Trading FAQ

1.What is day trading?

Day trading is active intraday trading meaning opening and closing (buy and selling/selling aka shorting and buying aka covering) positions within the same day.

 

2.What is swing trading?

Swing trading is opening a position (buy and selling/selling aka shorting and buying aka covering) and closing this position the next day, days, weeks, months later.

 

3.What is shorting a stock?

Short selling is when a trader borrows shares from their broker and immediately sells them while executing the idea that the stock will go lower in which case they will buy it back aka cover the position for a profit. Exampling shorting FB at $180 and covering it at $170 making $10 per share profit.

 

4.What is a stop loss order?

A stop loss order is a conditional order a trader puts in place as a “hard stop” that if the trade goes against them and triggers this price level the order automatically sells or covers their position at a loss according to the trader’s plan.

 

5.What are options?

Options are contracts that give you the right to purchase or sell the underlying asset at an agreed upon price and date known as exp date and strike price. Each option controls 100 shares of the underlying asset.

 

6.What is a cash account?

A cash trading account is simply a trading account that uses only cash on hand to purchase equities, options contracts etc.

 

7.Can I short sell a stock with a cash account?

No you cannot only margin accounts can short a stock.

 

8.What is a margin account?

A margin account is an account were the broker lends the trader capital to trade which is collateralized by the securities and cash in the account.

 

9.What is an offshore broker?

An offshore broker is a brokerage that is found outside of the US and is typically not bound by US SEC rules and regulations.

 

10.What is the PDT Rule?

PDT rule aka pattern day trader rule is a rule that affects margin accounts and only allows for 3 trades in a 5 day rolling period for accounts under $25,000 in balance.

11.What is a limit order?

A limit order is a conditional order a trader places that will not trigger a buy or sell unless the pre determined price set in the limit box is triggered.

 

12.What is a market order?

A market order is an order that a trader places to open or close a position at the market value of the security at the time.