Cryptocurrency trading is a space where too many equations change within a matter of seconds. It isn't surprising that crypto traders use various terms, acronyms, and abbreviations. Mainly, these terms refer to a specific concept in crypto trading, investment management, or general finance.
If you are new to crypto trading, these terms may cause confusion. Therefore, Liquid has explained some of the most common terms every crypto trader/investor should know.
#1 FOMO — Fear of Missing Out
FOMO refers to the action of panic-buying crypto assets due to the fear of missing out. Traders sometimes acquire crypto assets in panic when they think they might miss out on a profit opportunity. Unlike the ideal decision, which requires strategic thinking and market analysis, FOMO-ing decisions are driven by raw emotions.
In most cases, traders' FOMO-ing means dealing with a bull market, where the asset prices are rising. Veterans in crypto trading may use the same term to refer to those new to trading and who buy assets due to the hype around crypto in general.
HODL refers to the trading strategy of buying and holding in the cryptocurrency market. Those who stick to HODL will acquire cryptocurrency assets and hold onto them even during serious price drops. Of course, they look for extended profit by converting the assets into long-term investments.
Often, traders who believe in a specific cryptocurrency's future may also use the HODL strategy. Those who employ the method are often called HODLers, but it doesn't negatively connotate what we saw with FOMO. Those who have HODL-ed Bitcoin may have had a good experience in the past years.
#3 ROI — Return on Investment
Return on Investment, better known as ROI, is not a concept exclusive to cryptocurrency. Traders have used ROI calculation to understand the performance of their investments in any market. You can calculate the ROI of any investment by reducing the value of the asset's original value from the current value of the asset and divide the same by the original cost.
ROI will indicate how much your investment has grown — or depreciated — over time. While Return of Investment is widely used, we can't consider it ultimate. You will have to consider other aspects like market risk and asset liquidity.
#4 DYOR — Do Your Own Research
Do Your Own Research is a self-explanatory term used in crypto trading environments. It asks traders to do their research before making market decisions. It means a trader shouldn't rely on ready-made advice in buying crypto assets. DYOR is also related to other ideas like Fundamental Analysis and the formation of a strategy.
As you may know, cryptocurrencies also bear the risks that other assets entail. Therefore, a trader should analyze the information at their disposal and come to a strategy, even considering the investors' opinions.
#5 KYC — Know Your Customer
Know Your Customer is a set of guidelines that help organizations understand a customer's identity. KYC is concerned with cryptocurrency exchanges and trading platforms in the crypto trading context. These services have to verify a customer's identity and credibility before allowing them to trade. Based on where the organization is headquartered, the KYC guidelines may differ.
Crypto-based organizations follow strict KYC guidelines to prevent cases of money laundering. KYC is not limited to crypto/investment spaces. General organizations also use KYC guidelines to keep track of legality. You may have to submit documents such as Passport, Social Security Number, Proof of Address or Driver's License as a part of the KYC guidelines.
#6 DD — Due Diligence
Due Diligence deals with the investigation and cares that a rational person or a business is expected to make before coming to an agreement with another party. Suppose a trader/investor wants to invest in an asset. Any rational actor wants to ensure that there aren't any potential red flags with the deal.
DD can help traders/investors stay confident about the decisions they make. Depending on the situation, it gives you a deeper understanding of the organization behind the asset you want to invest in. Investors have to compare the risks and potential benefits before bidding.
#7 AML — Anti-Money Laundering
Anti-Money Laundering is a set of guidelines cryptocurrency and traditional trading platforms employ to prevent money laundering incidents. KYC, which we mentioned earlier, is one of the many elements in the AML guidelines. AML consists of a set of rules that makes it easy for regulators to understand the trading platform's potential misuse.
For instance, most regulators ask the trading platform to analyze the customers' transactions and report the ones that seem suspicious. Сompanies may follow unique AML frameworks based on their location and the market they work with.
#9 All-Time-High and All-Time-Low
All-Time-High refers to the highest value a particular asset has reached on a trading platform. The ATH number is always mentioned in pairs, not individually. For instance, currently, the All-Time-High of the BTC/USD pair is $57,125.93, recorded on the 2nd of February 2021. An asset reaching ATH would mean that almost everyone who purchased the asset prior will receive some profit.
On the other hand, All-Time-Low sits on the other end of the spectrum. ATL refers to the lowest value of the particular investment. However, in this case, traders who have invested in the asset may face serious trouble.
#10 FUD — Fear, Uncertainty, and Doubt
Fear, Uncertainty, and Doubt aren't exclusive to only cryptocurrency trading. It refers to a trading strategy that involves spreading information about a particular asset or an organization. The idea is that this stream of misinformation will cause fear, uncertainty, and doubt among other traders, forcing them to make market decisions that they otherwise wouldn't take.
The trader who started the misinformation stream may sell the asset to increase their profit. The strategy is frowned upon, and it asks traders to double-check the information about an organization before the decision-making.
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