Whether you are on the stock market or trading cryptocurrencies, you will hear many terms that may seem unfamiliar. For example, FOMO, ROI, ATH, HODL, what does all this mean?
Crypto investing has its language, and it can be daunting to learn all these new terms. However, they can be quite helpful if you want to keep up with what is happening in the financial markets.
We’ve compiled some of the most important trading terms you should know if you trade cryptocurrencies in this article.
1. Fear, Uncertainty, and Doubt (FUD)
Although not exclusively a trading term, FUD is often used in the context of financial markets. FUD is an unethical strategy that aims to discredit a particular company, product, or project by spreading misinformation about it. The goal is to instill fear and somehow gain an advantage. This can be a competitive or tactical advantage, or it can cause a drop in price caused by harmful news.
Unfortunately, FUD is quite typical in the cryptocurrency industry. In many cases, investors may enter a short position in an asset and then release harmful or misleading news when the position has been established.
In many cases, the information proves to be false or at least misleading. In some cases, however, it turns out to be true. It is always good to try to consider all sides of the argument. It can be helpful to think about what incentives people can have by publicly sharing certain opinions.
2. Fear of Missing Out (FOMO)
FOMO is the emotion that investors feel when they want to buy an asset for fear of losing the profit opportunity. When this “emotion” is on many investors, it can lead to parabolic price movements.
FOMO is also commonly used in the design of social applications. For example, have you ever wondered why it is more difficult to view posts in chronological order? This is also related to FOMO. If users could check all the posts since their last login, they would feel like they’ve seen all the latest posts.
By deliberately mixing older and newer posts on the timeline, social media platforms aim to inspire FOMO in users. In this way, users continue to check again and again for fear of losing something important.
3. HODL – ( Hold on for dear life)
HODL is a term that derives from a misspelling of “wait.” It basically represents the acquisition of the cryptocurrency and then holding it for an extended period. HODL originally appeared in a famous post on the BitcoinTalk forum in 2013. The term had a spelling mistake in the title: “I am HODLING.”
HODLing refers to keeping investments despite falling prices. It can also be used for investors who have a firm belief in a specific currency and intend to keep their investment for a longer period.
Buy and hold investors try to find undervalued assets and keep them for a long time. Many investors adopt this strategy for Bitcoin.
4. BUIDL – ( Build, misspelling intended for an ironic meaning)
BUIDL is a derivative term of HODL. It usually describes the participants in the cryptocurrency industry who continue to build regardless of price fluctuations. The main idea is that the true believers in the cryptographic industry continue to develop the ecosystem, regardless of the brutal markets. In this sense, the “BUIDLers” are concerned about what the blockchain and cryptocurrencies can bring to the world and are actively working towards this goal.
BUIDL is a mindset that aims to exemplify how cryptocurrencies are not just speculation but bringing this technology to the masses. It acts as a reminder to keep our heads down and continue to build infrastructure that could very well serve billions of people in the future. In addition, BUIDLers understand that teams that continue to build with a long-term mindset will do well in the long run.
5. Return on investment (ROI)
Return on investment (ROI) is a way to measure the performance of an investment. ROI measures the return on an investment relative to the initial cost. It is also a convenient way to compare the performance of different investments.
Here’s an example: Take the current value of the investment and subtract the initial cost of the investment. Then divide that number by the initial cost.
ROI = Current value – Original cost / Original cost
Let’s say you bought Bitcoin for $ 6,000. The current Bitcoin market price is now $ 49,699.
ROI = 49.699-6000 / 6000
ROI = 7.28
However, raw numbers are not the whole picture. When comparing investments, other factors come into play. What are the risks? What is the time horizon? How liquid is the asset? Return on investment is not the only end value, but it is a helpful tool for measuring the performance of your investments. Calculating the size of the position is crucial when considering investment returns.
6. All-Time High (ATH)
We probably don’t have to explain it, do we? ATH is the highest recorded price of an asset. For example, the Bitcoin ATH was $ 64,805 as of Apr 14, 2021. This means that this was the highest price for which Bitcoin was traded on the market.
A compelling aspect of an asset that reaches its maximum value is the idea that almost everyone who has ever bought has a profit. However, if the asset violates its ATH, no sellers are waiting to balance. This is why some refer to ATH violations as “eruptions,” as there are not necessarily apparent areas of resistance in front.
Does the ATH violation mean that the price will continue to rise forever? Of course not. Investors will seek to make a profit at some point and may set limit orders at certain price levels. This is especially true if the previous levels of all times are continuously violated again and again.
Parabolic movements can often lead to sharp price declines, as many investors rush to the exit once they realize that the upward trend may end. This is why it is always crucial to manage risk and always use a stop-loss.
7. All-Time-Low (ATL)
The opposite of ATH, All-Time Low, is the lowest price of an asset. Defeating an all-time low on an asset can have a similar effect as breaking an all-time high – but in the opposite direction. Many stop orders can be triggered when the previous historical minimum is violated, leading to a sudden downward movement.
As there is no history of prices below the previous time minimum, the market value may continue to decline, going lower and lower. As there are no logical points for it to stop, buying in such periods is very risky.
8. Do your own research (DYOR)
When it comes to financial markets, DYOR is an acronym that comes from the phrase “Do your own research.” It means that investors should do their own research on their investments and not rely on others to do so for them. The most successful investors will do their research and come to their individual conclusions.
As such, anyone who wants to be successful in the financial markets will have to come up with their own unique trading strategy. The main idea is that everyone who did their own research came to a conclusion and made their investment based on those conclusions.
9. Due Diligence (DD)
Due diligence ( DD ) is somehow related to DYOR. It refers to the investigation process that a rational person or business is expected to do before reaching an agreement with another party.
When commercial entities reach an agreement, they are expected to do a mutual verification. Why? Any contractor wants to make sure there are no potential problems with the agreement. Otherwise, how might the potential risks compare to the expected benefits?
The same goes for investments. When investors are looking for potential investments, they need to do their own project check to make sure they can consider all the risks. Otherwise, they will not control their investment decisions and may end up making the wrong choices.
10. Anti Money Laundering (AML)
The fight against money laundering ( AML ) refers to a series of regulations, laws, and procedures aimed at preventing criminals from disguising illegally obtained money as legitimate income.
AML procedures make it much harder for criminals to “launder” money by hiding or disguising it as coming from legitimate sources.
Criminals will always look for ways to hide the true source of their funds. Due to the complexity of financial markets, there can be many different ways to do this.
AML regulations require financial institutions, such as banks to monitor their customers’ transactions and report suspicious activity. In this way, criminals are less likely to escape the laundering of illegally obtained funds.
11. Know your customer (KYC)
Stock exchanges and trading platforms must comply with national and international standards. For example, the New York Stock Exchange (NYSE) and the NASDAQ must comply with regulations set by the United States government.
Customer Knowledge ( KYC ) – ensures that institutions that facilitate the trading of financial instruments verify the identity of their customers. Why is this important? The main reason behind this is to minimize the risk of money laundering.
In addition, KYC regulations do not only apply to participants in the financial industry. Many other segments must also follow these guidelines. The KYC guidelines are generally part of a much broader anti-money laundering (AML) policy.
The terms of cryptocurrency trading may seem a little confusing at first. But now you know a good chunk of them, therefore, you can feel confident with all these abbreviations.