10 terms that will help you as a crypto trader
As an investor in the stock market, you deal with many different disciplines, and often also with the terms that go with them. Given the fact that there are quite a few, you will not know the meaning of every term. In the other markets, you also need to know other terms. This article discusses 10 common terms when you are a crypto trader, so that you can better prepare yourself for investing in crypto. This way, you can better weigh the pros and cons against each other and you are better prepared for risks. This way, you enter the investment world with a broader knowledge, which still provides a safer feeling!
1 – ‘FUD’ – Fear, Uncertainty, Doubt
It is not a trading term at first, but this abbreviation still appears quite often within the financial markets. FUD is used by traders as a strategy, with the aim of spreading incorrect information about a company, project or product. The result is that something or someone is discredited, so that the spreading party can gain an advantage from it. Think of a tactical or competitive advantage, when a price drop is caused by such damaging news.
Taking advantage of spreading fear, uncertainty and doubt is done, for example, by short selling or by buying put options . A spreading party can prepare much better by taking positions on what could happen to the other party, but you as an investor would then have to make do with the information you have. With regard to over-the-counter deals, for example, the spreading party has a great advantage here. Besides the fact that such a strategy is not pure or innocent, it is also not a good strategy to spread this incorrect information without real influence.
2 – ‘FOMO’ – Fear Of Missing Out
Investors can experience an emotion that makes them all buy an asset so that they don’t miss out on any profit opportunities. This is also called ‘Fear Of Missing Out’. FOMO can cause strong emotions, which can result in parabolic price movements. If many investors easily move from asset to asset because of FOMO, this can lead to a bull market at a later time.
Extreme market conditions can change the normal rules. Are emotions running high? Then investors are more likely to be led by FOMO and positions suddenly change completely. Because the cryptocurrency market is currently completely dependent on supply and demand, this FOMO behavior can have a lot of influence if many people or influential people experience this. This can result in extreme price fluctuations for different parties. The outcome? Traders could dig their own grave, because they do not or too late follow the crowd.
3 – ‘HODL’ – A misspelling of ‘HOLD’
At first glance, you might think this is a typo, but there’s a different story behind it. It’s the cryptocurrency equivalent of the buy-and-hold strategy. In 2013, a user who was pretty frustrated posted a message on the Bitcoin Talk forum. The title of the message was “I AM HODLING.” From there, the misspelled term took on a life of its own.
HODLING means that you hold on to your investments, despite price drops. Investors who do not like to invest in the short term, but are more concerned with cryptocurrency in the long term and go along with a rising market, are called HODL’ers. The term is also used for investors who see the potential of a coin for a longer period of time and therefore also hold on to it.
The strategy used in HODL is similar to the buy-and-hold strategy found in traditional markets. These investors seek out less valued assets and attempt to hold onto them for a longer period of time. This is also happening in the world of Bitcoin .
4 – ‘BUIDL’ – Derived from ‘HODL’
This term is derived from ‘HODL’ as the title states, and means that active investors in the cryptocurrency have continuous confidence in the blockchain, despite the fluctuations in prices. Despite all the uncertainties, ‘real’ investors continue to build on the investments of the cryptocurrency. They are actively working on this.
It’s actually a mindset, with the goal that cryptocurrency is not just an investment product, but that there is also a bigger purpose for it. They believe in the fact that if you put energy into something in the long term and keep paying attention, it will pay off in the long term. Even when the economy is doing less well, they keep faith in cryptocurrency.
5 – ‘ROI’- Return On Investment
This term means that you can measure the performance of an investment in a certain way, namely by comparing the return on investment with the original cost. It can also be a useful way to compare different investments to see which one performs best.
You calculate the ROI in the following way: the current investment value – original investment costs. You then divide the result by the original investment costs. For example, suppose you bought $6,000 worth of Bitcoins, while the current market price of Bitcoin is $8,000. The calculation then becomes: (8000 – 6000) / 6000 = 0.33. So you have an ROI of 33% on the original investments. That is why you must also take the costs (interest rates) into account, so that you get the most accurate overview possible.
But keep in mind that calculating ROI does not give a complete picture, and you will also have to take into account other factors. The risks, the time frame of the investments, the liquidity and whether slippage can affect the purchase price. By taking these things into account, you can better measure the position size of the investments, and that is where ROI is a useful tool.
6 – ‘ATH’ – All-Time-High
This term may sound familiar to you, it means the highest price recorded for an asset. The product is then traded for the highest price on the financial market.
Important side note about an asset when it reaches its ATH: almost everyone makes a profit when they bought it. When an asset is in the bear market for a longer period of time , it could be that many traders are losing money on their position. They will want to exit the market if the position breaks even.
But of course it could also go the other way, if the asset were to ever break through the highest ATH. Then there would be no sellers exiting at the break. There are no clear areas of resistance, which is why some investors refer to a break through the ATH as a so-called ‘blue sky breakout’.
When the ATH is broken, the trading volume also increases. Why is that? Day traders also use market orders more often , they do this by selling them for a high price. But that does not mean that the price of assets will always continue to rise, despite a break of the ATH. At some point, when traders and investors try to take profits, limits can be set for certain price levels. The most likely moment when this happens is when the prices of previous All-Time-Highs start to exceed each other.
Very strong and fast price drops are often seen as an end point, in parabolic movements. This is because many investors go to the starting position as soon as they notice that the upward rise is about to end.
7 – ‘ATL’ – All-Time-Low
This term is the meaning of the opposite of an ATH, namely the All-Time-Low. In other words, the lowest asset price. The operation and breakthrough also gives the same effect as with an ATH, but again with an opposite effect. Many investors could have a stop-loss order activated when a previous All-Time-Low is broken. This will cause a sharp decline.
There is no data known about the lowest listed ATL, for that reason the market values of assets can become lower and lower. In addition, there are no price levels present that can logically indicate a reversal, which means that it is important to pay attention at different times when buying, because it could be riskier then.
Many investors therefore wait for a change in the trend that is actually confirmed, such as a moving average or other factors, before taking a long position.
8 – ‘DYOR’ – Do Your Own Research
When looking at the current financial markets, DYOR is a concept that is closely related to fundamental analysis . It means that investors should always find out the ins and outs of investing themselves, and not rely on the findings of others.
The most successful investors have done their own research and have come to certain conclusions. This way you arrive at your own trading strategy, which allows you to make better choices. It also creates a nice discussion between the different investors, because everyone can make profit and loss in his/her own way. Where the other works very well with one product, the other may not be able to.
9 – ‘DD’ – Due Diligence
The meaning of Due Diligence goes hand in hand with DYOR, and is usually mentioned before completing an agreement with another party. It involves investigating the information received from another party to refute or strengthen its accuracy. This determination requires some level of care and investigation by a rational company/person to have everything in order.
Companies entering into a deal together create the expectation that they will do Due Diligence on each other. This is so that the existing red flags are pushed aside when a deal is made. There is no other way to clearly identify potential risks and compare them to the benefits.
This also applies to investments. Then investors must also perform their own Due Diligence on a certain product, so that they can compare the risks with the advantages and disadvantages. Otherwise, things can be overlooked, and wrong choices are made more quickly.
10 – ‘KYC’ – Know Your Customer
Trading platforms and exchanges have certain (inter)national guidelines that must be met. For example, the NASDAQ and the NYSE (New York Stock Exchange) look to the American government, which makes the regulations for them.
The so-called Know Your Client/Customer (KYC) guidelines have the concern that certain institutions must verify the identity of clients when they trade in financial products. The risk of money laundering is minimized in this way. The KYC guidelines do not only apply to the financial world, but are also applied to other disciplines.
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