Trading Glossary

An abnormal return refers to a result that differs from what was expected or considered normal. This deviation can be either positive or negative. In finance, it represents the portion of a return that exceeds or falls short of the anticipated outcome. For example, if a stock was expected to rise by 10% based on analysis but instead increased by 24%, the additional 14% is the abnormal return. Such returns can occur in either direction depending on market conditions.

Absolute advantage describes the ability to produce a greater quantity of goods or services than competitors using the same resources and time. For instance, if you can wrap 20 gifts in 30 minutes while others can only wrap 15 or 10 using the same tools, you possess an absolute advantage over them.

A trading account is opened with a broker to access a trading platform where you can deposit funds, withdraw profits, and trade different financial instruments. The broker carries out buy and sell orders on your behalf. Your account also records all previous transactions, allowing you to review your full trading history at any time.

Your account balance represents the amount of money currently available in your trading account. Whatever funds remain after transactions are completed make up the balance. For example, if your account holds $5, your balance is $5; if it holds $10,000, then your balance is $10,000.

Account equity is the real-time value of your trading account, calculated by adding your account balance to any unrealized profits or losses from open trades. Unlike the balance, which only changes after trades are closed, equity fluctuates continuously based on market price movements.

An account statement is a detailed record of all activities carried out in your trading account. It includes open and closed positions, deposits, withdrawals, fees, and balances. Essentially, it serves as an official summary document for everything related to your account.