Cryptocurrency Trading Lingo

It seems to be a matter of time before cryptocurrencies are as common and as well understood as stocks. In anticipation, let us familiarize ourselves with the lingo in cryptocurrency investing and mining, which will prove to be immensely useful (not discounting the entertainment value).

Investing

Cryptocurrency traders share much of the vocabulary used by stock traders and Forex traders. Of course, there are also words that originated from cryptocurrency trading.

  1. HODL. A misspelling of ‘hold’ that stuck around to mean ‘keep’. A crypto trader who buys a coin and does not see himself selling in the foreseeable future is called a hodler of the coin.
  2. FOMO. Short form for ‘fear of missing out’. As crypto trading is still very much driven by emotions rather than valuation, FOMO is a huge factor to consider when swing trading in crypto.
  3. FUD. Short form for ‘fear, uncertainty and doubt’. Traders who stand to gain from the failure of a coin may spread FUD in the coin’s forums.
  4. ATH. Short form for ‘all time high’.
  5. Whale. Traders with a substantial amount of capital are called whales. Interestingly, ‘Whales’ are often blamed for inexplicable market direction changes or movements.
  6. Pump and Dump. Coins which do not seem to have long term prospects may see a huge increase over a short period of time. Such movements are often attributed to low volume, hence the ‘pump’. Traders who pump, buying huge volumes, may wish to invoke FOMO from the uninformed investors and then dump, or sell, their coins at a higher price. Knowing this could be the case, many traders still enter the market hoping to exit before the dump happens.
  7. Shill. The act of unsolicited endorsing of the coin in public. Traders who bought a coin has an interest in shilling the coin, in hopes of igniting the public’s interest in that particular coin.
  8. Bag Holder. A term to refer to a trader who bought in at a high and missed his opportunity to sell, leaving him with worthless coins.
  9. Margin Trading. A term for ‘trading with leverage’. In this instance of trading, you borrow one side of the trading pair at an agreed loan rate and sell it for the other side of the trading pair. Depending on the direction you believe the market to move, you may place a long or a short bet on the trading pair of concern.
  10. Long. A position that a trader takes. To take a long position on something is to believe its value will rise in the future.
  11. Short. A position that a trader takes. To take a short position on a coin is to believe its value will fall in the future.
  12. Limit Order. An order placed at a future price that will execute when the price target is hit.
  13. Borrowing Rate. When you open a leveraged position, you will be borrowing coins at a pre-determined rate. This rate will be added to reflect your position’s overall profit and loss.
  14. Lending Rate. Some exchanges have lending accounts. You may deposit your coins into these lending accounts to lend your coins for others to execute their leveraged trades. The lending rate fluctuates throughout the day based on the demand for shorting the coin.
  15. Fill or Kill. A limit order that will not execute unless an opposite order exceeds this limit order’s amount.
  16. Wall. A wall as seen in the depth chart of exchanges is an amalgamation of limit orders of the same price target.
  17. Trading Volume. High trading volumes are signals that indicate possibilities of new trends. Low trading volumes result in decreased liquidity and an increased spread.
  18. Circulating Supply. The price of a coin has no meaning on its own. However, the price of a coin, when multiplied by the circulating supply, gives the coin’s market cap.
  19. Market Cap. A stock’s market cap refers to the market value of the company’s outstanding shares. In the cryptocurrency market, the market cap is used to illustrate a coin’s dominance in the entire cryptocurrency market.
  20. DDOS. Short form for ‘Distributed Denial of Service’. A well-timed DDoS attack at exchanges during volatile movements may be devastating as traders will not be able to execute any order manually and will be at the mercy of their pre-set, or the lack of, limit orders.
  21. ICO. Short form for Initial Coin Offering. Coins bought during ICOs are usually sold for a profit when the coin first hits exchanges. This is due to the initial hype which increases demand for the coin. On the supply side, ICOs create entry barriers as the buyer has to set up his private wallet to receive the coins from the ICO purchase.
  22. Arbitrage. The act of buying and selling on different exchanges to earn the difference in the spread. Arbitrage opportunities occur due to differences in exchange reputation, community coin preferences and ease of bank funding. Take note that fees, limits and prices could change anytime when you are transferring your coins between exchanges, especially during volatile times.
  23. Pennant. A common pattern in technical analysis. When a pennant is forming, this shows that the market is consolidating about a price point and a break out in either direction is imminent.
  24. Bear Trap. Another common pattern in technical analysis, especially during a bull market. This indicates market manipulation, where traders sell and fool other traders into thinking a downtrend is forming and hence selling theirs, allowing the traders who set the trap to buy in more at a lower price.
  25. Bull Trap. The opposite of a bear trap. In a bull trap, traders buy and fool other traders into thinking a uptrend is forming and hence rushing to buy in, allowing the traders who set the trap to sell at a higher price.
  26. Cup and Handle. A pattern in technical analysis that happens when traders test the validity of an uptrend.

 

Mining

Mining is the act of validating blockchain transactions. The necessity of validation warrants an incentive for the miners, usually in the form of coins. In this cryptocurrency boom, mining can be a lucrative business when done properly. By choosing the most efficient and suitable hardware and mining target, mining can produce a stable form of passive income.

  1. Mining Rig. A rig is a dedicated computer system for mining coins. It usually consists of a motherboard with more than one GPU installed.
  2. Hash. The act of performing a hash function on the output data. This is used for confirming coin transactions.
  3. Hash Rate. Measurement of performance for the mining rig is expressed in hashes per second.
  4. SHA-256. This is a mining algorithm used by cryptocurrencies such as Bitcoin. SHA-256, however, uses a lot of computing power and processing time, forcing miners to form mining pools to capture gains.
  5. Scrypt. This is another type of mining algorithm and is used by Litecoin. Compared to SHA-256, this is quicker as it does not use up as much processing time.
  6. ASIC. Short form for ‘Application Specific Integrated Circuit’. Often compared to GPUs, ASICs are made for mining and may offer significant power savings.
  7. Transaction Fee. All cryptocurrency transactions involve a small transaction fee. These transaction fees add up to account for the block reward that a miner receives when he successfully processes a block.
  8. Block Reward. A form of incentive for the miner who successfully calculated the hash in a block during mining. Verification of transactions on the blockchain generates new coins in the process, and the miner is rewarded a portion of those.
  9. Difficulty. This refers to how easily a data block of transaction information can be mined successfully.
  10. Collective Mining. This refers to the act of contracting mining power from third parties. Sometimes, the commitment of resources, especially at the start, may be overwhelming for individuals. To solve this problem, companies that invested in high-end mining hardware may lease their mining capability to individuals for a premium. Block rewards that the company receive will be distributed to individuals based on contracts.
  11. Cloud Mining. A form of mining that utilizes a remote datacentre with shared processing power.
  12. Mining Pools. When the difficulty of mining increases to a certain level, miners may opt to pool their resources to generate blocks quicker. This is done so for a consistent reward, rather than receiving a big sum randomly once every few years, for example.
  13. PPS. The Pay-per-Share approach for mining pool payment. As one of the more popular payment methods, this offers an instant, guaranteed pay out for each share that is solved by a miner. This method allows for the least variance in the miners’ payments by transferring most of the risk to the pool’s operator.
  14. DGM. The Double Geometric method for mining pool payment. This form of payment allows the operator to absorb a portion of the risk by normalizing payments through receiving pay outs during shorter rounds and distributing pay outs during longer rounds.
  15. Confirmation. The successful act of hashing a transaction and adding it to the blockchain.
  16. Mintage Cap. A limit on the eventual total number of coins. Mining generates new coins constantly, a mintage cap enforced may allow for a more stable cryptocurrency.
  17. Proof of Work Mining. A form of mining that requires an active role in mining data blocks, often consuming resources, such as electricity. The more ‘work’ you do or the more computational power you provide, the more coins you are rewarded with.
  18. Proof of Stake Mining. A form of mining that rewards earnings based on the number of coins you own or hold. The more you invest in the coin, the more you gain by mining with this protocol.
  19. TDP. Short form for ‘Thermal Design Power’. It is the maximum amount of heat generated by a GPU that the cooling system is designed to dissipate. TDP limits may be raised to realize the full overclock potential of the graphic cards.
  20. PSU. Short form for ‘Power Supply Unit’. The PSU is an important component of your rig that will be put under a lot of stress. Sum up the power consumption of all your GPUs and ensure that your PSU can handle it.
  21. Bandwitdth. The higher the hash rate of your rig is, the more bandwidth it will require, as it downloads new work units and returns them faster. Bandwidth however does not affect mining speed for solo miners. The effect of bandwidth is only seen in the pool mining case.
  22. PCI-E. Short form for ‘Peripheral Component Interconnect Express’. It is a serial expansion bus standard for connecting a computer to one or more devices. By using a PCI-E, every device that is connected to the motherboard has its own point to point dedicated connection. By not sharing the same bus, the devices will not be competing for bandwidth.