Terms Every Crypto Trader Should Know
Cryptocurrency trading is a space where too many equations change within a matter of seconds. It isn’t surprising that crypto traders use various terms, acronyms, and abbreviations. Mainly, these terms refer to a specific concept in crypto trading, investment management, or general finance.
- Fear, Uncertainty, and Doubt (FUD): Spreading of fear and misinformation to gain an advantage.
- Fear Of Missing Out (FOMO): The emotion you feel when you panic buy.
- HODL: Buy and hold on to it for a long time!
- BUIDL: Keep your head down and build the next financial system.
- SAFU: Funds are safe!
- Return on Investment (ROI): How much money you are making (or losing).
- All-Time High (ATH): The highest price ever recorded!
- All-Time Low (ATL): The lowest price ever recorded.
- Do Your Own Research (DYOR): Don’t trust, verify.
- Due Diligence (DD): Smart people make decisions based on facts.
- Anti Money Laundering (AML): Regulations that prevent criminals from hiding their money.
- Know Your Customer (KYC): Regulations that make exchanges verify your identity.
1. Fear, Uncertainty, and Doubt (FUD)
While not exclusively a trading term, FUD is often used in the context of the financial markets. FUD is a strategy that aims to discredit a particular company, product, or project by spreading misinformation about it. The aim is to instill fear and gain an advantage somehow. This can be a competitive or tactical advantage or profiting off a stock price decline caused by the potentially damaging news.
In many cases, the information turns out to be false, or at the very least misleading. In some cases, however, it turns out to be true. It’s always good to try to consider all sides of the argument. It can be helpful to think about what incentives people can have by publicly sharing certain opinions.
2. Fear Of Missing Out (FOMO)
FOMO is also commonly used when designing social media apps. Have you ever wondered why it’s usually more difficult to view posts on social media timelines in strictly chronological order? This is also related to FOMO. If users were able to check all the posts since their last login, they’d have the feeling that they’ve seen all the latest posts.
By deliberately mixing older and newer posts on the timeline, social media platforms aim to instill FOMO in users. This way, the users keep checking back again and again in fear that they’re missing out on something important.
HODL is a term that’s derived from a misspelling of “hold.” It’s basically the cryptocurrency equivalent of the buy and hold strategy. HODL originally appeared in a now-famous post on the BitcoinTalk forum in 2013. The term was a spelling mistake in the title: “I AM HODLING.”
BUIDL is a derivative term of HODL. It usually describes participants of the cryptocurrency industry who continue to build regardless of price fluctuations. The main idea is that true believers of the crypto industry keep building the ecosystem regardless of brutal bear markets. In this sense, “BUIDLers” genuinely care about what blockchain and cryptocurrencies can bring to the world, and they are actively working towards this goal.
SAFU originates from a meme uploaded by Bizonacci. It incorporated Binance’s CEO, Changpeng Zhao (CZ), saying “funds are safe” during unscheduled platform maintenance.
6. Return on Investment (ROI)
Return on Investment (ROI) is a way to measure an investment’s performance. ROI measures the returns of an investment relative to the original cost. It’s also a convenient way to compare the performance of different investments.
Here’s how you calculate ROI. You take the current value of the investment and subtract the original cost of the investment. Then you divide that number by the original cost.
ROI = Current Value – Original Cost / Original Cost
ROI = 8000-6000/6000
ROI = 0.33
This means that you’re 33% up from your original investment. It’s also worth taking into account the fees (or interest rate) that you have to pay to get a more accurate picture.
7. All-Time High (ATH)
One compelling aspect of an asset reaching All-Time High is the idea that almost everyone who ever bought is in profit. If an asset has been in a prolonged bear market, many traders holding losing bags will likely want to exit the market when their position reaches break-even.
However, if the asset breaches its ATH, there aren’t any sellers left who are waiting to exit at break-even. This is why some refer to ATH breaches as “blue sky breakouts,” as there aren’t necessarily any obvious resistance areas ahead.
Parabolic moves can often end up in very sharp price drops, as many investors rush to the exit once they realize the uptrend may be coming to an end. Check out the price drop after Bitcoin’s parabolic move to $20,000 in December 2017.
8. All-Time-Low (ATL)
The opposite of ATH, the All-Time Low (ATL), is the lowest price of an asset. For example, the All-Time Low of BNB was 0.5 USDT on the BNB/USDT market pair on the first day of trading.
Breaking an All-Time Low on an asset can lead to a similar effect as when breaking the All-Time High – but in the opposite direction. Many stop orders may trigger when the previous All-Time Low is breached, leading to a sharp move down.
Since there is no price history below the previous All-Time Low, the market value can just keep going down, drifting lower and lower. Since there aren’t necessarily logical points for it to stop, buying during such times is very risky.
Many traders will wait for a confirmed trend change by an important moving average or some other indicator to even consider entering a long position. Otherwise, they could end up holding the bag for a long time, trapped in a position that keeps going lower and lower.
9. Do Your Own Research (DYOR)
When it comes to the financial markets, DYOR is a term closely related to Fundamental Analysis (FA). It means that investors should do their own research into their investments and not rely on others to do it for them. “Don’t trust, verify” is a commonly used phrase in the cryptocurrency markets with similar meaning.
Different opinions can accommodate for different strategies, and successful traders and investors will have wildly different strategies. The main idea is that they all did their own research, came to their own conclusions, and made their investment decisions based on those conclusions.
10. Due Diligence (DD)
Due diligence (DD) is somewhat related to DYOR. It refers to the investigation and care that a rational person or a business is expected to make before coming to an agreement with another party.
When rational business entities come to an agreement, it’s expected that they do their due diligence on each other. Why? Any rational actor wants to ensure that there aren’t any potential red flags with the deal. Otherwise, how could they compare the potential risks with the expected benefits?
The same is true for investments. When investors are scouting for potential investments, they need to do their own due diligence on the project to ensure that they can take into account all risks. Otherwise, they won’t be in control of their investment decisions and may end up making the wrong choices.
11. Anti Money Laundering (AML)
Anti Money Laundering (AML) refers to a number of regulations, laws, and procedures that aim to prevent criminals from disguising their illegally obtained money as legitimate income. AML procedures make it much harder for criminals to “launder” their money clean by hiding it or disguising it as coming from legitimate sources.
AML regulations require financial institutions such as banks to monitor the transactions of their customers and report on suspicious activity. This way, criminals are less likely to get away with laundering illegally obtained funds.
12. Know Your Customer (KYC)
Stock exchanges and trading platforms have to comply with national and international guidelines. For example, the New York Stock Exchange (NYSE) and the NASDAQ have to comply with regulations set by the United States government.
In addition, KYC regulations aren’t only valid for participants of the financial industry. Many other segments also have to comply with these guidelines. KYC guidelines are generally a piece of a much broader Anti Money Laundering (AML) policy.