Which Terms Should Every Crypto Traders Know?

Fear, Uncertainty, and Doubt (FUD): Spread of negative, misleading, or false information to create fear and uncertainty about a particular topic or asset.
Fear Of Missing Out (FOMO): Feeling of anxiety or regret that arises from the belief that others are benefiting from an opportunity that you might be missing out on
HODL: Holding cryptocurrency investments despite market fluctuations and volatility
BUIDL: Creating, developing, and improving cryptocurrency and blockchain technology
SAFU: Assurance to investors that their funds are safe and secure.
Return on Investment (ROI): Measure of profitability of an investment, calculated as the ratio of the gain or loss.
All-Time High (ATH): Highest price ever recorded for a particular asset
All-Time Low (ATL): Lowest price ever recorded for a particular asset
Do Your Own Research (DYOR): Self explanatory.
Due Diligence (DD): Process of investigation and analysis that is conducted to gather relevant and accurate information about a particular investment opportunity.

Navigating the language of trading and investment can be a daunting task, whether you're a seasoned stock market trader, a Forex day trader, or new to the world of cryptocurrency. A lot of trading terms such as FOMO, ROI, ATH, and HODL may seem unfamiliar, but they play a crucial role in keeping traders up to speed with the latest trends in the financial markets. As such, it's essential to gain a solid understanding of the most important trading terms that are commonly used in cryptocurrency trading. We've compiled a large amount of them to discuss - let's dive in!

1. Fear, Uncertainty, and Doubt (FUD)

Although not exclusive to financial markets, the term Fear, Uncertainty, and Doubt (FUD) is frequently employed in this context. It is a strategy used to undermine a company, product, or project by disseminating false or misleading information to sow doubt and evoke feelings of fear and apprehension. The goal is to obtain an advantage, whether it be a competitive edge, profiting from a declining stock price caused by unfavorable news, or other tactical gains.

The cryptocurrency realm is a prevalent breeding ground for FUD tactics. Investors may enter a short position in an asset and release potentially detrimental or deceptive news once the position has been established. Another way to profit from FUD is to short sell or purchase put options.

While some of the information turns out to be true, it is often false or misleading. Evaluating all sides of the argument is prudent. It can be beneficial to consider the incentives of those publicly expressing certain opinions.

2. Fear Of Missing Out (FOMO)

Fear of Missing Out (FOMO) is an emotional response that investors experience when they rush to purchase an asset out of a concern that they may miss out on a lucrative investment opportunity. As it is a sentiment-driven behavior, a large-scale FOMO phenomenon can induce a parabolic surge in asset prices. It is often observed that investors engage in a game of musical chairs, switching between assets, as they experience the sensation of FOMO, which may indicate the later stages of a bull market.

It is essential to acknowledge that extreme market conditions can alter the conventional rules of the financial markets, as explained in our Common Mistakes Using Technical Analysis article. In such situations, strong emotions may lead many investors to make hasty decisions driven by FOMO, resulting in extended price movements in both directions and possibly trapping traders who attempt to counter-trade the crowd.

FOMO is not just limited to financial markets. It is a tactic commonly used in designing social media applications. Have you ever wondered why it is challenging to view posts on social media in a strictly chronological order? This is closely tied to FOMO; if users could view all the posts since their last login, they would feel like they had seen everything.

By deliberately blending newer and older posts on the timeline, social media platforms aim to instill a sense of FOMO in users. Thus, users keep returning to the platform repeatedly, apprehensive of missing out on important updates or content.

3. HODL

HODL is a popular term in the cryptocurrency world that stems from a misspelling of the word "hold." Essentially, it means holding onto an investment, even in the face of falling prices. The origin of the term can be traced back to a humorous and now legendary post on the BitcoinTalk forum in 2013 titled "I AM HODLING."

The HODLing strategy is typically used by long-term investors who believe in the potential of a particular coin or cryptocurrency. It is also favored by those who admit they are not skilled in short-term trading but still want to gain exposure to the cryptocurrency market.

HODLing is similar to the traditional buy-and-hold investment strategy, where investors aim to identify undervalued assets and hold them for extended periods. Many investors in the cryptocurrency space have adopted this approach, particularly for Bitcoin. In fact, the dollar-cost averaging (DCA) investment strategy, which involves purchasing a fixed amount of Bitcoin at regular intervals, would have been highly profitable over the last five years, as the asset has appreciated over seven times its original value.

4. BUIDL

BUIDL is a term that originates from the word HODL, and it refers to those individuals in the cryptocurrency industry who continue to develop the ecosystem despite fluctuations in market prices. The term emphasizes that true supporters of blockchain and cryptocurrency are committed to contributing to the development of the technology, regardless of the ups and downs of the market. These individuals, also known as "BUIDLers," possess a genuine interest in the potential of blockchain and cryptocurrencies to positively impact the world, and they actively work towards this goal.

BUIDL embodies a mindset that emphasizes the importance of building the infrastructure required to bring the benefits of cryptocurrency to the wider population, rather than simply speculating on its value. It serves as a reminder to focus on creating a solid foundation for the industry, with an eye on the future. Furthermore, BUIDLers recognize that teams with a long-term approach are more likely to succeed in the end.

5. SAFU

SAFU, a term that originated from a viral meme in the cryptocurrency community from Bizonacci, has become a defining feature of Binance's platform security. During unscheduled platform maintenance, Binance's CEO Changpeng Zhao (CZ) said "funds are safe", which inspired the meme. In response, Binance established the Secure Asset Fund for Users (SAFU), an emergency insurance fund that's funded by 10% of trading fees and stored in a separate cold wallet. The SAFU acts as a protective measure to cover the loss of user funds in extreme cases, offering an additional layer of security for Binance users. Hence, the phrase "funds are safu" has become a popular way to describe Binance's dedication to user fund protection.

6. Return on Investment

Return on Investment (ROI) is a metric commonly used to assess an investment's performance relative to its initial cost. It's a valuable tool to measure the performance of different investments and to compare them. To calculate ROI, simply subtract the original cost of the investment from its current value, and divide that result by the original cost.

ROI = (Current Value - Original Cost) / Original Cost

For example, let's say you invested $200,000 in Bitcoin, and the current market value of your Bitcoin is now $300,000.

ROI = ($300,000 - $200,000)/$200,000

ROI = 0.5 or 50%

It's essential to keep in mind that ROI alone doesn't provide a complete picture of an investment's performance. Factors such as risk, liquidity and time horizon should also be considered. Additionally, fees and slippage can affect the investment's returns.

7. All-Time-High (ATH)

The All-Time High (ATH) of an asset is the highest price that it has ever been recorded to have reached. Reaching ATH is particularly significant because it implies that almost every trader who has ever bought the asset is now in profit, making them less likely to sell. This is in contrast to prolonged bear markets where many traders who are holding losing positions will want to exit the market as soon as they break even. Breaching the ATH is also commonly accompanied by increased trading volume as day traders jump at the opportunity to make quick profits.

However, breaching the ATH does not mean that the asset's price will continue to rise indefinitely. Traders and investors will look to take profits at some point, which may cause the price to drop. Parabolic moves, which are characterized by steep, upward price movements, often end in sharp price drops as investors rush to sell once they realize the uptrend may be coming to an end. Therefore, it is crucial for traders to manage risk and use stop-loss orders especially in cryptocurrency market, which is known for its volatility.

8. All-Time-Low (ATL)

The All-Time Low (ATL) is the lowest recorded price of an asset, which is the opposite of the All-Time High (ATH). When an asset breaches its ATL, it can trigger stop orders, leading to a sharp decline and creating a situation opposite to what happens with ATH breaches. As there is no price history below the previous All-Time Low, the market value can keep drifting lower, without logical stopping points. Therefore, buying during these times is considered very risky.

To avoid getting trapped in a long position that keeps going lower and lower, many traders wait for a confirmed trend change signaled by an important moving average or some other indicator before considering entering a long position. Otherwise, they risk holding the bag for a long time. Another way to mitigate risks associated with trading is the use of risk management tools like stop-loss orders.

9. Do Your Own Research (DYOR)

The term DYOR, which stands for “do your own research,” is commonly heard in the financial markets more so with fundamental analysis. It simply means that investors should perform their own research and not rely on information from others. Another similar saying, “don’t trust, verify,” has a similar meaning and is used more frequently in cryptocurrency markets (especially as it pertains to smart contracts).

In any market, the investor who does their own research and comes to their own conclusions is most likely to become a successful one. In addition, those who aspired to become successful in financial markets will have to develop their own personal strategy, which may not be always similar to others.

However, even if these opinions are different, successful investors have already done their research, have their own conclusions and have made their decisions based on conclusions they have at the time.

10. Due Diligence (DD)

Closely related to DYOR is due diligence. It is an investigation conducted by a person or business prior to making an agreement with another party. It’s performed by business entities to ensure that there are no potential red flags that will endanger its business, as well as assessing if the benefits outweigh the risks of pushing through with an agreement.

On the other hand, investors are also always looking for new investments and need to perform DD to ensure that they know the risks and benefits of investing in a project or protocol before they invest their hard earned money.

Cryptocurrency trading can be confusing and challenging at first with its vast array of terms and abbreviations. It is normal to feel overwhelmed at first. However, after familiarizing yourself with some of these essential terms, we hope you can feel more confident in exploring the cryptocurrency space at your own pace!

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