Crypto trading has its own jargon. For beginners, many terms may be unfamiliar. Below is a glossary of essential crypto trading terms explained in plain language, helping you navigate exchanges and markets with confidence.
Altcoin:
Any cryptocurrency other than Bitcoin. For example, Ethereum, Litecoin, and Solana are altcoins. Altcoins often have their own features or use cases.
Bull & Bear Markets:
A bull market is when prices are generally rising and trader sentiment is optimistic. Conversely, a bear market generally has falling prices with pessimistic sentiment. Identifying the market trend (bullish or bearish) helps traders adapt strategies (e.g. buying dips in bull markets, being cautious or shorting in bear markets).
Candlestick Chart:
A candlestick chart displays an asset’s price action over time. Each “candle” shows the opening, closing, high, and low prices for a time period (e.g. 1 hour). Green (or white) candles often mean the price is higher (close > open) and red (or black) mean the price is lower (close < open). Traders use candlesticks to spot trends and reversals in price movements.
Cryptocurrency:
A digital currency secured by cryptography and recorded on a blockchain. Cryptos operate independently of governments or banks. Bitcoin and Ethereum are examples of cryptocurrency coins.
Crypto Exchange (CEX vs. DEX):
A crypto exchange is a platform where you buy, sell, or trade cryptocurrencies. Most are centralized exchanges (CEX) requiring account registration. A decentralized exchange (DEX) is peer-to-peer (no middleman) trading via smart contracts.
Fiat Currency:
Fiat refers to government-issued money like USD or EUR.
Leverage & Margin:
Leverage means trading with borrowed funds to amplify position size. In margin trading, you put up collateral (margin) and borrow to increase exposure. For example, 2× leverage lets you control twice as much crypto. While leverage can boost gains, it also magnifies losses. If your losses approach your total amount of collateral, you may face liquidation, where the exchange automatically closes your position to cover the debt.
Liquidity & Volatility:
Liquidity is how easily an asset can be bought or sold without moving its price. Highly liquid markets let you trade large amounts smoothly. Volatility measures how rapidly an asset’s price moves up or down. Crypto markets have been typically volatile, meaning prices can swing sharply in short times.
Long vs. Short Positions:
Going long means buying crypto with the expectation its price will rise. A long trade profits when prices increase. Going short means selling crypto (often by borrowing it first) expecting the price will drop. Short trades profit if the price falls. Thus, longs arebullish and shorts are bearish on the market.
Market Capitalization:
Market cap is the total value of a cryptocurrency: current price × circulating supply. It measures the size or dominance of a crypto. For example, Bitcoin has the largest market cap. Generally, large-cap cryptos are seen as more established, while small-caps can be more volatile, less liquid and speculative.
Market Order & Limit Order:
A market order buys or sells immediately at the best available price. It guarantees execution but not the exact price. A limit order sets a specific price: a buy-limit only executes at or below that price, and a sell-limit at or above. Limit orders give price control but may not fill if the market doesn’t reach your price.
Order Book, Bid/Ask & Spread:
An exchange’s order book lists all buy and sell orders. The bid is the highest price buyers will pay, and the ask is the lowest price sellers will accept. The spread is the difference between ask and bid prices. A tight (small) spread usually means high liquidity, while a wide spread indicates lower liquidity and higher transaction costs.
Pump and Dump:
A pump and dump is a fraudulent scheme where organizers hype a low-volume crypto to drive its price up (pump) and then sell off their holdings (dump), causing a sharp fall in the price. Such schemes prey on FOMO as once insiders sell, late buyers are left with losses. Always research carefully and avoid unsubstantiated token hype.
Stablecoin:
A stablecoin is a cryptocurrency pegged to a stable asset (often a fiat currency) to minimize volatility. For example, USDT and USDC are stablecoins typically tied 1:1 with the US dollar.
Stop-Loss & Take-Profit Orders:
A stop-loss order automatically sells your crypto if the price falls to a set “stop” level, helping limit losses. A take-profit order automatically sells when the price rises to a target, securing gains. These orders convert price levels into automated trades to manage risk and profit.
Support & Resistance:
Support is a price level where falling prices tend to stop and rebound, indicating strong buying interest. Resistance is a level where rising prices tend to stop and fall back, showing strong selling interest. These levels come from historical price action and large orders, helping traders anticipate possible turning points on charts.
FAQs
What’s the difference between a market order and a limit order?
A market order buys/sells immediately at the current best price. It guarantees execution but not price. A limit order sets the exact price you want: you’ll only buy (or sell) if the market reaches that price or better. Limit orders give control over execution price, while market orders prioritize speed.
How do stop-loss and take-profit orders work?
A stop-loss order automatically triggers a market sell (or buy to cover) when price hits a threshold, capping potential losses. A take-profit order automatically sells when price reaches your profit target. Both are conditional orders that execute only if certain prices are hit, helping automate risk management.
What is the bid-ask spread and why does it matter?
The bid-ask spread is the gap between the highest bid and lowest ask prices. A narrow spread means high liquidity and cheaper trading; a wide spread implies lower liquidity and higher cost. Always check spreads: a larger spread can eat into profits or increase slippage on trades.
What is slippage in trading?
Slippage occurs when the executed price differs from the expected price, often due to volatility or low liquidity. For example, a large market order in a thin market can move the price as it fills, resulting in a worse average price. Traders can limit slippage by using limit orders or trading during high-liquidity periods.
Why are liquidity and volatility important?
Liquidity reflects how easily you can trade without moving the price. Higher liquidity means smoother, more reliable trades. Volatility indicates how fast prices change. High volatility (common in crypto) means bigger price swings, which is good for potential profits but also can mean higher risk. Traders must be aware of both: illiquid or highly volatile markets can mean larger losses or slippage.
How do leverage and margin trading work?
Leverage lets you trade with borrowed funds, increasing position size. For example, 5 leverage lets you trade 5x your capital. You post margin (collateral) for this loan. While leverage amplifies gains, it also magnifies losses. If your position drops too much, a margin call gets triggered; if unaddressed, the position is liquidated to cover losses.
What does going long or short mean?
Going long means buying crypto expecting the price will rise. You profit if the price goes up. Going short means selling crypto (usually by borrowing it) expecting the price will fall; you buy it back later at a lower price to profit. Longs bet on price increases, shorts on price drops.
How do candlestick charts help traders?
Candlestick charts visualize price action (open, high, low, close) for each time period. Traders use patterns of candles to identify trends, reversals, and entry/exit points. For example, a series of long green candles signals bullish momentum, while particular formations (like “doji” candles) may hint at a trend reversal or price consolidation.
What are support and resistance levels?
Support is a price level where buyers tend to enter and prevent further drops. Resistance is where sellers tend to act and cap further rises. These levels come from historical price reaction points. Traders watch them because prices often bounce off support or fall back from resistance, which can guide buy/sell decisions.
Why is market capitalization useful?
Market cap (price × circulating supply) gives a quick sense of a crypto’s size. Larger-cap cryptos (like Bitcoin) typically have deeper liquidity and may be less volatile, while small-cap coins can be more volatile and speculative. Comparing market caps helps gauge a crypto’s relative importance or risk in the market.
What is the difference between a centralized exchange (CEX) and a decentralized exchange (DEX)?
On a CEX, a company runs the platform; users trade by depositing funds into the exchange’s wallets. CEXs often allow fiat-crypto trading and advanced order types. On a DEX, peer-to-peer trades take place via smart contracts. There is no central custodian: you trade directly from your own wallet. DEXs offer more privacy and access to a wider range of tokens (including new/decentralized ones) but usually only allow crypto-to-crypto trades.
What is a stablecoin and why use it?
A stablecoin is a crypto pegged to a stable asset (usually fiat) to minimize price swings. Traders use stablecoins as a refuge during market volatility. For instance, converting profits into USDT (a USD-pegged stablecoin) lets you hold value without leaving the crypto ecosystem or going back to dollars.
How can I recognize a pump-and-dump scheme?
A sudden, unexplained spike in a low-volume token’s price is a red flag. Pump-and-dump schemes rapidly inflate a coin’s price via hype (FOMO), then insiders sell at the peak, causing the price to fall sharply. To avoid them, be skeptical of “too good to be true” token promotions and rely on data (e.g. strong project fundamentals, liquidity, charts) rather than hype.
What does “FUD” mean in crypto?
FUD stands for Fear, Uncertainty, and Doubt. It refers to negative rumors or news spread to shake confidence in a cryptocurrency and mislead traders. Traders might intentionally or unintentionally create FUD, causing prices to drop on panic. It’s important to verify news and avoid emotional reactions when evaluating FUD.