A Glossary of Terms When Trade Crypto You Need to Know

Cryptocurrency Exchanges

An exchange is a marketplace where people are can buy and sell assets and cryptocurrency exchanges is a marketplace where people are can buy and sell crypto.

All cryptocurrency exchanges are not created equal. Different exchanges enable you buy or sell different crypto with different prices and different trades happening, which changes how easy it is to buy or sell cryptocurrency efficiently.

Some of the major exchanges include:

• Kraken, headquartered in San Francisco, CA

• Bitstamp, headquartered in Luxembourg

• Bitfinex, headquartered in Hong Kong…

Cryptocurrency wallets

A cryptocurrency wallet is just like a bank account which is used to store, receive and send your digital currency to another wallet account or use it for the shopping purpose. Whether you want to trade in cryptocurrencies or want to have them as your asset, you must need to have a wallet account.

Bid price

The bid price is the maximum price that someone is willing to pay for the asset, the price for establishing a “Sell” position.

Ask price

The ask price is the minimum price for which someone is willing to accept the transaction, also known as the “Offer price”; the price for establishing a “Buy” position.

Bid-ask spread

A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market. The bid-ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. An individual looking to sell will receive the bid price while one looking to buy will pay the ask price. Spreads are important when calculating the trading fees.

Volatility

Volatility is the extent of changes in an asset’s value over time. If an asset’s value frequently fluctuates to a great degree — that is, if it’s highly volatile — then it’s typically thought to be a proportionately high-risk investment.

Volatility is also what gives traders the opportunity to profit through day trading and swing trading (see below).

FOMO

Short form for “Fear of missing out”. This is yet another term for greed, where you have the overwhelming emotional need to buy a cryptocurrency when the price starts for has been skyrocketing.

FUD

Short form for “Fear, Uncertainty, and Doubt”. Another negative based emotion spread intentionally by the media or a group of people within the crypto sphere that are typically looking to cause a price to drop, in hopes that they can purchase the cryptocurrency at a discount.

ATH

Short form for “All-Time High”. Therefore it means the highest historical price of a specific coin.

Whale

A huge player who has a substantial amount of capital. Whales are often the market movers for small alt-coins too due to their huge capital.

HODL

A spin on the investing lingo ‘hold’ — Hold On for Dear Life. A crypto trader who buys a coin and does not see himself selling in the foreseeable future is called a hodler of the coin.

Arbitrage

Arbitrage is the process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to profiting in on the price difference.

While getting into an arbitrage trade, only the price difference is captured as the net pay-off from the trade, the quantity of the underlying asset bought and sold should be the same.

Diversification

In generally , diversification is a method of managing the overall level of risk in your portfolio by investing in a range of assets that aren’t perfectly correlated with each other, securing better profits (on average), and minimizing the risk of losses.

Crypto-cost averaging

Crypto-cost averaging is a new way to think about a tried-and-true traditional investing strategy known as dollar-cost averaging (DCA).

Using the DCA method means purchasing a fixed dollar amount of crypto no matter what the price happens to be. Further, the DCA technique requires purchasing the fixed dollar price using a scheduled calendar as well.

Investors who use this strategy leverage discipline and long-term planning to hedge against major market movements up or down. Some of the buys might happen while the market is surging, and others occur while the market is declining.

Swing trading

Swing trading is the strategy of buying an asset at a low price and selling it at a high price. Typically, swing traders will make one trade every 1–3 days, but can sometimes last up to a week or more.

The high volatility of many cryptocurrencies has led many traders to focus on this kind of strategy, though that high volatility can also make the strategy costly if you time your trades poorly.

Day trading

Day trading is like swing trading but with a higher trade frequency, it can mean is very short-term trading and hold an asset for just a few seconds, to a couple of hours. The idea is that you sell your asset before the end of the day, hoping to make a small, but quick profit.

Margin Trading

In traditional markets, the borrowed funds are usually provided by an investment broker. In cryptocurrency trading, however, funds are often provided by other traders, who earn interest based on market demand for margin funds.

Margin trading with cryptocurrency allows traders to open a position with leverage and trade without putting up the full amount. As you’d imagine, the principle in the cryptocurrency world is quite similar. Let’s say you want to buy Ethereum worth $1,000, but you’ve only got $500 available. Through margin trading, you’d be able to borrow an extra $500 — getting you up to the magic total.

Leverage

Leverage is the additional buying power created by margin trading, allowing you to effectively pay less than full price for an asset using borrowed funds. Leverage is typically represented as a ratio.

For example, if you have $10,000 in a trading account and borrow another $10,000, then you have 2:1 leverage.

Market order

A market order is what happens when you make an agreement with an exchange to buy or sell a certain amount of an asset immediately at the current market price.

Depending on the size of your order and the trading volume on the exchange, this can end up giving you an extremely suboptimal price, though it allows you to execute your trade quickly.

Limit order

A limit order is an agreement that you make with an exchange to execute a trade only at a certain price point or better. You request a specific buy or sell price to be met so that the exchange buys or sells the cryptocurrency at your requested price.

The only issue with these types of orders are that the buy or sell price may never be met, thus leaving you with an unfilled orders. You can set a limit buy or limit sell.

Stop-loss order

A stop-loss order is a trade that you put in place for an exchange to immediately execute if an asset reaches a particular price point. As the name suggests, this kind of order is designed to limit your losses. For example, if you’re invested in Bitcoin and want to make sure you don’t lose too much money in the event of it tanking, you can make a stop-loss order to ensure that your Bitcoin will be sold immediately if the price dips below a certain point.

Take-profit order

A take-profit order is the “other half” of a stop-loss order: whereas a stop-loss order is put in place to limit one’s losses, a take-profit order is put in place to secure one’s profits. When this kind of limit order is put in place with an exchange, you will automatically sell the asset in question, immediately, if its value reaches a certain price.

Pump and Dump

This is a form of market manipulation by traders who artificially inflate prices and then exit the market, thus causing a collapse in the price.

OTC trades

Over-the-counter (OTC) trading refers to a trade that is not made on a formal exchange. In traditional financial markets, OTC brokers facilitate the exchange of securities that are not listed on formal centralized exchanges.

In cryptocurrency markets, OTC trades also are facilitated by OTC brokers who negotiate directly with the buyer and seller. The job of an OTC broker is to find natural buyers and sellers for a trade. The main difference between a centralized exchange-based trade and an over-the-counter trade lies in the anonymity provided by an OTC desk. OTC desks do not provide a public order book listing all trades, which allows large sums to be moved quietly without the potential to disrupt markets.

Gorilla Trades:

These trades are designed to execute large volume trades without even moving the market inadvertently. In this case, the large orders are executed in the form of smaller pieces to ensure more profits in the flexible market.

Polar Bear Trades:

Here is another form of trades that are designed to optimize the price range for larger orders. These hidden orders trade automatically on top of all orders so that a fixed limit can be achieved. Such trades are more suited to small quantities and thin spreads.

Sniper Trades:

These hidden orders are specially optimized for trades. This algorithm is ideal for getting an instant and the most suitable price for any large order. These trades are more suitable when you know that market is highly volatile, and the prices are dropping unexpectedly.

TWAP Trades

Time-weighted average price (‘TWAP’) trades are an SFOX trade algorithms and are like a more sophisticated method of dollar-cost averaging. These trades allow you to specify n, t, and p such that you buy or sell n of a cryptocurrency over t hours for an average price of p.

Trade wisely

It’s easy to get sucked into the hype of cryptocurrency and dive into trading without a solid understanding of what you’re really doing. That way lies madness: if you’re shooting in the dark, any bulls-eyes you hit will be rare and purely accidental.

Volume indicator

Volume is the amount of assets traded during a specific time frame, and is typically represented on a chart by red and green vertical bars. Volume is just the amount of traded assets, so feel free to ignore the color of the volume bar.

ROI

Return on investment. How much money you have made compared to your initial investment (net profit). Example: an ROI of 100% means that you just doubled your money.

OCD

Obsessive Cryptocurrency Disorder. For those who can’t stop monitoring their cryptocurrency daily.

Sell Wall/Buy Wall

When looking at an exchanges order book, and then “depth chart” tab, you’ll find a graphical representation of what current buy and sell orders are.

These are most of the common cryptocurrency terms and acronyms used in the industry and should help to give a new investor a better understanding of the market. It will help you have strategies that underpin sound investing.

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