Important Day Trading Terms to Remember

As you begin day trading, you may need to familiarize yourself with some basic terms. Some of these pertain to financial exchanges in general while others may pertain to certain aspects of buying and selling.

Broker-This is a firm that is hired to help you execute market exchanges. Usually this service costs you and you pay the firm by commission. Usually day traders will use direct access brokers as retail brokers charge high commissions.
Commission-This is what you would pay to a broker or other professional for helping you with purchase and sale of stock, bonds, securities, foreign currency, commodities or other financial instruments. Various calculation methods are used, depending which type of broker you use.
Spread-The difference between the bid and the ask price (buying and selling) price is the spread. A gain is made sometimes in the favor of the seller, while sometimes a loss is taken if the buyer loses money while attempting to sell.
Market data-An essential part of day trading is keeping track of trends, preferably up to the minute. This often is done with use of automated real time software so that you can make as accurate of trade moves as possible while playing the market online.
Pattern trader-The SEC came up with this term to define a person who makes 4 or more trades in 5 business days. The other criteria are that this investor would have exchanged more than six percent of the total trading activity of the customer.
Bid-This is a price at which a buyer is willing to pay. This often refers to the Forex market, but also is a term used in any branch of the financial market.
Ask-This is the price offered by a buyer. It is the lowest amount that a seller is willing to accept for a specific good. Again, this often refers to foreign currency trading but can be used in any aspect of the financial market.
Mutual fund-Oftentimes participators in day trading may be involved in exchanging a collection of items such as stocks, bonds, money market accounts, and other securities. Usually a pool of investors pays a bank, broker, or other agent and then the proceeds are divided accordingly.
Commodity-This is a type of exchange executed on raw materials such as corn, wheat, gold, copper, salt, or coffee beans. Usually prices of these fluctuate based on worldwide demand, and of course availability. The profit (gain) is made on these in a similar way as for other financial instruments of exchange.
Stock-Of course, this is the general term used to define a corporate share of a company. Purchasers usually are assigned one vote in the corporation if it is a common stock, while holders of preferred stock do not.