Learn These 5 Key Crypto Terms – and Start Trading Like a Pro
Do you think you’ve mastered the basics of Bitcoin and altcoin trading? Perhaps you think you’re ready to move on from casual trading and want to take the next step – but are put off by grizzled veterans using terminology you don’t understand.
If that’s the case, Cryptonews.com has good news for you. We’ve prepared a foolproof guide to five terms you’ll hear some of the crypto world’s most prolific traders using.
Applied knowledge is power, and learning about these terms can help you learn more about how the market works – and how to make it work for you.
So here’s your chance: Learn how to sound like a crypto pro! And you never know…you might learn a thing or two about how to trade like one, too!
Buy Wall/Sell Wall
A buy wall refers to when a whale or a group of affluent traders places large buy orders of a certain price in an exchange order book.
Why would anyone want to place orders like these? Well, doing so could lead other market participants to believe a strong buying demand exists for a specific crypto trading pair.
Big-money traders make buy and sell wall movements to influence the price of trading pairs. It effectively forces traders who want to buy to place orders that are slightly above the buy wall price – so that they can get their orders filled.
The upshot of all this, in theory, is that the price of the asset tends to remain above the buy wall.
Typically, buy walls only tend to remain on order books for a relatively short period of time – until they are either filled or the trader pulls their order. At that point, prices can drop significantly as orders below the buy wall level are filled.
Essentially, it’s a form of market manipulation, and it’s something that many exchanges are now actively trying to clamp down on.
As a trader, it is important to keep an eye on buy or sell walls to make sure you don’t get caught on the wrong side of the trade if key orders get pulled…and those walls come tumbling down.
Futures contracts usually have a maturity of one, three or six months, depending on their contract specifications. In the case of Bitcoin futures, there is a wider range of options available, ranging from Bakkt’s one-day Bitcoin futures offerings to multi-month contracts on CME.
No matter what the contract, however, all futures offerings have one thing in common: They expire.
Futures are essentially agreements between two parties who agree to exchange cash for a specific amount of an underlying asset. Futures contracts exist on stocks, indices, currencies, commodities and more recently Bitcoin.
The term futures expiration refers to the dates when contracts expire – the time when a buyer and seller exchange cash.
In the days leading up to the expiration date, there is often an uptick in volumes as traders switch from expiring futures contracts to new contracts in order to maintain their futures positions.
Moreover, futures expirations can impact the price of an asset because long or short positions need to be filled via the underlying asset.
As a result, you might notice that the price of underlying assets – such as Bitcoin –experiences substantial volatility in the lead-up to key futures expiration days.
Traders who want to stay ahead of the curve know that staying abreast of forthcoming crypto futures expiration dates is essential.
Future Gap Fill
Future gaps are price jumps that often occur while stock markets are closed for the weekend. On futures price charts, these price jumps often look like gaps – hence the name.
And these gaps occur due to an imbalance between supply and demand. They are usually filled quickly as orders are filled.
Futures gaps also occur in the world of Bitcoin and can be witnessed quite regularly.
Quick-thinking traders can take advantage by keeping an eye out for potential futures gaps. After all, if you play your cards right, they can be an opportunity to make a trading profit if you place a trade to fill the gap.
And as the BTC/USD pair spot trades 24/7 while Bitcoin futures do not, you might be surprised at how many future gap-filling opportunities do occur.
This term refers to the phenomenon whereby an exchange closes out a trader’s derivatives position because the price of an asset has moved against the trader’s position to such an extent that the initial margin no longer covers the position.
If that happens, the trader will not able to meet the margin call. In cases like these, a trader can lose every bit of capital they put up for the margin trade.
As such, liquidations of large derivatives positions on Bitcoin, for example, can lead to price collapses or jumps.
According to research conducted by investment data provider CryptoQuant, this is exactly what happened in late September 2019, when Bitcoin prices dropped sharply. The drop, say experts, was caused in part by around USD 700 million worth of liquidations on the BitMEX exchange.
That is why it helps if you know who’s liquidating what and when. And if you notice trustworthy traders talking about recent or forthcoming liquidations, you’ll know it is time to get ready to take action.
This term refers to the number of long positions that have been put on versus the number of short positions placed. It is a metric that basically allows you to gauge market sentiment.
That means it can provide vital insight as to which way traders generally believe that the next price movement is going.
Of course, in trading, there is absolutely no guarantee that the majority opinion will be right.
But if you happen to believe in the “wisdom of the crowd,” you will certainly want to keep your eyes peeled for any significant long-short ratio movements.