrow stock is one where lenders have few shares left, so the borrow fee jumps and shorts can be recalled. On such names a cash-settled…
• Limit orderA limit order buys or sells only at your price or better. You control the price, the market decides whether you trade, and it can fill partly. In…
• LiquidityLiquidity is how much you can trade without moving the price: a tight spread and deep size at each level. US Treasuries are the deepest market on…
• Long and short positionA long position profits when the price rises; a short position profits when it falls. On a contract on the price, going short is one click with no…
• Market makerA market maker quotes a price to buy and a slightly higher price to sell all day and earns the spread. Since US prices moved to one-cent steps in…
• Market orderA market order buys or sells immediately at the best price available. It always fills, but at the ask if you buy and the bid if you sell, never at…
• Order bookAn order book is the list of every resting buy and sell order, bids on one side and asks on the other, sorted by price. A trade prints the moment a…
• Partial fillA partial fill is when only part of a limit order executes because not enough size sat at your price; the rest keeps waiting. Ask for 100, find 40…
• Settlement (T+1 in US)Settlement is when the cash and shares from a trade actually change hands; US stocks settle T+1, the next business day, since May 2024, like India.…
• Short interestShort interest is the number of a stock's shares sold short and not yet bought back, published twice a month by FINRA. High short interest with few…
• Short sellingShort selling is selling a borrowed share to buy it back cheaper. The loss is open-ended if the price rises, the borrow costs a fee, and when…
• Short squeezeA short squeeze is a fast rise forced by short sellers buying back to cap losses, which pushes the price higher and forces out the next ones. It…
• SlippageSlippage is the gap between the price you expected and the price you got. It comes from the spread, from a thin book your order walks through, and…
• Stop-limit orderA stop-limit order becomes a limit order, not a market order, at its trigger. It refuses a bad fill in a gap, and that is also its danger: the price…
• Stop-loss orderA stop-loss order turns into a market order when the price reaches a trigger, to cap a loss. It is a request, not a guarantee: in a gap it fills…
• Take-profit orderA take-profit order closes a position automatically when the price reaches your target, usually as a limit order so the exit is at your price or…
• Trailing stop orderA trailing stop moves the stop trigger behind the price by a fixed amount or percent as a trade goes your way, and stays put when it turns. It locks…
• Volatility / VIXVolatility is how much a price swings. The VIX is Cboe's index of how far the S&P 500 is expected to move over thirty days, priced from options; 20…
• VolumeVolume is how many shares or contracts changed hands in a period. About half of US stock volume is filled off exchange by wholesalers, and on a…