Over the last few months, cryptocurrencies have become wildly popular. Anytime there’s a chance to make a quick profit, a new generation of speculators crawls out of the woodwork. Unfortunately, this means that many are ill-informed. The rash of eager traders and crypto-novices has driven much of the recent bull market. As cryptocurrencies have taken a sudden swan dive, many have panicked.
Sometimes, it’s tough to admit not knowing trading terms. Nobody wants to look foolish in front of their friends. This piece defines some basic trading terminology of the cryptocurrency ecosystem. Please realize that this guide is directed toward crypto-rookies. That being said, even if you’ve been trading for a while, maybe it will help fill in a few blanks.
Rather than forsake cryptocurrency speculation altogether, it’s key for newcomers to learn a few tricks of the trade. Preparing one’s self with some financial education may help alleviate losses and hopefully augment gains.
General Terms
Order: an investor’s instruction to a broker or exchange to purchase or sell a specified amount of a cryptocurrency.
Fill: the action of completing an order.
Order book: an electronic list of buy and sell orders for a specific cryptocurrency.
Brokerage fee: the amount charged by an exchange for the service of filling an order (usually a flat rate or a percentage of the order value).
Market order: an order to buy or sell cryptocurrency immediately; this guarantees that the order will be executed, but does not ensure a certain price since “slippage” may occur.
Market capitalization (or “market cap”): the total dollar value of a cryptocurrency’s outstanding units; market cap is calculated by multiplying total units by the current market price of one unit.
Trading volume: the number of units of cryptocurrency traded during a designated time period; often measured in 24-hour increments (weekly and monthly measurements are also common).
Note: Unlike securities markets, cryptocurrency markets do not have set open/close times. Ether and bitcoin trade 24/7.
Volatility: the fluctuation of a cryptocurrency’s price; may also refer to the market more broadly.
Buy Orders
Buy limit order: an order to purchase cryptocurrency at or below a specific price; the order may or may not be filled since the market must reach the selected price before being executed.
Buy-stop order: an order to purchase cryptocurrency when the market price reaches a specified level above the current offering price; if the price reaches or exceeds the specified value, then the buy-stop becomes a market order.
Note: This order type may seem bizarre on its face. Traders may use this tactic to take advantage of momentum swings (i.e., “buy high, sell higher”). In some cases, a buy-stop may be used to protect a short position.
Sell Orders
Sell limit order: an order to sell cryptocurrency at or above a specific price.
Sell-stop order (aka “stop loss order”): an order to sell cryptocurrency when the market price drops to a specified level; if the price falls to or below the specified value, then the sell-stop becomes a market order.
Note: this is one of the investment/trading strategies which caused suffering for many cryptocurrency holders during the GDAX “flash crash” last week.
This simple terminology ought to provide the bare bones for cryptocurrency trading or investment. Of course, there are further intricacies to discuss with regard to margin trading and potential derivatives markets. Nonetheless, this primer may serve as the first step in your cryptocurrency research.
Thanks for sharing.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit