Cryptocurrency Trading for Dummies – Basic Terms!
Do you want to start trading cryptocurrencies? We prepared a glossary of most important keywords. Enjoy!
When someone sets a bid price, that person also provides the maximum price they are willing to pay for a given asset.
Ask price is related to the sale of cryptocurrency. It’s the lowest price that someone is willing to sell a given asset for.
The bid-ask spread is the difference between the bid price and the ask price for a given asset. A bid-ask spread is basically the difference between the highest price a buyer is willing to pay for an asset and the lowest price the seller is willing to accept.
Volatility is the range of changes in the value of assets over time. If the value of a resource often changes to a large extent it is usually considered to be an investment with a proportionally high risk.
FOMO stands for “fear of missing out”. It is a slang term related to irrational behaviour: you are afraid of missing out on a great opportunity and that is why you are jumping into an investment.
FUD is a slang term and is an opposite to FOMO: worrying that an investment might collapse.
Arbitrage is a profit strategy where by simultaneously buying and selling assets, one uses the market inefficiencies since the same assets can be valued differently in different places.
Swing trading is a strategy of buying assets at low prices and selling them for more at high frequency.. The large variability of many cryptocurrencies has led many investors to focus on this kind of strategy, although high volatility can also make the strategy cost money if you badly predict asset fluctuations.
Day trading is very high transaction frequency trading. Users trade many times per day, usually trying to routinely profit from small market fluctuations.
In margin trading, you trade using funds borrowed from a broker (in the cryptocurrency space – from crypto exchange).
Leverage is an additional purchasing power created by trading in a margin, thanks to which you can pay less than the full price for assets using borrowed funds. The leverage is usually shown as a ratio: for example, if you have $1,000 in your trading account and you borrow another $1,000, you have a leverage of 2:1.
The order is an instruction to buy or sell on the cryptocurrency exchange. The simplest examples are: “Buy 2BTC price 7000 USD”, “Sell 0.5 ETH price 180 USD”. There are different types of orders.
A stop order is also called a “stop-loss order”. To understand how it works let’s check out an example: you bought Bitcoins at a price of 7400 USD. You want to sell for 7700 USD, but you want to reduce the risk and set a stop loss at 7300 USD. This means that you will sell a cryptocurrency for $7,300 if it reaches that market price – this way you will reduce possible losses.
In this type of order, you can buy or sell a cryptocurrency only at a specified price, lower / higher than the market price. For example, if the current BTC price is $7,000 and you set a limit buy order of $6,800, the system will automatically buy BTC when it reaches the set price (or lower). Similarly, if you set a sales limit of $7,200, your BTC will only be sold if the price reaches $7,200 (or a higher price). Of course, you can not set a higher buy order than the current market price and sell a limit order lower than the current market price – it just does not make sense.
Stop limit order
A stop-limit order is a hidden type of order. That’s why other people can not see it and can not influence their decisions. When the market price reaches the price of the stop limit order, it is executed. Two prices are set in this type of order. Let’s look at an example. You want to buy a BTC for $7,500, but you’ve set the stop limit for $7450. Then, when the market price reaches 7450 USD, your order will be visible and realized – you just bought BTC for 7500 USD.
This type of order is carried out immediately at the current price on the market. That is why it is easy to use. We recommend instant orders for users who want to make a transaction immediately.
Now, you have got to know the basic terms of cryptocurrency trading! If you decide to trade, we wish you a pleasant experience!