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Buy vs. Long | Sell vs. Short | Understanding Key Terms | TradeKing
You’ll notice sometimes an investor or trader may use the word “buy” while others use the word “long.”
Commodities
A financial market is a market in which people and entities can trade financial securities , commodities , and other fungible items of value at low transaction costs and at prices that reflect supply and demand . Securities include stocks and bonds, and commodities include precious metals or agricultural goods. There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded).
Financial market
Security (finance)
A security or financial instrument is a tradable asset of any kind. [ 1 ] Securities are broadly categorized into: debt securities (such as banknotes , bonds and debentures ), equity securities, e.g., common stocks ; and, derivative contracts, such as forwards , futures , options and swaps . The company or other entity issuing the security is called the issuer .
Debt
A debt is an obligation owed by one party (the debtor ) to a second party, the creditor ; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value . [ citation needed ] A debt is created when a creditor agrees to lend a sum of assets to a debtor. Debt is usually granted with expected repayment; in modern society, in most cases, this includes repayment of the original sum, plus interest . [ 1 ]
The capital stock (or stock ) of an incorporated business constitutes the equity stake of its owners.
Stock
A derivative is a term that refers to a wide variety of financial instruments or "contract whose value is derived from the performance of underlying market factors, such as market securities or indices, interest rates, currency exchange rates, and commodity, credit, and equity prices. Derivative transactions include a wide assortment of financial contracts including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards and various combinations thereof." [ 1 ] In practice, it is a contract between two parties that specifies conditions (especially the dates, resulting values and definitions of the underlying variables, the parties' contractual obligations, and the notional amount ) under which payments are to be made between the parties. [ 2 ] [ 3 ] The most common underlying assets include: commodities, stocks, bonds, interest rates and currencies.
Derivative (finance)
In finance , a futures contract (more colloquially, futures ) is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today (the futures price or strike price ) with delivery and payment occurring at a specified future date, the delivery date . The contracts are negotiated at a futures exchange , which acts as an intermediary between the two parties. The party agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be " long ", and the party agreeing to sell the asset in the future, the "seller" of the contract, is said to be " short ". The terminology reflects the expectations of the parties—the buyer hopes or expects that the asset price is going to increase, while the seller hopes or expects that it will decrease in near future.
Futures contract
Swap (finance)
In finance, a swap is a derivative in which counterparties exchange cash flows of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two bonds , the benefits in question can be the periodic interest (or coupon) payments associated with the bonds.Forward contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today. [ 1 ] This is in contrast to a spot contract , which is an agreement to buy or sell an asset today. The party agreeing to buy the underlying asset in the future assumes a long position , and the party agreeing to sell the asset in the future assumes a short position . The price agreed upon is called the delivery price , which is equal to the forward price at the time the contract is entered into.
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