A
Administrative fees
Charges incurred for administrative services provided by a financial institution, typically applied to managed trading accounts for services like account maintenance and reporting.
Alpha and beta
Alpha is a measure of an investment's performance relative to a benchmark, reflecting the excess return achieved by the investment manager through skill or strategy. By contrast, beta represents the sensitivity of an asset's returns to movements in the overall market. A beta greater than 1 indicates higher volatility compared to the market, while less than 1 signifies lower volatility.
Anti-money laundering (AML)
Anti-money laundering (AML) refers to regulations and procedures designed to prevent the process of illegally concealing the origins of money obtained through criminal activities. In the context of digital asset trading, adherence to AML guidelines and Know Your Customer (KYC) policies is essential for maintaining legal compliance and safeguarding investments from illicit financial activities.
Artificial intelligence
AI entails computer systems simulating human intelligence. It is important in trading for analyzing vast datasets, making informed predictions (such as using historical data to forecast price movements), and executing trades automatically.
Asset(s) / Digital asset(s)
An asset typically refers to any resource with economic value that an individual, company, or entity owns or controls and that can be used to generate future benefits. In the context of digital asset trading, digital assets are assets that exist in electronic form and are stored digitally, such as cryptocurrencies, digital tokens, or digital representations of real-world assets like art or property. These assets rely on blockchain or similar technology for security and verification.
Assets under management (AUM)
The total market value of assets managed by an investment firm or financial institution on behalf of an investor.
Average loser
The average amount of loss incurred on losing trades. It is calculated by summing the losses of all losing trades and dividing by the number of losing trades.
Average winner
The average amount of profit made on winning trades. It is calculated by summing the profits of all winning trades and dividing by the number of winning trades.
B
Bear markets
Bear markets are periods in the financial markets characterized by declining prices across various asset classes. They are typically accompanied by pessimism and a general expectation of further losses.
Bell curve
Also known as ‘normal distribution,’ a bell curve represents a symmetrical spread of data around the mean. For traders, plotting the distribution of returns on a graph can reveal the likelihood of profit or loss within a trading strategy.
Benchmarks
Standard reference points that provide a baseline for comparison when evaluating the performance of investments, portfolios, or strategies.
Bitcoin
Bitcoin is a decentralized digital currency that was introduced in 2009 and pioneered peer-to-peer transactions without the need for intermediaries like banks. As the first cryptocurrency to enter the market, Bitcoin revolutionized the concept of digital value exchange and sparked the growth of the digital asset market. In doing so, it also prompted increased scrutiny and attempts at regulation from governments and regulatory bodies worldwide.
Blockchain
A blockchain is an open, decentralized digital ledger that records transactions across a network of computers in a secure and transparent manner. Each transaction, or ‘block,’ is linked to the previous one to form a chronological chain of blocks. This gives rise to the name ‘blockchain.’ This technology enables secure and immutable record-keeping, with applications ranging from cryptocurrencies like Bitcoin to supply chain management and voting systems.
Bull markets
Bull markets are periods of sustained optimism and rising prices in the financial markets. They are marked by investor confidence, economic growth, and expectations of continued upward momentum.
C
CBDCs (central bank digital currencies)
Central bank digital currencies (CBDCs) are digital forms of national currencies issued by central banks. They enable electronic payments and transactions while maintaining the backing and stability of traditional fiat currencies.
Centralized exchanges (CEXs)
Centralized exchanges are platforms where users can buy, sell, and trade cryptocurrencies and other digital assets, with transactions facilitated by a central authority or intermediary.
(Measures of) central tendency
Measures of central tendency are statistical measures that allow us to identify the ‘center’ or ‘average’ of a dataset. Common measures include the mean (average), median (middle value), and mode (most frequent value). These metrics help us to summarize and understand data by identifying its central point, providing insights into its typical or representative value.
Coincident indicators
Coincident indicators are economic indicators that move in tandem with the overall economy's business cycle, offering real-time insights into current economic conditions.
Compliance
Compliance describes adherence to laws, regulations, and standards set by regulatory bodies and governing authorities to ensure ethical and legal conduct within financial markets.
Consensus mechanisms
Consensus mechanisms are protocols used in blockchain networks to achieve agreement among participants on the validity of transactions and the state of the ledger. This ensures the integrity and security of the network without the need for a central authority.
Correlation coefficient
A statistical measure indicating the degree of relationship between two variables or sets of data. In a trading context, the data sets are financial instruments such as stocks. If two financial instruments have positive correlation, it means they tend to move up and down together.
Crowdfunding
Crowdfunding is a method of raising capital for projects or ventures by collecting small contributions from a large number of individuals, often via online platforms. It enables supporters to invest in or donate to projects they believe in.
Cryptocurrency
A cryptocurrency is a type of digital or virtual currency that uses cryptography for security and operates on decentralized networks based on blockchain technology. Unlike traditional currencies, cryptocurrencies are typically not issued by a central authority such as a government or central bank. Instead, they rely on an open, distributed ledger to record transactions. They can be used for various purposes, including online purchases, investments, and as a medium of exchange.
D
DAOs (decentralized autonomous organizations)
Decentralized autonomous organizations (DAOs) are organizations run by code and smart contracts on a blockchain. They allow for decentralized decision-making and governance without the need for centralized management.
Decentralized exchanges
Decentralized exchanges are platforms that enable peer-to-peer trading of cryptocurrencies and digital assets directly between users. They remove the need for intermediaries or central authorities, thereby enhancing privacy and security.
Decentralized Finance (DeFi)
Decentralized Finance (DeFi) refers to a variety of financial services and applications that are built on blockchain technologies. The goal of DeFi is to create open, permissionless, and transparent financial systems that enable activities such as lending, borrowing, trading, and investing without traditional intermediaries like banks.
Derivatives
Derivatives are financial contracts whose value derives from the performance of an underlying asset, index, or rate, often used for risk management or speculation.
Dividends
Dividends are the portions of a company's earnings that are distributed to its shareholders. They are typically paid out on a regular schedule, usually quarterly, as a reward for owning the company's stock.
Dodd-Frank Act
Dodd-Frank Act: U.S. legislation enacted in response to the 2008 financial crisis, aimed at regulating the financial industry and reducing systemic risk.
Drawdowns
Drawdowns represent the peak-to-trough decline in the value of a portfolio or investment during a specific period, measuring the extent of loss experienced before a recovery.
E
Environmental, social, and governance (ESG) factors are criteria used to assess the sustainability and ethical impact of an investment. They consider things like a company's environmental impact, social responsibility, and corporate governance practices.
Entry and exit fees
Charges incurred when entering or exiting an investment, often applied to managed trading accounts or investment funds.
Exchange-traded fund (ETF)
Exchange-traded funds (ETFs) are investment funds traded on stock exchanges in a similar way to stocks. They hold assets like stocks, commodities, or bonds and typically aim to replicate the performance of a specific index.
Ethereum
Ethereum is a decentralized blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (DApps) by utilizing its native cryptocurrency, Ether (ETH).
Expectancy
Also known as ‘expected value,’ this is the average amount one can expect to gain or lose per trade over the long term. It is calculated by multiplying the win ratio by the average winner, then subtracting the product of the loss ratio (1 - win ratio) and the average loser.
F
Fear gauge (VIX)
The VIX (Volatility Index), more commonly referred to as the ‘fear gauge,’ is a measure of market volatility derived from the prices of options contracts on the S&P 500 index. It is often used as an indicator of investor sentiment and market uncertainty.
Financial Conduct Authority (FCA), United Kingdom
The Financial Conduct Authority (FCA) is the regulatory body in the United Kingdom that is responsible for overseeing and regulating financial firms and markets to ensure their integrity and protect consumers.
Forex
Forex, or foreign exchange, refers to the global market on which currencies are traded. It enables individuals, businesses, and institutions to buy, sell, and speculate on the value of different currencies relative to one another.
Futures
Derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price.
G
Gross domestic product (GDP)
Gross domestic product (GDP) is the total monetary value of all goods and services produced within a country's borders within a specific time period, often used as a key indicator of a nation's economic health and performance.
H
Hedging
Hedging is a risk management strategy used to offset potential losses in one asset by taking an opposite position in another asset. Its aim is to protect against adverse price movements.
Hash rate
Hash rate refers to the speed at which a computer or network can perform the cryptographic calculations required to mine cryptocurrency blocks or validate transactions on a blockchain. The hash rate is a measure of the computing power dedicated to a blockchain network and is often expressed in hashes per second (H/s), kilohashes per second (kH/s), megahashes per second (MH/s), gigahashes per second (GH/s), or terahashes per second (TH/s), depending on the scale of the network's operations. A higher hash rate indicates greater computational power and network security.
Herd behavior
Herd behavior refers to the tendency of individuals to follow the actions of the crowd or group rather than making independent decisions. It often leads to exaggerated market movements and the formation of bubbles or panics.
High frequency trading (HFT)
HFT involves the execution of a large number of trades at extremely high speeds, often leveraging powerful computers and algorithms. In real-life trading, HFT firms capitalize on minimal price discrepancies across markets or exchanges, exploiting fleeting opportunities for profit within microseconds.
Historical volatility
Historical volatility measures the past price movements of a financial asset over a specified period, providing insights into the asset's past performance and the level of risk associated with it.
I
ICOs (initial coin offerings)
Initial coin offerings (ICOs) are fundraising events in which new cryptocurrencies or tokens are sold to investors in exchange for established cryptocurrencies or fiat currencies. ICOs enable blockchain projects to raise capital for development, but come with risks such as regulatory uncertainty and potential for scams.
Implied volatility
Implied volatility is a measure of expected future volatility derived from the prices of options contracts. It indicates the market's expectations for potential price fluctuations in the underlying asset.
Index funds
Index funds are investment funds that aim to replicate the performance of a specific market index, such as the S&P 500, by holding the same proportion of assets as the index they track. They offer broad market exposure with lower fees compared to actively managed funds.
IPO
An initial public offering (IPO) is the process by which a private company offers its shares to the public for the first time, allowing it to raise capital by selling ownership stakes to investors on a stock exchange.
K
Know Your Customer (KYC) policies
Know Your Customer (KYC) policies are procedures and regulations implemented by financial institutions and other businesses to verify and authenticate the identity of their customers. KYC measures typically involve collecting personal information - such as identification documents and proof of address - to prevent fraud, money laundering, and terrorist financing activities. This ensures compliance with legal and regulatory requirements.
L
Lagging indicators
Lagging indicators are economic or financial metrics that change after the economy or market has already begun to follow a particular trend. They provide confirmation of past trends but offer limited predictive value for future movements.
Layer 2
Layer 2 refers to any scalability solution built on top of an existing blockchain network. Layer 2 solutions aim to improve transaction throughput and reduce fees by processing transactions off-chain or in a more efficient manner.
Leading indicators
Leading indicators are economic or financial metrics that change before the economy or market follows a particular trend, offering insights into future trends or shifts in economic activity.
Ledger
In the context of digital assets, a ledger refers to a decentralized, tamper-proof record of transactions maintained across a network of computers. It is typically mentioned in association with blockchain technology.
Leverage
Leverage refers to the use of borrowed funds to amplify potential returns from an investment. However, it also magnifies the potential losses, thus increasing both risk and potential reward.
Limit orders
Limit orders are instructions placed by traders to buy or sell assets at a specified price or better. These orders are executed only if the market price reaches the specified level, allowing traders to set precise entry and exit points for their trades.
Liquidity
Liquidity refers to the ease with which an asset can be bought or sold in the market without significantly affecting its price, often characterized by high trading volume and tight bid-ask spreads.
Liquidity mining
Liquidity mining is a mechanism used in decentralized finance (DeFi) protocols to incentivize users to provide liquidity to trading pools or lending platforms by rewarding them with tokens. Users contribute their assets to these platforms to facilitate trades or loans and help maintain liquidity in the ecosystem. The tokens are given in return.
Longer-term position trading
Longer-term position trading involves holding investment positions for an extended period, typically months to years, based on analysis of fundamental and technical factors rather than short-term market fluctuations.
Loss aversion
Loss aversion is a psychological bias whereby individuals feel the pain of losses more acutely than the pleasure of equivalent gains, often leading to risk-averse behavior and suboptimal decision-making.
M
Machine learning (ML)
ML is a subset of AI that enables computer systems to learn from data and improve their performance without being explicitly programmed. In trading, ML algorithms can be used to adapt to changing market conditions, refine trading strategies, and identify profitable opportunities. One way in which ML models do this is by analyzing historical market data to identify patterns and trends, helping traders make more informed decisions.
Managed trading
Managed trading refers to a type of service whereby professional traders or investment firms manage the trading activities of clients' accounts on their behalf, typically for a fee or a share of profits. This approach allows investors to leverage the expertise and experience of professional traders while diversifying their investment portfolios as desired and mitigating the need for active involvement in trading decisions.
Management fees
Fees charged by investment managers or advisors for managing investment portfolios.
Market orders
Market orders are instructions given by traders to buy or sell assets at the current market price. Unlike limit orders, which specify a desired price for execution, market orders are executed immediately at the best available price in the market. They ensure swift execution, but may result in trades being executed at prices slightly different from the current market quote. This is particularly the case in volatile markets.
Means
Means represent the average value of a dataset, calculated by summing all values and dividing by the total number of observations. The different types of mean are arithmetic, weighted, geometric and harmonic, though the arithmetic mean is mostly commonly used. In trading, means and medians are used to analyze performance metrics such as returns or drawdowns.
Medians
Medians represent the middle value of a dataset when arranged in ascending order. Several forms of median may be used, including simple, weighted, running, and trimmed. In trading, means and medians are used to analyze performance metrics such as returns or drawdowns.
MiCAR (Markets in Crypto-Assets Regulation)
MiCAR (Markets in Crypto-Assets Regulation) is a regulatory framework established to govern the trading, issuance, and custody of crypto-assets within the European Union (EU). MiCAR aims to ensure investor protection, market integrity, and financial stability in the rapidly evolving cryptocurrency market landscape, promoting transparency and innovation while mitigating risks associated with digital asset transactions..
MiFID II
MiFID II, or the Markets in Financial Instruments Directive II, is a European Union regulation aimed at improving transparency, investor protection, and market integrity in financial markets.
MicrotransactionI
A microtransaction is a financial transaction involving a very small amount of money, often fractions of a cent or a cryptocurrency. It enables the exchange of goods or services on a small scale, such as in online gaming or digital content purchases.
N
NFTs (non-fungible tokens)
Non-fungible tokens (NFTs) are unique digital assets that are stored on a blockchain and represent ownership or proof of authenticity of digital or physical items, such as art, music, videos, or collectibles.. Each NFT has distinct characteristics and cannot be replicated, making them valuable for creators and collectors in digital markets.
O
Outliers
Outliers are data points that significantly differ from the rest of the dataset. In trading, outliers can represent extreme market events or anomalies that impact performance metrics. For example, a sudden spike or drop in asset prices may result in outliers in a trader's profit or loss distribution, influencing risk assessment and strategy evaluation.
Overconfidence in trading
A behavioral bias whereby traders overestimate their abilities and underestimate risks, leading to poor decision-making and investment losses.
P
Personal trading
Personal trading involves individuals buying and selling financial assets for their own investment goals based on their own research and analysis. It differs from managed trading in that it is carried out independently of a financial institution. It reflects the personal trader’s individual risk tolerance and investment strategies.
Performance fees
Fees charged by investment managers or advisors based on the performance of an investment portfolio, typically calculated as a percentage of profits.
Pips
The ‘pip,’ or ‘percentage in point,’ is the smallest unit of price movement in the foreign exchange market. It typically represents the fourth decimal place in currency pairs and is used to measure changes in exchange rates.
Position sizing
Position sizing is an important facet of risk management whereby traders strategically allocate a certain percentage of their portfolio to particular trades. They aim to optimize returns while minimizing potential losses, enhancing overall portfolio stability and longevity.
Pre-IPO access
Pre-IPO access refers to the opportunity for select investors to purchase shares of a company before the initial public offering (IPO). It is typically offered to institutional investors or high-net-worth individuals.
Pump-and-dump
Pump-and-dump refers to a type of scheme whereby the price of an asset is artificially inflated (pumped) through misleading information or hype. This is followed by a coordinated sell-off (dump) to profit at the expense of unsuspecting investors.
Q
Quick scalping
Quick scalping is a trading strategy that involves making numerous small trades to profit from small price movements in a short period. It relies on high-speed trading platforms and rapid execution.
R
Range
Range refers to the difference between the highest and lowest values in a dataset. In trading, range can represent the variability of returns or price movements over a specific period. Calculating the range of daily price movements for a stock can help traders assess volatility and set appropriate risk management measures.
Regulatory technology (RegTech)
Regulatory technology (RegTech) refers to technology solutions designed to help financial institutions comply with regulatory requirements more efficiently and effectively, often utilizing automation, data analytics, and artificial intelligence.
Return on investment (ROI)
Return on investment (ROI) is a measure used to evaluate the profitability of an investment relative to its cost, calculated by dividing the net profit generated by the investment by its initial cost.
Risk-to-reward ratio
The risk-to-reward ratio is a measure used by traders to assess the potential return of an investment relative to its risk. It is calculated by dividing the expected profit of a trade by the potential loss.
S
Security tokens
Security tokens are digital tokens representing ownership of assets such as real estate or company shares. These tokens often adhere to securities regulations, providing investors with certain rights and protections.
Securities and Exchange Commission (SEC), United States
The Securities and Exchange Commission (SEC) in the United States is the regulatory agency responsible for overseeing and regulating the securities industry, protecting investors, and maintaining fair and orderly markets.
Settlement
Settlement is the process of transferring ownership of securities from a seller to a buyer and exchanging payment for the securities. It typically occurs a few days after a trade is executed.
Sharpe ratio
The Sharpe ratio is a measure of risk-adjusted return that calculates the excess return of an investment per unit of risk, with risk typically measured as the standard deviation of returns.
Sortino
The Sortino ratio is a risk-adjusted performance measure that evaluates the return of an investment relative to the downside risk, focusing only on the negative deviation from the target or expected return. In real-life trading, a high Sortino ratio indicates that the investment generates higher returns relative to its downside risk, making it an attractive option for risk-averse investors.
Spread
Spread is the difference between the bid and ask prices of a financial instrument. As such, it represents the cost of executing a trade and the profit margin for market makers.
Stablecoins
Stablecoins are cryptocurrencies designed to maintain a stable value by pegging their price to an underlying asset like fiat currency or commodities. In this way, they provide a reliable means of transferring value and hedging against volatility in the cryptocurrency market.
Standard deviation
Standard deviation is a statistical measure of the dispersion of returns or prices around the mean or average, providing insight into the volatility or riskiness of an investment.
Stocks
Stocks represent ownership in a corporation, entitling shareholders to a portion of the company's assets and earnings. They are typically traded on stock exchanges.
Stop-loss orders
Stop-loss orders are instructions issued by traders to automatically sell an asset if its price falls to a specified level. They help to limit potential losses and manage risk in volatile markets.
Systematic risks
Systematic risks are risks that are inherent to an entire market or economy and affect all investments to some degree. Examples of systematic risks include interest rate changes, political instability, or economic downturns.
T
Tokens
Tokens are digital assets representing ownership, utility, or access rights within a blockchain-based ecosystem. They are often used in crowdfunding, decentralized finance (DeFi), and other applications.
Tokenized
‘Tokenization’ refers to the process of converting assets, such as NFTs, into digital tokens using blockchain technology (‘tokenizing’), ensuring each unit's uniqueness and preventing replication or division. These tokens serve as proof of ownership and authenticity within the digital space.
Trading
Trading involves buying and selling financial assets such as stocks, bonds, or cryptocurrencies with the aim of generating profits through speculation, analysis, and market timing.
Trading futures
Trading futures refers to the act of choosing to buy or sell a futures contract: a standardized agreement to buy or sell an asset at a predetermined price on a specified future date. Trading futures provides investors with exposure to the price movements of the underlying asset without owning it outright.
Trading plan
A trading plan is a comprehensive set of rules and guidelines that outline an investor's approach to trading, including criteria for entering and exiting trades, risk management strategies, and performance evaluation criteria.
Trailing stops
Trailing stops are dynamic stop-loss orders adjusting with asset price movements, protecting profits while allowing trades to capitalize on favorable market conditions. As a stock price rises, a trailing stop order adjusts upward, then secures the gains if the price suddenly reverses.
U
Unsystematic risks
Unsystematic risks are risks specific to an individual investment or company, such as management changes, supply chain disruptions, or product recalls.
V
Variance
Variance is a statistical measure of the dispersion of returns around the mean or average, representing the average squared deviation from the mean. It is often used to quantify the volatility or risk of an investment.
Volatility scalping
Scalping is a trading strategy that involves making numerous small trades with the aim of profiting from small price movements. It is often executed within a time frame of seconds or minutes.
W
Wash trading
Wash trading refers to the practice of artificially inflating trading volumes by repeatedly buying and selling the same asset to create the illusion of activity. It is often used to manipulate market perceptions or attract investors.
Whales
Whales are individuals or entities holding large amounts of cryptocurrencies or other assets. Due to their significant holdings, they are capable of influencing market prices through their buying or selling activity.
Win/loss ratio
A ratio that compares the number of winning trades to losing trades. It is calculated by dividing the total number of winning trades by the total number of losing trades.
Y
Yield farming
Yield farming is a practice in decentralized finance (DeFi) whereby users leverage a range of protocols and strategies to maximize their returns by providing liquidity, staking assets, or participating in other yield-generating activities within blockchain networks.
