American-style Option: An option contract that may be exercised at any time between the date of purchase and the expiration date.
Arbitrage: The purchase of an asset against the simultaneous sale of an asset to profit from the difference in prices. The two transactions may take place on different exchanges, for different delivery months, or between the spot and futures markets.
Ascending Triangle chart pattern: An ascending triangle is a chart pattern created by price movements where a horizontal line is plotted along the swing highs, and a rising trendline is drawn along the swing lows. These two lines form a triangle. Traders often watch for breakouts from triangle patterns which may occur to either the upside or the downside.
Ask: The price at which a seller will sell an asset or derivatives contract.
At-the-Money Option: An option with a strike price that is equal (or approximately equal) to the current market price of the underlying asset.
Averaging Down: Averaging down refers to a market participant buying more of an asset they already own after the price has declined. By doing this, the investor will reduce the average price at which they purchased the asset and realise a higher profit if the market value recovers above the new average price.
Aussie (or Ozzie): A term that refers to the AUD-USD foreign currency pair.
Average True Range: True range is the greatest of the following differences:
- Today's high to today's low,
- Today's high to yesterday's close, and
- Today's low to yesterday's close.
The range is normally equal to: high - low. However, any time the value of yesterday's close is not within the range of today's bar, rule 2) or rule 3) applies. The periodic value is then summed and averaged to create the Average True Range.
Backwardation: Backwardation is the term used to describe a particular condition in the futures market, where the futures price is lower than the spot price of the contract today.
Bar chart: A chart that displays the high, low, and settlement prices for a specific trading session over a certain period of time.
Basis: The difference between the current cash price and the futures price of the same asset. Unless otherwise specified, the price of the nearby futures contract month is generally used to calculate the basis.
Bear Market (bear/bearish): When prices are declining, the market is said to be a "bear market". Individuals who anticipate lower prices are "bears." A trader that anticipates falling prices is said to be "bearish."
Bid: A desire to buy an asset or contract at a given price (opposite of offer).
Blow Off Top: When traders in short positions give up and cover any remaining short positions. The upside equivalent of capitulation.
Bollinger Bands (BB): These are moving averages that are offset by a standard deviation. This means 95% of all price action will take place in between the top and bottom bands. Some traders look for assets trading outside the Bollinger Bands as that indicates an extreme situation. The idea here is that these assets are over-extended and are due to reverse.
Break: A swift downward move in price.
Bull Market (bull/bullish): When prices are rising, the market is said to be in a "bull market". Individuals who anticipate higher prices are considered "bulls". A trader that anticipates rising prices is said to be "bullish".
The Cable: A term that refers to the GBP-USD foreign currency pair.
Call Option: An option that gives the buyer the right, but not the obligation, to purchase the underlying at the strike price on or before the expiration date.
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.
Candlestick chart: A chart that indicates the trading range (high-low) 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.
Candle Body Ratio: A metric used to assess how strong trends are during a trading session. Candle Body Ratio is calculated as the absolute value of (high-low) divided by the difference between the open and the close. A Candle Body Ratio closer to 1 indicates strong trending behaviour. If the Candle Body Ratio is closer to 0, then this indicates choppy market conditions.
Carry Trade: A trading strategy that profits from the difference in the interest rates earned from being long a currency that pays a relatively high interest rate and short another currency that pays a lower interest rate.
Choppy: Short-lived price moves with limited follow-through, and describes market conditions that are not ideal for aggressive trading.
Contango: Contango (also known as forwardation) is a term used to describe a particular condition in the futures commodity market, where the futures price of a commodity is higher than the spot price of the contract today.
Crossing the Spread: Refers to a situation where a buyer crosses the spread and buys at Ask prices, or where a seller crosses the spread and sells at Bid prices. The number of trades that have crossed the spread is a short-term indicator of momentum in the order book. If we see many buyers/sellers crossing the spread, it provides an indication of willingness and urgency to buy/sell.
Cup and Handle: The cup and handle pattern is a trading strategy that is based on a familiar pattern in technical analysis which looks like a cup and handle.
Day traders: Traders who take positions in spot markets and futures/options markets, liquidating them prior to the close of the same trading day.
Dead Cat Bounce: The dead cat bounce refers to a temporary recovery that happens after a long decline which is usually followed by a downtrend.
Law of Demand: An increase in demand leads to an increased price, while a decrease in demand leads to a decreased price, assuming all other factors are held constant.
Derivatives: Derivatives are securities with prices that are dependent on, or derived from, one or more separate underlying assets. Derivatives can be relatively simple, such as futures or perpetual swaps, or can be more complex, such as options.
Descending Triangle chart pattern: A descending triangle is a bearish chart pattern created by drawing one trend line that connects a series of lower highs and a second horizontal trend line that connects a series of lows. Oftentimes, traders watch for a move below the lower support trend line because it suggests that the downward momentum is building and a breakdown is imminent. Once the breakdown occurs, traders enter into short positions and aggressively help push the price of the asset even lower.
Divergence: Divergence is a trading concept that forms when an asset's price diverges from a momentum oscillator which typically indicates a reversal.
Double Bottom/Top chart pattern: Double top and bottom patterns are chart patterns that occur when the underlying investment moves in a similar pattern to the letter "W" (double bottom) or "M" (double top). Double top and bottom analysis is used to explain movements in a security or other investment, and can be used as part of a trading strategy to exploit recurring patterns.
Dovish: Dovish refers to data or a policy view that suggests easier monetary policy or lower interest rates.
Elliot Wave Theory: Elliott Wave Theory is a method of technical analysis that looks for redcurrant long-term price patterns related to persistent changes in investor sentiment and psychology. The theory identifies waves identified as impulse waves that set up a pattern and corrective waves that oppose the larger trend. Each set of waves is itself nested within a larger set of waves that adhere to the same impulse/corrective pattern.
European-style Option: An option contract that may be exercised only during a specified period of time just prior to expiration.
Exchange: An exchange is an open, organised marketplace for commodities, stocks, securities, derivatives and other financial instruments. The terms exchange and market are often used interchangeably, as they both describe an environment in which listed products can be traded.
Expiration-day effects: The impact on returns, volume and volatiolity preceding and following expiration of a derivatives contract.
Fill Price: This is the price the trades are executing at with your broker. This becomes your average cost.
Fill or Kill: A customer order that is a price limit order that must be filled immediately or canceled.
Flag chart pattern: Flag patterns are chart formations that indicate a continuation in the trend for that time period, especially if there is volume on the breakout.
FOMC: FOMC stands for the Federal Open Market Committee, which is the branch of the Federal Reserve responsible for reviewing and overseeing open market operations in the US. Through intervening in open market operations (which is the buying or selling of government securities), the FOMC can indirectly change the federal funds rate.
Fractal: Outside of trading, a fractal is a recurring geometric pattern that is repeated on all time frames. From this concept, the fractal indicator was devised. The indicator isolates potential turning points on a price chart. It then draws arrows to indicate the existence of a pattern. The bullish fractal pattern signals the price could move higher. A bearish fractal signals the price could move lower. Bullish fractals are marked by a down arrow, and bearish fractals are marked by an up arrow.
Fundamental Analysis: The study of specific factors which influence the supply and demand of an asset, and, consequently, prices in the marketplace.
Futures contract: Futures contracts represent an agreement between two parties to trade an asset at a defined price on a specified date in the future. They are also often referred to simply as ‘futures’.
Gaps: Gaps occur on charts for trading instruments that are not traded 24/7, such as the CME bitcoin futures contract. Gaps in the bitcoin futures contract occur when a the contract opens higher or lower than it closed the previous trading session. The appearance of a gap indicates a possible price movement to 'fill the gap', as they are more often filled than not.
Good Till Cancelled: An order which remains inactive until it is cancelled, executed, or the contract expires.
Greenback: A term used for the US Dollar.
Hawkish: A country's monetary policymakers are referred to as hawkish when they believe that higher interest rates are needed, usually to combat inflation or restrain rapid economic growth or both.
Head and Shoulders chart pattern: The head and shoulder formation has three peaks where middle is highest and symbolizes the head while other peaks signify both right and left shoulders.
Heikin Ashi chart: The Heikin-Ashi technique shares some characteristics with standard candlestick charts but uses a modified formula of close-open-high-low (COHL). The close is the average OHLC of the current bar, the open is the mid-point of the previous bar, the high is the maximum out of the high, low and close while the low is the minimum out of the high, low, and close.
High Frequency Trading: High frequency trading (or HFT) is a form of advanced trading platform that processes a high number of trades very quickly using powerful computing technology. It can be used to either find the best price for a single large order, or to find opportunities for profit in the market in real time.
Hit The Bid: To sell at the current market bid.
Ichimoku Kinko Hyo: The Ichimoku Kinko Hyo, or Ichimoku for short, is a technical indicator that is used to gauge trends and momentum along with future areas of support/resistance. Translated from Japanese, it means equilibrium chart at a glance. The all-in-one technical indicator is comprised of five lines called the tenkan-sen, kijun-sen, senkou span A, senkou span B and chikou span.
Illiquid: Little volume being traded in the market; a lack of liquidity often creates choppy market conditions.
Immediate or Cancel Order: An order requiring that all or part of the order be executed immediately after it has been brought to the market. Any portions not executed immediately are automatically cancelled.
Initial Margin: The percentage of the purchase price of any security, that can be purchased on margin, that the investor must pay with his/her own cash or other marketable assets.
Insurance Fund: The Insurance Fund is a fund managed by cryptocurrency derivatives exchanges that prevents contract loss. If the final execution price is worse than its bankruptcy price in the event of liquidation, the Insurance Fund is used to cover the contract loss.
In-The-Money Option: A call option is in-the-money if its strike price is below the current price of the underlying asset. A put option is in-the-money if its strike price is above the current price of the underlying asset. Sometimes shortened to ITM option.
Kagi chart: Kagi charts consist of a series of vertical lines that reference an asset's price action, rather than anchoring to time like more common charts such as line, bar or candlestick do. Lines on a Kagi chart vary in thickness depending on what the price of the asset is doing. Sometimes the lines are thin, while at other times the lines will be thick and bolded. The varying thickness of the lines and their direction is the most important aspect of a Kagi chart because this is what traders use to generate transaction signals.
Leverage: Leverage is a concept that can enable you to multiply your exposure to a financial market without committing extra investment capital.
Limit Order: A customer sets a limit on price or time of execution of a trade, or both; for example, a buy limit order is placed below the market price. A sell limit order is placed above the market price. A sell limit is executed only at the limit price or higher (better), while the buy limit is executed at the limit price or lower (better).
Liquidity: A characteristic of a security or commodity market with enough units outstanding to allow large transactions without a substantial change in price. Institutional investors are inclined to seek out markets with high amounts of liquidity so their trading activity does not influence the market price.
Liquidate: Selling (or purchasing) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or making (or taking) delivery of the cash commodity represented by the futures contract.
Loonie: A term that refers to the USD-CAD foreign currency pair.
Long: A trader is long if they have bought derivative contracts or owns a commodity.
Maintenance Margin: Maintenance margin is the amount that must be available in funds in order to keep a margin trade open.
Market Capitalisation: Market capitalisation is the total market value of a company’s shares on the market. It is often abbreviated to market cap. Market capitalisation is an easy way for investors to determine a the size of a cryptocurrency/company, which can help to assess the risk of investing in its native asset/shares.
Market Maker: A market maker is an individual or institution that buys and sells large amounts of a particular asset in order to facilitate liquidity.
Market Order: An order to buy or sell futures of a given delivery month to be filled at the best possible price and as soon as possible. Time is of primary importance in the case of a market order.
Maximum Average Drawdown: Maximum observed loss from a peak in a given timeframe.
Momentum: A series of technical studies (e.g. RSI, MACD, Stochastics) that assesses the rate of change in prices.
Moving Average charts: statistical price analysis method of recognizing different price trends. A moving average is calculated by adding the prices for a predetermined number of days and then dividing by the number of days.
Moving Average Convergence Divergence (MACD): Moving Average Convergence Divergence (MACD) indicator is another oscillating indicator. This measures the distance between moving averages. If the moving averages are moving apart a stock is moving quickly, if they are coming close together, a stock has changed directions and is returning to balance. If they are close together, the stock isn’t moving in much of any direction.
On Balance Volume: On Balance Volume is a momentum indicator that helps to measure the buying and selling pressure in a trading pair with volume.
One Cancels the Other (OCO) order: A term for two orders whereby if one part of the two orders is executed, then the other is automatically cancelled.
Open Interest: Open interest is determined by counting the number of transactions on the market (either the total contracts bought or sold, but not both).
Option: A contract that conveys the right, but not the obligation, to buy or sell a particular item at a certain price for a limited time. Only the seller of the option is obligated to perform.
Option Buyer: The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Also known as the holder.
Option Premium: The price of an option the sum of money that the option buyer pays and the option seller receives for the rights granted by the option.
Option Seller: The person who sells an option in return for a premium and is obligated to perform when the holder exercises his right under the option contract. Also called the writer of the option.
Out-of-The-Money Option: An option with no intrinsic value, i.e., a call whose strike price is above the current futures price or a put whose strike price is below the current futures price. Sometimes shortened to OTM option.
Order Book: In trading, an order is a request sent to a trading platform to make a trade on a financial instrument. All of the resting limit orders sent to an exchange will appear in the order book.
OTC trading: OTC stands for over-the-counter, and refers to a trade that is not made on a formal exchange. It is also referred to as off-exchange trading.
Overbought: A term used to describe a market where prices have risen relatively quickly or too quickly to be justified by the underlying fundamental factors.
Oversold: A term used to describe a market in where prices have dropped faster than the underlying fundamental factors would suggest they should.
Parabolic: A market that moves a great distance in a very short period of time, frequently moving in an accelerating fashion that resembles one half of a parabola. Parabolic moves can be either up or down.
Pennant chart pattern: Pennants are chart formations that indicate a continuation in the trend for that time period, especially if there is volume on the breakout.
Perpetual Swaps: Perpetual swaps are a type of derivative contract, basically a futures contract with no expiry date. However, they are more convenient for traders than futures contracts. The price of the contract is kept in line with the underlying asset with a funding fee mechanism. If the perpetual price is higher than the spot price, longs will pay shorts a funding fee, encouraging traders to take on shorts to bring the prices in line with each other.
Point and Figure charts: A chart that plots price movements without taking into consideration the passage of time. Point and figure (PnF) charts are formed by columns with a series of stacked Xs or a series of stacked Os. A column of Xs is used to illustrate a rising price, while Os represent a falling price. PnF charts are used to filter out non-significant price movements, and enables traders to easily determine critical support/resistance levels.
Position Trader: A trading strategy where the trader either buys or sells a market product and holds the position for an extended period of time.
Price Discovery: The process of determination of market prices through the interactions of buyers and sellers in a free marketplace.
Pullback: The tendency of a trending market to retrace a portion of the gains before continuing in the same direction.
Put Option: An option that gives the option buyer the right but not the obligation to sell the underlying at the strike price on or before the expiration date.
Quantitative Easing: (or QE for short) is a monetary policy intended to lower benchmark interest rates and increase the money supply. The unconventional policy measure was introduced as a response to the 2008 Global Financial Crisis.
Rally: A swift upward movement in price.
Random Walk: Random walk theory is a financial model which assumes that the stock market moves in a completely unpredictable way. The hypothesis suggests that the future price of each stock is independent of its own historical movement and the price of other securities.
Reduce-only Order: Reduce-only orders are used to reduce your position size by dynamically reducing or adjusting the contract quantity of a limit order to match the contract size of the open position. This ensures that your position will not be unintentionally increased. By selecting the Reduce-only option with your limit orders, traders can ensure a limit order set to take profit will not be unintentionally executed as a new position with the opposite direction in the case that the current position has been already closed/stopped out/liquidated.
Relative Strength Index: Relative Strength Index (or RSI) is an oscillator that ranges between 0 and 100. A trading pair with an RSI between 0-30 has been oversold and is likely due for a bounce. A trading pair with an RSI between 70-100 is overbought and may be due for a reversal. However, it's important to note that markets may be suggested to be overbought/oversold for extended periods of time.
Relative Volume: Relative volume shows how much volume an asset has compared to the average volume for the same period.
Renko chart: A renko chart is a type of financial chart of Japanese origin used in technical analysis that measures and plots price changes. A renko chart consists of bricks that are of the same size to plot price movements to clearly show market trends and increase the signal-to-noise ratio compared to typical candlestick charts.
Resistance: A horizontal price range where price hovers due to selling pressure before attempting a downward move.
Retail investor: An individual investor who trades with money from personal wealth, rather than on behalf of an institution
Reversal: A reversal is a turnaround in the price movement of an asset: when an upward trend (or a rally) becomes a downward one (a correction), or vice versa. They can also often be referred to as trend reversals.
Risk Management: The use of financial analysis and trading techniques to reduce and control exposure to various types of risk. Risk can take on various forms, such as: market risk (the risks involved in taking a position, etc.) and contagion risk (how interconnected are certain markets? And what risks may arise as a result).
Scaling In/Scaling Out: To enter or to exit a position a trader may scale in or scale out. an example of this technique, when used to scale in, could be buying a partial position at $8,000 for BTC-PERP, and adding (or scaling) with another position at $8,100 for instance. Due to scaling in with equal sizes, the trader has an average entry price of $8,050.
Scalper: A trader who trades for short-term profits during the course of a trading session, rarely carrying a position overnight.
Sentiment Analysis: Market sentiment defines how investors feel about a particular market or financial instrument. Traders may use sentiment analysis to define a market as bullish or bearish, in combination with fundamental and technical analysis.
Sharpe Ratio: The Sharpe ratio measures the risk-adjusted performance of an investment compared to a risk-free asset. It is defined as the difference between the returns of the investment and the risk-free return, divided by the standard deviation of the investment.
Short: One who has sold futures contracts or plans to purchase a cash commodity. Selling futures contracts or initiating a cash forward contract sale without offsetting a particular market position.
Short Selling: Short selling is the act of selling an asset that you do not currently own, in the hope that it will decrease in value and you can close the trade for a profit. It is also known as shorting.
Short Squeeze: This is when an asset suddenly begins trending higher and traders who are holding short positions start buying to cover their position. As a result, an extreme buy/sell imbalance is created and leads to larger than usual intraday price fluctuations.
Slippage: Slippage refers to the situation where the price at which an order is executed does not match the price at which it was made.
Sortino Ratio: The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally.
Spot: Refers to the market price for a cryptocurrency (or the cash market price for a physical commodity that is available for immediate delivery).
Spread: The price difference between two related markets or commodities. Also known as the Bid-Ask Spread, it is used as a measure of liquidity in the market. E.g., a higher spread means lower liquidity and vice versa. Also, larger than usual Bid-Ask spreads tend to exacerbate price movements.
Standard Deviation: Standard deviation is a statistical measure that represents the rate of divergence from the mean in a data set and is used a lot in trading.
Stochastic: The Stochastic oscillator is a momentum indicator that helps to show the current location of a security closing price relative to its high/low range.
S/L: Short for stop loss. Refers to limit orders that look to sell below the level that was bought, or buy back above the level that was sold.
Stop Order: An order to buy or sell when the market reaches a specified point. A stop order to buy becomes a market order when the futures contract trades (or is bid) at or above the stop price. A stop order to sell becomes a market order when the futures contract trades (or is offered) at or below the stop price
Stop Limit Order: Variation of a stop order in which a trade must be executed at the exact price or better. If the order cannot be executed, it is held until the stated price or better is reached again.
Stop Loss Hunting: When a market seems to be reaching for a certain level that is believed to be heavy with stops. If stops are triggered, then the price will often jump through the level as a flood of stop-loss orders are triggered.
Stopped Out: When a stop order has been activated and the position has been offset, the trader is said to have been stopped out.
Straddle: The simultaneous sale or purchase of both a call and a put with the same expiration month and with the same strike price. If you believe that price will move significantly, but are not sure which way it is going to go then a straddle is a good strategy. In order to profit, the price must make a significant move.
Strangle: The simultaneous sale or purchase of both a call and a put with the same expiration month and different strike prices. This strategy is profitable only if there is a large move in either direction. A strangle is usually less expensive than a straddle because the option are out of the money.
Strike Price: The stated price per share for which underlying stock may be purchased (for a call) or sold (for a put) by the option holder upon exercise of the option contract. Also called the exercise price.
Law of Supply: An increase in supply causes a decreased price, while a decrease in supply causes an increased price, holding all other factors constant.
Support: A horizontal price range where price hovers due to buying pressure before attempting an upward move.
Swing trader: Swing trading is a strategy in financial markets where a tradable asset is held for between one and several days in an effort to profit from price changes or 'swings'. Swing trading positions are usually held longer than day trading positions, but shorter than buy and hold investment strategies that have a multi-months or multi-year time horizon.
Swissy: The nickname for the U.S. Dollar/Swiss Franc currency pair.
T/P: Short for take profit. Refers to limit orders that look to sell above the level that was bought, or buy back below the level that was sold.
Technical Analysis: The use of charts to examine changes in price patterns, volume of trading, open interest, and rates of change to predict and profit from trends. Someone who follows technical rules (called a technician) believes that prices will anticipate changes in fundamentals
Thin Market: A thin market means not many traders actively trade a particular asset or there are not many active market makers. Thinly traded assets can have larger spreads which can make it more difficult to trade.
Tick: The smallest allowable increment of price movement for a contract. Also referred to as minimum price fluctuation.
Trading Plan: A trading plan is a strategy set by the individual trader in order to systemise evaluation of assets, risk management, types of trading, and objective setting. Most trading plans will comprise two parts: long-term trading objectives, and the route to achieving them.
Trading Range: The range of prices traded between the high and low for a specific timeframe (day, week, month, contract life, and so on).
Trailing Stop: A trailing stop is a type of stop loss order that automatically follows positive market movements of an asset you are trading. If your position moves favourably but then reverses, a trailing stop can lock in your profits and close the position.
Trend: A significant price movement one direction or another. Trends either go up or down. If the market is moving sideways, it is said to be ranging.
Volatility: Volatility measure for the change in price over a given time period. It is often expressed as a percentage and computed as the annualized standard deviation of percentage change in daily price.
Volume: The number of contracts traded for an entire market during a given period of time. For instance, if a buyer of a perptual contract purchases 1,000 contracts from a seller, then the volume for that period increases by 1,000 contracts based on that transaction.
Volume Profile: The volume profile refers to an advanced charting study used to show trading activity where volume is displayed at prices instead of over a certain time.
VIX: VIX is short for the Chicago Board Options Exchange Volatility Index, which is a measure used to track volatility on the S&P 500 index. The VIX is the most well-known volatility index on the markets.
VWAP: VWAP is the abbreviation for volume-weighted average price, which is a technical analysis tool that shows the ratio of an asset's price to its total trade volume. It provides traders and investors with a measure of the average price at which a stock is traded over a given period of time.
Wedge chart pattern: A chart formation that shows a narrowing price range over time, where price highs in an ascending wedge decrease incrementally, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout and descending wedges are typically followed by upside breakouts.
Whipsaw: Refers to a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.