Day Trading Key Terms

Use day trading key terms to give yourself an edge in the trading market

By Christine Pollock

Day traders buy and sell U.S. stocks within one day. Completing four or more day-trade transactions within five business days in the U.S. stock market qualifies a broker as a day trader. If you want to go into this field, you will most likely find it beneficial to know and understand key terms when playing the market.

Learning day trading key terms gives you an edge over competitors as the terms can help you stay current with news and trends in the market. Knowledge of the key terms also helps investors communicate effectively with others in the business.

Averaging down

Averaging down refers to a process where day traders trade their contracts at a lower price, lowering the average entry price.
Try: For an in-depth look at averaging down in day trading, go to Stock-Market-Investors.com. It discusses the pros and cons of averaging down in this field.

Margin

The term margin refers to the minimum cash or securities amount a day trader holds in a specific account in order to trade in a particular market.
Try: FINRA defines rules you must know about day trading margin requirements. It summarizes the requirements and offers an explanation for the rules.

SEC restrictions

Also called pattern day trading restrictions, SEC restrictions is the term for when the United States Securities and Exchange Commission (SEC) requires traders to deposit a minimum of $25,000 into an account for day trading. Since most day traders do not have this amount of cash at start up, they need to keep their positions for more than a day.
Try: The U.S. Securities and Exchange Commission website shows the reactions of traders to SEC restrictions.

Stop loss

A stop loss limits loss by using an exit order for when a trade goes against the original trade that a day trader made. The two types of stop loss are a regular exit and a backup exit.
Try: Day Trading offers a detailed description of a stop loss with links to examples explaining how to set one up.

Spread

In day trading, the word spread refers to the difference between the buying and selling prices, also known as the bidding and asking prices. A small spread is when the bid and ask prices are close together, and a large spread is when they are further apart.
Try: Tradejuice discusses ways to trade spreads as part of its day trading article compilation.

Triple Witching

Triple Witching, sometimes referred to as Quadruple Witching, happens every three months on the third Friday. It's when various options and future contracts expire simultaneously causing erratic behavior in the markets. Many day traders take extra caution when trading on these days.
Try: InvestorWords.com offers a definition for Triple Witching with links leading to further details.