Trading Glossary
Definitions for terms found in trading and cryptocurrency circles.
Two-factor authentication / Multi-factor authentication. 2FA/MFA is (at least) a second layer of login verification for an extra level of security on online accounts. It helps prevent bad actors from accessing your online account with a stolen password by requiring an extra login code to sign in. 2FA/MFA codes are often random and provided at the time of login via text, call, or an app such as Google Authenticator.
Refers to cryptocurrencies other than Bitcoin. The complete universe of cryptocurrency, excluding Bitcoin, are called altcoins, or "Alts". Stablecoins, utility tokens, security tokens, and more are considered altcoins. Ethereum and Ripple are the two most popular altcoins by market capitalization (at time of writing).
An API (Application Programming Interface) is a kind of software that handles interactions between multiple softwares. The API handles calls (or requests) made to a software system, restricting their format and the frequency with which they can be made. For example, a system's API is responsible for rate-limiting requests — a method of limiting incoming requests to a manageable level.
Arbitrage is a type of trading maneuver that takes advantage of differences in an asset's price in two or more markets or exchanges. The profit made in arbitrage is most often the difference in price between the markets used. For example, a trader may buy an asset in the market where it is priced lower and sell it in the market where it is priced higher. Arbitrage is one of the market forces that equalizes the price of assets between markets and exchanges.
An "ask" (also known as an "offer") is the price a seller is willing to accept for a traded asset, share, derivative, commodity, or other financial instrument. Asks make up the side of the order book containing "sell" orders.
The ask depth is measured from the top of the ask side of the order book to the observed price level. The "depth" refers to the total amount of the asset assigned to ask (sell) orders in the order book up to the observed point.
In the context of cryptocurrency markets, an asset refers to a coin or derivative that can be bought and sold by market participants. When viewing a single market, the asset is always the base currency in the currency pair. Can also refer to a currencies and commodities, such as United States Dollars (USD) or gold, respectively.
The first currency in a trading pair. The base currency is the asset being traded in a single market. For example, "BTC" is the base currency in the trading pair "BTC/USD". See Currency Pair, Quote Currency.
A trader whose sentiment towards a particularly asset is bearish, ie. the price will eventually (or continue to) fall. See bear market, bearish.
A bear market occurs when the price of an asset falls 20% below the peak of the previous move. When this occurs, the price is expected to continue in its downward direction (called a "down-trend"). Markets tend to cycle between bear and bull markets. See bear, bearish.
A bearish trader has the opinion or expectation that an asset's price will go lower. See bear, bear market.
A "bid" is the price a buyer is willing to pay for a traded asset, share, derivative, commodity, or other financial instrument. Bids make up the side of the order book containing "buy" orders.
The bid depth is measured from the top of the bid side of the order book to the observed price level. The "depth" refers to the total amount of the asset assigned to bid (buy) orders in the order book up to the observed point.
The difference in price between the highest bid price and lowest ask price in the order book. The bid-ask spread is a measure of a market's liquidity. To calculate, simply subtract the price of the lowest ask from the price of the highest bid.
The technology cryptocurrencies are built upon is called a blockchain, where each "block" is a segment of digital information and "chain" refers to the database as a whole. Blockchains are permanent, public ledgers of an asset that, due to their immutability, eliminate the need for a trusted third party in handling the asset's ledger. Blockchains may differ technologically between cryptocurrencies, but they share these qualities: blockchains are public ledgers, all transaction records are stored on the blockchain, and each "block" is encrypted against alteration.
Bot trading refers to softwares that rely on automated, algorithmic trading systems to execute trades on behalf of an individual or institution. Bots may perform arbitrage trades, trade at predetermined signals or attempt trading strategies based on historical market data. Bots may add liquidity (though sometimes more perceived than real) to markets.
A trader whose sentiment towards a particularly asset is bullish, ie. the price will eventually (or continue to) rise. See bull market, bullish.
A bull market occurs when the price of an asset increases 20% above the valley of the previous move. It is expected the price will continue its upward direction in an "up-trend". Markets tend to cycle between bull and bear markets. See bull, bullish.
A bullish trader has the opinion or expectation that an asset's price will rise. See bull, bull market.
A transaction to obtain an asset, share, derivative, commodity, or other type of financial security. Buy orders of any kind exchange the quote currency for the base currency, with the base currency entering your balances when the order is filled.
Refers to a single grouping of OHLC data in a candlestick chart. Each candlestick represents four prices — Open, High, Low and Close — over equal periods of time. Open and Close prices form a wide body, and the thinner shadows/wicks show High and Low prices. Candlestick charts were developed in Japan, either as early as the 18th century or in the late 1800's
The last price an asset traded for in a given period of time. In traditional markets, it may also refer to the last-traded price to occur during market hours.
A position is closed when a trader submits an opposing order to the opening/entry order, concluding their exposure to the market. For example, a long position (where the trader had previously bought an asset with the expectation of it going higher) is closed when the trader submits a sell order for the same volume of the opening order. Positions must be closed in order to realize profit or loss. See open position.
The method used by a blockchain protocol to validate new blocks (digital records of transactions). Many consensus mechanisms continue to be developed. Bitcoin, for example, uses a proof of work consensus method to validate new blocks in the blockchain, requiring miners to solve cryptographic problems for the validation of new blocks.
Decentralized, digital assets that rely on blockchain technology to eliminate the need for third-party asset management. Cryptocurrencies are defined by their digital nature, an immutability of the blockchain ledger, and fungibility. Cryptocurrencies can serve as a store of value, act as stablecoins, help power blockchain applications, and much more.
A currency pair/trading pair serves as the moniker for a market and describes the assets in exchange. Traditionally, "currency pair" refers to a forex market pair such as JPY/USD (Japanese Yen/U.S. Dollars). Cryptocurrency markets resemble the Forex format of valuing one currency type by another, so the currency pair paradigm has been largely co-opted for the cryptocurrency marketplace. It may be more accurate to describe cryptocurrency markets — especially derivatives markets — as "trading pairs".
Currency pairs are composed of a base and quote currency — the base currency is the traded asset, and the quote currency is the unit of measurement of the base currency's value. Currency pairs are formatted as BASE/QUOTE. For example, in the currency pair BTC/USD, BTC is the base currency and USD is the quote currency. The market describes the value of BTC as measured in USD.
Markets that use hidden order books intended for high-volume transactions. Typically, high-volume orders entering a market's order book can affect the price by their presence alone.
Day trading is a form of active trading. As the name implies, day trading requires a trader to commit their day to market analysis and trading. This is a fast-paced style where traders try to capitalize on short-term price fluctuations, opening and closing multiple long and short positions over the course of the day.
A decentralized application (dApp) is any form of software that has no single overseer and runs using a blockchain network or network of computers, rather than any single machine or server.
Decentralized finance refers to any financial application that is built and runs on a decentralized blockchain network. Decentralized exchanges, hedge funds and derivatives markets are examples of financial applications that have been developed using blockchain networks. See Decentralized App (dApp).
Exponential Moving Average. Exponential Moving Averages are a type of chart overlay that places more weight on recent price movements than Simple Moving Averages (SMA).
Equity is the sum of your trading portfolio, including unrealized profit or loss on open positions. Exchanges offering leveraged trading may only factor in collateral-type currencies to your equity amount.
Refers to your portfolio's vulnerability to price changes for a particular asset. For example, holding any amount of Bitcoin exposes a trader to market forces affecting Bitcoin's price.
Fiat currencies are state-issued currencies not backed by a commodity. The United States Dollar (USD), Euro (EUR) and Chinese Yuan Renminbi (CNY) are examples of fiat currencies.
First written in 1202 by Leonardo Fibonacci in his work Liber Abaci (Book of Calculation), the Fibonacci numbers are a sequence of numbers where each proceeding number is a product of the two preceding ones. The first set of numbers in the sequence are: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144... and so on. The Fibonacci numbers often appear in mathematics as well as natural biology.
In trading, Fibonacci numbers are used to predict potential areas of support and resistance with tools such as Fibonacci Retracement, Fibonacci Speed Fan, and Fibonacci Speed Arc.
Fibonacci Retracement is a chart drawing tool that plots horizontal lines at Fibonacci ratio levels. These lines are drawn from the beginning of a trend to its peak/trough and used to predict potential areas of support and resistance. The Fibonacci levels used are 23.6%, 38.2%, 61.8%, 78.6%, and 127.2%. 50% and 100% are also used, but these numbers are not derived from Fibonacci number ratios. See Fibonacci numbers.
Fibonacci Speed Arc is a chart drawing tool that plots semi-circular lines at Fibonacci ratio levels. The semi-circular arcs are plotted out from a base line that is usually drawn from the low to the high (or vice versa) of a recent trend (other significant prices may determine the points used for the baseline). The plotted lines are used to predict potential areas of support and resistance. See Fibonacci numbers.
Fibonacci Speed Fan is a chart drawing tool that, when drawn from a trend-low to a trend-high (or vice versa), plots lines of potential support and resistance on the chart using Fibonacci ratios. See Fibonacci numbers.
An order "fill" occurs when an open order matches with one or more orders. A complete fill indicates the first order's buy or sell quantity has been completely matched by other order(s), closing the order in the question. A partial fill can occur as well, where only a fraction of the order was matched. If that occurs, the order may remain partially open.
Shorthand for Foreign Exchange. The Foreign Exchange is an ecosystem of world-wide marketplaces where the exchange of fiat currencies takes place. Cryptocurrency exchanges borrow many elements from traditional Forex markets (such as the use of currency pairs).
A blockchain that experiences a change in protocol or a divergence in philosophy among its community may "fork". A single blockchain experiencing a fork will diverge into two separate blockchains. As long as both blockchains have a community of validators (those that provide the criteria for the consensus mechanism) then they will continue to exist separately. One notable fork to occur was the split of the Ethereum blockchain into Ethereum and Ethereum Classic after a critical hack occurred.
Fundamental analysis is a way of determining an asset’s potential price movements based on economic factors occurring outside of its price history or technical makeup.
An asset that is fungible is composed of completely interchangeable units of the same value. Units of a fungible asset can be interchanged with no change of value. For example, bitcoins (BTC) are identical in value to other bitcoins, as are US dollars to other US dollars.
A gap refers to the empty area between two prices on a price chart, should one occur. A gap is formed when the price of an asset or other financial instrument moves dramatically away from its prior price level with no trading in between. Gaps more often occur in Forex markets, where trading ends at specific hours of the day, but can occur in cryptocurrency markets as well — especially in illiquid markets that experience low trading volume.
Can refer to the combined computing power committed to mining a cryptocurrency, or the computing power of a single computer mining cryptocurrency.
A hedge, or hedging in trading is the strategic use of buying and selling securities to limit one's exposure to risk. See risk management.
High frequency trading is a trading method that employs computer programs to execute a large number of orders within a fraction of a second. HFT bots are capable of capitalizing on trading opportunities that are too fast and/or minuscule for a human trader.
HODL is an intentional misspelling of "hold" used in online communities. HODL refers to the holding of a cryptocurrency rather than selling it, especially in bear market cycles.
Unchanging over time or unable to be changed. Blockchains are often described as immutable, one of the key qualities that separates blockchain technology from other programs used in traditional digital monetary, financial, and payment systems.
The last price an asset has traded for (either bought or sold) within a single market. Often mis-characterized as, or referenced in place of market price.
A term used to describe a blockchain scaling solution that is implemented on the base layer of a respective blockchain.
A history of funding, fees and trading activity within a single account. In the context of a blockchain, "ledger" refers to permanent record of transactions existing on the blockchain network.
A.k.a leverage level. The mechanism used to denote how much of a trader's capital will back a margin trade.
A trading order type used to interact with the market. Limit orders allow a trader to choose a price to execute at, called the limit price. See the Complete list of trading order types Guide for more information.
A position opened with a buy order with the intent to sell again at a higher price. Long positions in spot markets can be leveraged or un-leveraged, since buying the asset un-leveraged results in actual delivery. "Long" can also be used to express a trader's sentiment for an asset that they expect to increase in price.
The amount of funds required in a trader's balances to back a margin position, preventing the position's liquidation.
The borrowed or provided funds for a leveraged trade. Margin funds originate from a third party and must be returned/satisfied upon closing an open position.
Traditionally, a phone call from a broker informing a trader that their margin positions are at risk of liquidation. Margin calls can also take the form of an email, or other forms of modern communication.
The relationship between equity and maintenance margin expressed as percent. A low margin level (specifically how low is determined by the exchange or broker) can result in a margin call, and eventually liquidation of a trader's open positions.
The use of third party funds to open short and long positions. Margin trading gives traders the opportunity to trade with more capital than they possess, which can increase both the risk and profit potential of their trades.
A measure of an asset's strength across all markets. The market capitalization is found by multiplying every unit of an asset or other type of financial instrument in circulation (or coins in circulation, in cryptocurrency markets) by the price for one unit of each asset/financial instrument.
Market depth is measured from the top of the order book (on one side) to any observed price point on the same side. The market depth to the observed price is the total quantity of the asset/financial instrument waiting to be bought or sold within that range.
An order type that fills (virtually) instantly by matching with orders at the very top of the order book. Market orders fetch the market price, and are vulnerable to slippage.
The most readily available price in the market. Market price for buy orders is equal to the lowest ask in the order book. Market price for sell orders is equal to the highest bid in the order book.
Blockchains using a proof of work consensus mechanism require mining — dedicated computer processing power for the solving of complex, cryptographic problems in order to validate each "block" in the blockchain.
Groups of "miners" — those that dedicate computer processing power to mining — who use their combined processing power to achieve more block rewards. Block rewards usually take the form of the cryptocurrency being mined.
Often used in reference to a type of price chart. OHLC charts plot price information based on the Open price, High price, Low price and Close price of an asset or other type of financial instrument during a given period of time.
Typically a leveraged trade that remains exposed to the market. Profit and loss on an open position is considered "unrealized". Open positions either require a second, opposing order or a settle order to be submitted in order to close them.
Traders seeking to buy or sell very large sums of a cryptocurrency might seek an OTC (Over the Counter) service to handle the transaction for them. In traditional markets, OTC "desks", as they are called, typically help transact shares that are unlisted by exchanges. OTC desks alleviate stress on cryptocurrency markets by handling large transactions either on a personal basis (trader to trader) or by buying and selling portions of their accumulated supply of assets.
Used in reference to a closed position, P/L describes the either the amount of profit or the amount of loss achieved on the trade. Open positions haven't "locked in" their P/L, and are described as having UP/L — Unrealized Profit/Loss.
A complete collection of a trader's financial holdings. May include currency, cryptocurrency assets, as well as traditional securities like stocks and bonds. On Cryptowatch, only funds held in Portfolio-enabled exchanges connected by API are included on the Portfolio page.
Taking a position means to open a trade on an asset or other type of financial instrument, often with leverage. However, it is possible to be in a "long" position (buying low with the intention to sell at a higher price) on an asset by simply purchasing it in a spot market.
The second currency in a trading pair. The quote currency provides the basis for valuing the base currency in a single market. For example, "USD" is the quote currency in the trading pair "BTC/USD".
A price level acting as a barrier against further movement upward. Determining resistance levels is subjective and can be derived from historical price information, the order book, analysis tools, and more.
The potential for loss, whether on a trade or investment. As risks rise, traders/investors expect higher returns to offset the increased potential for loss. See risk management.
Measures taken to protect one's investments/trades against loss. Example: proportioning a trade's position size based on a predetermined amount of acceptable loss and stop loss level.
A transaction to exchange an asset, share, derivative, commodity, or other form of financial instrument for the quote currency of a trading pair. Sell orders of any kind exchange the base currency for the quote currency, with the quote currency entering your balance upon successful execution.
A position opened with a leveraged sell order with the intent to buy again at a lower price, generating a profit. The total cost of the buy order that closes the position is lower than the initial cost of the sell order. This difference in total cost is the trader's profit, minus any costs/fees associated with the trade.
Slippage occurs when an order fills at a worse price than expected. This can happen when there isn't enough order book liquidity to fill a large order at its desired price level. Market order types are more vulnerable to slippage, as they match immediately with the best available orders in order book until completely filled.
Simple Moving Average lines are a chart overlay calculated using an asset's price (often the close price, but other price points are selectable on Cryptowatch) over a range of periods.
A computer protocol that facilitates an agreement between two parties (which are often disparate or anonymous), without the need for a trusted intermediary.
A marketplace where direct transaction of goods takes place immediately. Non-derivative cryptocurrency markets that facilitate actual cryptocurrency delivery are spot markets.
A term used to describe a coin/token that is cryptographically locked with its supply unable to circulate for a given amount of time.
A trading order type used to interact with the market. A Stop Loss often used to exit a position at an acceptable level of loss, indicated by the stop price. Basic stop loss orders trigger a market order when the stop price is reached by the market. Advanced variants include the Stop Loss Limit and Trailing Stop Loss order types, among others.
A price level acting as a barrier against further movement downward. Determining support levels is subjective and can be derived from historical price information, the order book, analysis tools, and more.
A trading style that typically sees traders waiting days to weeks before exiting their positions. Swing traders seek to profit from an asset's change in price over the course of an entire trend, before it reverses direction.
A trading order type used to interact with the market. A Take Profit order is usually used to exit a position at the target exit price, where the trader seeks to realize profit. Basic Take Profit orders trigger a market order when the profit price is reached. There are advanced variants, such as the Take Profit Limit order type.
Financial analysis that relies on historical market data in order to predict future outcomes. Analyzing price charts to determine a trend is an example of technical analysis.
Known future supply cap for a given token/coin.
In trading, the overall direction of an asset's price over time. Trends can be upward (higher prices over time), downward (lower prices over time) or no trend (price is not significantly upward or downward over time). "Trend" can also apply to other measured features of a market, and generally is used to indicate the direction that the measured data is taking.
Profit or Loss generated by an open position is referred to as "unrealized profit/loss" (UP/L). When the position is closed, the unrealized profit/loss becomes realized, since the position is no longer vulnerable to market forces.
The measure of an asset's price swings away from the mean (average) price as measured over a given period of time. Some cryptocurrencies are considered volatile assets due to their large fluctuations in price.
The amount of an asset or other financial instrument traded over a specific period of time. Volume is a standard indicator present on Cryptowatch price charts.
A software or hardware device used to store public and private keys, (ie. records of a digital currency) and interface with a cryptocurrency's blockchain. Wallets let cryptocurrency users send and receive cryptocurrencies, as well as track their balances. Owning any amount of a cryptocurrency requires a wallet. Many exchanges have wallets built into their system facilitate trading.