FAQ


Q: What Is the difference between trading and investing?

A: The main differences are the time frames used. Trading relies on shorter time frames (1m/5m charts for scalping, 15m/30m/hourly for day trading, and hourly/daily for swinging), where as investing zooms out to see the bigger picture (daily and above). Trading also relies more on technical analysis, whereas investing relies more on fundamental analysis.

Q: What is technical analysis?

A: The study of charts, indicators, and patterns.

Q: What is fundamental analysis?

A: The study of a business's financial statements, health, competitors, and markets, as well as the overall state of the economy.

Q: What is an option?

A: A contract to buy or sell 100 shares at a specified price on or before a specified date. A call option is to buy, a put option is to sell. If you think the price of a stock will move up, buy to open a call option or sell to open a put option. If you think the price will go down, buy to open a put option or sell to open a call option.

Q: What is the bid price?

A: The highest price a buyer will pay for a security (share, option, etc.).

Q: What is the ask price?

A: The lowest price a seller will accept for a security.

Q: What is a bid ask spread?

A: The difference in price between the bid and the ask.

Q: What is a market order?

A: An order to buy/sell your security immediately at the first bid price (for sales) or ask price (for buys) received.

Q: What is a limit order?

A: An order to buy/sell your security at or above a specified price. Limit sells are used to secure profit at certain price targets.

Q: What is a stop order?

A: An order to buy/sell your security at or below a specified price. Stop sells, aka stop losses, are used for managing risk.

Q: Which brokerage should I use?

A: There are many different brokers that offer many different amenities, as well as different transaction fees (some don't charge any!). Make sure to thoroughly read all rules and regulations before signing up with any brokerage. That being said, some of our personal favorites are WeBull, ThinkOrSwim, and E*Trade.

Q: What is "going long"?

A: Looking to profit from an increase in price.

Q: What is "going short"?

A: Looking to profit from a decrease in price.

Q: What is volatility?

A: How much a stock moves up and down. Higher volatility means crazier swings in price action, lower volatility means more stable price action.

Q: What is margin?

A: Margin is essentially credit to make trades loaned from a brokerage to an investor. Be aware that trading on margin is inherently more risky than trading with your own cash.

Q: What are Pattern Day Trader rules?

A: PDT rules restrict any investor to make more than 3 day trades within a five day period if their total margin account size is under $25k. To be considered a day trade, a position must be opened and closed within the same day. If you open a position and then close pieces of the position at different times, it is still considered 1 day trade, so long as you don't add any more to your position.

Q: What is a margin call?

A: A margin call is a restriction placed by the broker that suspends your trading until you've deposited additional funds into your account, or liquidated positions to cash. This occurs when your account dips below the margin maintenance requirement. FINRA Rule 4210 requires that you maintain a minimum of 25% equity in your margin account at all times, and depending on your broker, you may be required to maintain more than that.(edited)

Q: What are "The Greeks"?

A: "The Greeks" are a set of measures designed to better understand how option prices change based on different parameters. They are as follows:

  • Delta: The rate of change between the option's price and a $1 change in the underlying asset price. Ex: If a call option has a delta of 0.50, the option's price increases by $0.50 for every $1.00 the underlying stock increases.
  • Theta: The rate of change between the option's price and time. Ex. If an option has a theta of -0.50, the option's price decreases by $0.50 for every day that passes. This is one of the most important Greeks to pay attention to.
  • Gamma: The rate of change between an option's delta and the underlying asset's price. Ex: If a call option has a gamma of 0.10, the delta will increase by 0.10 for every $1 the underlying stock increases.
  • Vega: The rate of change between an option's value and the underlying asset's implied volatility. Ex: If an option has a Vega of 0.10, the option's value will change by $0.10 for every 1% move in implied volatility.
  • Rho: The rate of change between an option's value and a 1% change in the interest rate. Ex: If a call option as a Rho of 0.05, the option's value will move $0.05 for every 1% change in the interest rate.