Understand investment products, market mechanics, indicators and research terminology. Each entry includes an explanation, example, cautions and related learning.
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The bid-ask spread is the difference between the highest price buyers are currently willing to pay (the bid) and the lowest price sellers are willing to accept (the ask). It is a cost of trading immediately and a common gauge of liquidity.
An index is a calculated measure of the combined performance of a defined group of securities or other assets, such as a market, sector or asset class. It is a number rather than an investment, and it is built to a published rulebook.
Index weighting is the rule that sets how much each constituent contributes to an index's return. Common schemes include market-capitalization (often free-float-adjusted) weighting, equal weighting, price weighting and factor- or fundamental-based weighting.
A limit order instructs a broker to buy at or below, or sell at or above, a specified price. It controls the worst price you will accept but does not guarantee that the order will be filled.
Liquidity is how easily an asset can be bought or sold quickly, in the desired size, without moving its price much. A liquid market has many active buyers and sellers, narrow spreads and deep order books.
A market order instructs a broker to buy or sell immediately at the best prices currently available. It prioritizes speed of execution over price certainty, so the execution price is not confirmed in advance.
Settlement is the final step of a trade, when ownership of the asset is transferred and payment is completed. The timing, method and responsible institutions depend on the market, instrument and venue, and the rules change over time.
Short selling is selling a security that the seller does not own, usually borrowed through a broker, with the aim of buying it back later at a lower price and returning it to the lender. The seller gains if the price falls and loses if it rises.
Slippage is the difference between the price you expected for a trade and the price at which it actually executes. It arises from price movement and limited depth between the decision and the fill, and it can be adverse or, occasionally, favorable.
A stop order is an instruction that stays inactive until the market reaches a chosen trigger price, after which it becomes a live order. A standard stop becomes a market order when triggered, so its fill price is not guaranteed.