Terms Every Crypto Trader Should Know
Cryptocurrency trading is a space where too many equations change within a matter of seconds. It’s hardly unexpected that cryptocurrency traders use a variety of phrases, acronyms, and abbreviations. These phrases mostly apply to a particular notion in cryptocurrency trading, investment management, or general finance.
These words may be confusing if you are new to cryptocurrency trading. As a result, we’ve defined some of the most prevalent terminology that any crypto trader/investor should understand.
- 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 tactic that spreads falsehoods about a business, product, or initiative in order to discredit it. The goal is to generate terror in order to obtain an edge. This might be a competitive or tactical advantage, or it could be benefitting from a stock price drop caused by potentially negative news.
FUD is fairly popular in the bitcoin sector, as one would assume. In many circumstances, after establishing a short position in an asset, investors may disseminate potentially detrimental or deceptive news. Large gains may be generated by short selling or purchasing put options in this manner. They may also position themselves ahead of time through over-the-counter (OTC) transactions.
In many situations, the information turns out to be erroneous or, at best, misleading. However, in certain circumstances, it turns out to be true. It’s generally a good idea to attempt to think about both sides of an issue. It might be beneficial to consider what benefits someone can get by openly expressing particular beliefs.
2. Fear Of Missing Out (FOMO)
FOMO is the worry that investors have when they rush to acquire an asset for fear of losing out on a profit potential. Because there are strong emotions at play, FOMO by a huge number of individuals might result in parabolic price fluctuations. Investors “FOMO-ing” from asset to asset in a musical chairs game may frequently herald the end of a bull market.
Extreme market situations may alter the markets’ customary regulations. When emotions are high, many investors may take positions out of fear of missing out. This may result in long movements in both directions, trapping many traders who attempt to counter-trade the crowd.
FOMO is also often employed in the development of social networking applications. Have you ever wondered why it’s so difficult to see things on social network timelines in perfect chronological order? This is connected to FOMO as well. Users would get the impression that they had viewed all of the newest posts if they could check all of the postings since their previous login.
Social media sites try to generate FOMO in consumers by purposely blending older and newer content on the timeline. As a result, consumers return again and again, fearful of missing out on anything crucial.
The phrase “HODL” is a misspelling of the word “hold.” It is, in essence, the bitcoin version of the buy and hold approach. The term “HODL” first emerged in a now-famous post on the BitcoinTalk forum in 2013. The word was a typo in the title: “I AM HODLING.”
HODLing is the practice of sticking onto investments despite price declines. It’s also widely used in the context of investors (“HODLers”) who, although not very skilled at short-term trading, wish to get price exposure to cryptocurrencies. It may also be employed by investors who have a strong belief in a certain currency and wish to keep their investment for a longer length of time.
The HODLing approach is comparable to the conventional markets’ purchase and hold investing strategy. Buy and hold investors seek for inexpensive assets and hold them for an extended period of time. This is a popular Bitcoin investment method.
BUIDL is a derivative term of HODL. It generally refers to bitcoin sector players who continue to grow despite price swings. The basic notion is that strong believers in the crypto business continue to grow the ecosystem despite harsh downturn markets. In this sense, “BUIDLers” sincerely care about what blockchain and cryptocurrencies may offer to the world, and they are working hard to achieve that aim.
BUIDL is a philosophy that attempts to demonstrate that cryptocurrencies are about more than simply speculation, but also about delivering this technology to the public. It serves as a reminder to put our heads down and continue to construct infrastructure that will benefit billions of people in the future. Furthermore, BUIDLers realize that organizations who continue to create with a long-term attitude will likely perform well in the long run.
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 method of assessing the performance of an investment. ROI compares the profits on an investment to the initial expenditure. It’s also a handy method to compare the performance of various assets.
Here’s how to compute ROI. You reduce the initial cost of the investment from the current value of the investment. Then you divide that figure by the initial cost.
Return on Investment = Current Value – Original Cost / Original Cost
Assume you purchased Bitcoin for $6,000.00. Bitcoin is now worth $8,000 on the market.
ROI = 8000-6000/6000
ROI = 0.33
This implies you’ve made a 33 percent profit on your initial investment. To obtain a more realistic picture, you need also include the fees (or interest rate) that you must pay.
However, raw data do not provide the whole picture. Other considerations come into play while comparing investments. What are the dangers? What is the time frame? What is the asset’s liquidity? Can slippage influence your purchasing price? ROI isn’t the ultimate metric by itself, but it’s a useful tool to measure your investments’ performance. When considering investment returns, calculating position size is critical.
7. All-Time High (ATH)
One enticing element of an asset achieving an All-Time High is the notion that practically everyone who has ever purchased is in profit. If an asset has been in a protracted bear market, many traders with losing positions will likely desire to quit the market when it approaches break-even.
However, if the asset exceeds its ATH, there are no sellers ready to depart at break-even. Because there aren’t always clear resistance regions ahead, some refer to ATH breaches as “blue sky breakouts.”
ATH breaches are often followed by an increase in trade volume. Why? Day traders may also seize the chance using market orders in order to profit quickly and sell at a higher price.
Does breaking the ATH imply that the price will continue to rise indefinitely? Obviously not. At some time, traders and investors will try to take profits and may place limit orders at certain price levels. This is particularly true if prior All-Time High levels are repeatedly broken.
Parabolic movements often result in extremely steep price losses, as many investors flee when they realize the uptrend may be coming to an end. Consider the price decline that occurred after Bitcoin’s parabolic rise above $20,000 in December 2017.
Bitcoin plunged over 45 percent in a handful of days after hitting an all-time high of $19,798.86. This is why risk management and the usage of a stop-loss are so important.
8. All-Time-Low (ATL)
The All-Time Low (ATL), the inverse of ATH, is the lowest price of an asset. On the first day of trading, for example, the All-Time Low of BNB was 0.5 USDT on the BNB/USDT market pair.
Breaking an asset’s All-Time Low may have the same impact as breaking the All-Time High – but in the other direction. Many stop orders may be triggered if the previous All-Time Low is broken, resulting in a rapid drop.
Because there has been no price history below the previous All-Time Low, the market value might simply continue to fall, drifting lower and lower. Buying at such periods is very dangerous since there are no logical locations for it to end.
Many traders will not consider opening a long position until an important moving average or other signal confirms a trend shift. Otherwise, they may find up carrying the bag for an extended period of time, caught in a position that continues getting lower and lower.
9. Do Your Own Research (DYOR)
When it comes to financial markets, DYOR is synonymous with Fundamental Analysis (FA). It suggests that investors should do their own study on their investments rather than relying on others to do it. “Don’t trust, verify” is a similar-sounding slogan used in bitcoin marketplaces.
Successful investors will do their own research and draw their own conclusions. As a result, everybody who wishes to be successful in the financial markets must develop their own distinct trading strategy. This may also result in arguments among investors, which is a fully normal component of investing and trading. One investor may be optimistic on a certain asset, whilst another may be negative.
Diverse points of view may accommodate different techniques, and successful traders and investors will use vastly different approaches. The fundamental notion is that they all conducted their own study, arrived at their own findings, and based their investing choices on those conclusions.
10. Due Diligence (DD)
Due diligence (DD) is connected to DYOR in several ways. It refers to the inquiry and care that a reasonable individual or corporation should use before reaching an agreement with another party.
When reasonable commercial entities reach an agreement, it is assumed that they would do due diligence on one another. Why? Any sensible party wants to make certain that there are no possible red flags in the transaction. Otherwise, how could they weigh the prospective dangers against the anticipated benefits?
The same may be said for investments. When looking for new investments, investors must do their own due diligence on the project to ensure that they can account for all risks. Otherwise, they would be unable to regulate their financial judgments and may end up making poor selections.
11. Anti Money Laundering (AML)
Anti-Money Laundering (AML) refers to a set of rules, laws, and processes designed to prevent criminals from passing off unlawfully acquired funds as legitimate earnings. AML regulations make it considerably more difficult for criminals to “launder” their money by concealing or misrepresenting it as originating from lawful sources.
Criminals will constantly try to hide the genuine source of their income. Because of the complexities of the financial markets, there may be several approaches. Derivatives goods made up of derivatives products, as well as other complicated market manipulations, may make it difficult to trace the real source of cash (though not impossible).
AML standards compel financial organizations, such as banks, to monitor their clients’ activities and report on any suspicious conduct. Criminals are less likely to get away with laundering unlawfully acquired cash this way.
12. Know Your Customer (KYC)
National and international regulations must be followed by stock exchanges and trading platforms. The New York Stock Exchange (NYSE) and the NASDAQ, for example, must adhere to US government laws.
Know Your Customer (KYC) or Know Your Client rules guarantee that institutions that facilitate financial instrument trading check their clients’ identities. What is the significance of this? The major purpose for this is to reduce the possibility of money laundering.
Furthermore, KYC laws do not apply just to financial sector players. Many additional portions must also follow these rules. KYC requirements are often part of a larger Anti Money Laundering (AML) strategy.