TRADING TERMINOLOGY
the basic terms every trader must know
Alphabet nagivation
A
ADDRESSES
(Cryptocurrency addresses) Are used to receive and send transactions on the network. An address is a string of alphanumeric characters, but can also be represented as a scannable QR code.
AGREEMENT LEDGERS
Are distributed ledgers used by two or more parties to negotiate and reach agreement.
ALTCOIN
Is an abbreviation of “Bitcoin alternative”. Currently, the majority of altcoins are forks of Bitcoin with usually minor changes to the proof of work (POW) algorithm of the Bitcoin blockchain. The most prominent altcoin is Litecoin. Litecoin introduces changes to the original Bitcoin protocol such as decreased block generation time, increased maximum number of coins and different hashing algorithm
ATTESTATION LEDGERS
Are distributed ledgers that provide a durable record of agreements, commitments or statements, providing evidence (attestation) that these agreements, commitments or statements were made.
ASIC
Is an acronym for “Application Specific Integrated Circuit”. ASICs are silicon chips specifically designed to do a single task. In the case of bitcoin, they are designed to process SHA-256 hashing problems to mine new bitcoins.
ARBITRAGE
The simultaneous purchase or sale of a financial product in order to take advantage of small price differentials between markets.
B
BITCOIN
Is a well known cryptocurrency, based on the proof-of-work blockchain.
BLOCKCHAIN
A blockchain is a type of distributed ledger, comprised of unchangeable, digitally recorded data in packages called blocks (rather like collating them on to a single sheet of paper). Each block is then ‘chained’ to the next block, using a cryptographic signature. This allows block chains to be used like a ledger, which can be shared and accessed by anyone with the appropriate permissions.
BLOCK CIPHERS
Block ciphers are a method of encrypting text (to produce ciphertext) in which a cryptographic key and algorithm are applied to a block of data at once as a group rather than to one bit at a time.
BLOCK HEIGHT
Block height refers to the number of blocks connected together in the block chain. For example, Height 0, would be the very first block, which is also called the Genesis Block.
BLOCK REWARDS
Block rewards are rewards given to a miner which has successfully hashed a transaction block. Block rewards can be a mixture of coins and transaction fees, depending on the policy used by the cryptocurrency in question, and whether all of the coins have already been successfully mined. The current block reward for the Bitcoin network is 25 bitcoins for each block.
C
CHAIN LINKING
Chain linking is the process of connecting two blockchains with each other, thus allowing transactions between the chains to take place. This will allow blockchains like Bitcoin to communicate with other side-chains, allowing the exchange of assets between them
CIPHER
A cipher is the algorithm used for the encryption and/or decryption of information. In common language, ‘cipher’ is also used to refer to an encryption message, also known as ‘code’.
CONFIRMATION
A Confirmation means that the blockchain transaction has been verified by the network. This happens through a process known as mining, in a proof-of-work system (e.g. Bitcoin). Once a transaction is confirmed, it cannot be reversed or double spent. The more confirmations a transaction has, the harder it becomes to perform a double spend attack.
CONSENSUS PROCESS
A Consensus Process is a group of peers responsible for maintaining a distributed ledger use to reach consensus on the ledger’s contents.
CANDLESTICK CHART
A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
CAPITULATION
A point at the end of an extreme trend when traders who are holding losing positions exit those positions. This usually signals that the expected reversal is just around the corner.
CONSORTIUM BLOCKCHAIN
A consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which ten must sign every block for the block to be valid. The right to read the blockchain may be public or restricted to the participants. There are also hybrid routes such as the root hashes of the blocks being public together with an API that allows members of the public to make a limited number of queries and get back cryptographic proofs of some parts of the blockchain state. These blockchains may be considered “partially decentralized”
CRYPTOANALYSIS
Is the study of methods for obtaining the meaning of encrypted information, without access to the secret information that is normally required to do so.
CRYPTOCURRENCY
Cryptocurrency is a form of digital currency based on mathematics, where encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Furthermore, cryptocurrencies operate independently of a central bank.
CRYPTOGRAPHY
Cryptography refers to the process of encrypting and decrypting information.
CFDS*
A Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in value of an underlying asset (such as an index or equity). It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, without actually owning the product. In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the $1 difference.
CHARTIST
An individual, also known as a technical trader, who uses charts and graphs and interprets historical data to find trends and predict future movements.
D
DAPP
A dApp is a decentralized application that must be completely open-source, it must operate autonomously, and with no entity controlling the majority of its tokens.
DAO
A DAO (Decentralized Autonomous Organization) can be thought of as a corporation run without any human involvement under the control of an incorruptible set of business rules.
DAO
The DAO (yes, there’s a difference) was a venture capital fund built on Ethereum that caused a soft and hark fork. It was kinda a big deal. Read up on that here.
DECRYPTION
Is the process of turning cipher-text back into plaintext
DIGITAL COMMODITY
A digital commodity is a scarce, electronically transferrable, intangible, with a market value.
DIGITAL IDENTITY
A digital identity is an online or networked identity adopted or claimed in cyberspace by an individual, organization, or electronic device.
DISTRIBUTED LEDGERS
Are a type of database that are spread across multiple sites, countries or institutions. Records are stored one after the other in a continuous ledger. Distributed ledger data can be either “permissioned” or “unpermissioned” to control who can view it.
DIFFICULTY
Difficulty, in Proof-of-Work mining, is how hard it is to verify blocks in a blockchain network. In the Bitcoin network, the difficulty of mining adjusts verifying blocks every 2016 blocks. This is to keep block verification time at ten minutes.
DOUBLE SPEND
refers to a scenario, in the Bitcoin network, where someone tries to send a bitcoin transaction to two different recipients at the same time. However, once a bitcoin transaction is confirmed, it makes it nearly impossible to double spend it. The more confirmations that a particular transaction has, the harder it becomes to double spend the bitcoins.
E
ENCRYPTION
Encryption is the process of turning a clear-text message (plaintext) into a data stream (cipher-text), which looks like a meaningless and random sequence of bits.
ETHER
Is the native token of the Ethereum blockchain which is used to pay for transaction fees, miner rewards and other services on the network.
ETHEREUM
is an open software platform based on blockchain technology that enables developers to write smart contracts and build and deploy decentralized applications.
ETHEREUM CLASSIC
is a split from an existing cryptocurrency, Ethereum after a hard fork. To learn more about this, click here.
EVM CODE
is the programming language in which accounts on the Ethereum blockchain can contain code. The EVM code associated with an account is executed every time a message is sent to that account, and has the ability to read/write storage and itself send messages.
EURO
The currency of the Eurozone.
F
FIAT CURRENCY
Fiat currency is any money declared by a government to be to be valid for meeting a financial obligation, like USD or EUR.
FORK
A fork is the creation of an ongoing alternative version of the blockchain, by creating two blocks simultaneously on different parts of the network. This creates two parallel blockchains, where one of the two is the winning blockchain.
FIRST IN FIRST OUT (FIFO)
All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.
G
GAS
is a measurement roughly equivalent to computational steps (for Ethereum). Every transaction is required to include a gas limit and a fee that it is willing to pay per gas; miners have the choice of including the transaction and collecting the fee or not. Every operation has a gas expenditure; for most operations it is ~3–10, although some expensive operations have expenditures up to 700 and a transaction itself has an expenditure of 21000.
H
HALVING
Bitcoins have a finite supply, which makes them a scarce digital commodity. The total amount of bitcoins that will ever be issued is 21 million. The number of bitcoins generated per block is decreased 50% every four years. This is called “halving.” The final halving will take place in the year 2140.
HARDFORK
A hardfork is a change to the blockchain protocol that makes previously invalid blocks/transactions valid, and therefore requires all users to upgrade their clients.
HASHCASH
is a proof-of-work system used to limit email spam and denial-of-service attacks, and more recently has become known for its use in bitcoin (and other cryptocurrencies) as part of the mining algorithm.
HASHRATE
is the number of hashes that can be performed by a bitcoin miner in a given period of time (usually a second).
I
INITIAL COIN OFFERING (ICO)
Initial Coin Offering (ICO) is an event in which a new cryptocurrency sells advance tokens from its overall coinbase, in exchange for upfront capital. ICOs are frequently used for developers of a new cryptocurrency to raise capital.
J
JPN225
A name for the NEKKEI index.
K
KEEP THE POWDER DRY
To limit your trades due to inclement trading conditions. In either choppy or extremely narrow markets, it may be better to stay on the sidelines until a clear opportunity arises.
L
LEDGER
A ledger is an append-only record store, where records are immutable and may hold more general information than financial records.
LAST DEALING TIME
The last time you may trade a particular product.
LITECOIN
is a peer-to-peer cryptocurrency based on the Scrypt proof-of-work network. Sometimes referred to as the silver of bitcoin’s gold.
LEVEL
A price zone or particular price that is significant from a technical standpoint or based on reported orders/option interest.
LEVERAGE
Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have. For example, leverage of 100:1 means you can trade a notional value 100 times greater than the capital in your trading account.*
M
INITIAL COIN OFFERING (ICO)
is the process by which transactions are verified and added to a blockchain. This process of solving cryptographic problems using computing hardware also triggers the release of cryptocurrencies.
MULTI-SIGNATURE
Multi-signature (multisig) addresses allow multiple parties to require more than one key to authorize a transaction. The needed number of signatures is agreed at the creation of the address. Multi signature addresses have a much greater resistance to theft.
MARGIN CALL
A request from a broker or dealer for additional funds or other collateral on a position that has moved against the customer.
MARKET ORDER
An order to buy or sell at the current price.
N
NODE
A node is any computer that connects to the blockchain network.
FULL NODE
A full node is a node that fully enforces all of the rules of the blockchain
O
OPEN ORDER
An order that will be executed when a market moves to its designated price. Normally associated with good ’til cancelled orders.
OPEN POSITION
An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal.
OPTION
A derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date.
ORDER
An instruction to execute a trade.
ORDER BOOK
A system used to show market depth of traders willing to buy and sell at prices beyond the best available.
P
PEER-TO-PEER
Peer-to-peer (P2P) refers to the decentralized interactions that happen between at least two parties in a highly interconnected network. P2P participants deal directly with each other through a single mediation point.
PAIR
The quoting convention of matching one currency against the other.
PERMISSIONED LEDGER
A permissioned ledger is a ledger where actors must have permission to access the ledger. Permissioned ledgers may have one or many owners. When a new record is added, the ledger’s integrity is checked by a limited consensus process. This is carried out by trusted actors — government departments or banks, for example — which makes maintaining a shared record much simpler that the consensus process used by unpermissioned ledgers.
PERMISSIONED BLOCKCHAINS
Permissioned blockchains provide highly-verifiable data sets because the consensus process creates a digital signature, which can be seen by all parties.
PRIVATE KEY
A private key is a string of data that shows you have access to bitcoins in a specific wallet. Private keys can be thought of as a password; private keys must never be revealed to anyone but you, as they allow you to spend the bitcoins from your bitcoin wallet through a cryptographic signature.
PROOF OF AUTHORITY
is a consensus mechanism in a private blockchain which essentially gives one client (or a specific number of clients) with one particular private key the right to make all of the blocks in the blockchain
PROOF OF STAKE
is an alternative to the proof-of-work system, in which your existing stake in a cryptocurrency (the amount of that currency that you hold) is used to calculate the amount of that currency that you can mine.
PROOF OF WORK
Proof of Work is a system that ties mining capability to computational power. Blocks must be hashed, which is in itself an easy computational process, but an additional variable is added to the hashing process to make it more difficult. When a block is successfully hashed, the hashing must have taken some time and computational effort. Thus, a hashed block is considered proof of work.
PROTOCOLS
Protocols are sets of formal rules describing how to transmit or exchange data, especially across a network.
PORTFOLIO
A collection of investments owned by an entity.
POSITION
The net total holdings of a given product.
PREMIUM
The amount by which the forward or futures price exceeds the spot price.
Q
QUOTE
An indicative market price, normally used for information purposes only.
R
RIPPLE
Ripple is a payment network built on distributed ledgers that can be used to transfer any currency. The network consists of payment nodes and gateways operated by authorities. Payments are made using a series of IOUs, and the network is based on trust relationships.
RANGE
When a price is trading between a defined high and low, moving within these two boundaries without breaking out from them.
RATE
The price of one currency in terms of another, typically used for dealing purposes.
S
SCRYPT
A scrypt is an alternative proof of work system to SHA-256, designed to be particularly friendly to CPU and GPU miners, while offering little advantage to ASIC miners.
SHA 256
is the cryptographic function used as the basis for bitcoin’s proof of work system.
SMART CONTRACTS
Smart contracts are contracts whose terms are recorded in a computer language instead of legal language. Smart contracts can be automatically executed by a computing system, such as a suitable distributed ledger system.
SOFTFORK
A softfork is a change to the bitcoin protocol wherein only previously valid blocks/transactions are made invalid. Since old nodes will recognize the new blocks as valid, a softfork is backward-compatible. This kind of fork requires only a majority of the miners upgrading to enforce the new rules
STREAM CIPHERS
are a method of encrypting text (cyphertext) in which a cryptographic key and algorithm are applied to each binary digit in a data stream, one bit at a time.
T
TOKEN
A token is a digital identity for something that can be owned.
TOKENLESS LEDGER
A tokenless ledger refers to a distributed ledger that doesn’t require a native currency to operate.
TRANSACTION BLOCK
A transaction block is a collection of transactions on the bitcoin network, gathered into a block that can then be hashed and added to the blockchain.
TRANSACTION FEES
are small fees imposed on some transactions sent across the bitcoin network. The transaction fee is awarded to the miner that successfully hashes the block containing the relevant transaction.
U
UNPERMISSIONED LEDGERS
Unpermissioned ledgers such as Bitcoin have no single owner — indeed, they cannot be owned. The purpose of an unpermissioned ledger is to allow anyone to contribute data to the ledger and for everyone in possession of the ledger to have identical copies.
V
VALUE DATE
Also known as the maturity date, it is the date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward.
VARIATION MARGIN
Funds traders must hold in their accounts to have the required margin necessary to cope with market fluctuations.
VIX OR VOLATILITY INDEX
Shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge.”
VOLATILITY
Referring to active markets that often present trade opportunities.
W
WALLET
A wallet is a file that contains a collection of private keys
X
Y
YIELD
The percentage return from an investment.
YOY
Abbreviation for year over year.