Learn · glossary
Crypto derivatives glossary
44 terms you meet on liquidation maps, funding tables and in trading tests - each in two or three sentences, with a link to the live data or the test where it matters.
How the main terms connect
A
- Altcoin season
- A period when most large altcoins outperform bitcoin. Usually measured as the share of the top 50 altcoins that beat bitcoin over 90 days; 75% or more is called altcoin season. Live index and our test of whether it predicts the next month: altcoin season index.
- Ask (offer)
- The lowest price at which someone is currently willing to sell. A market buy order fills against asks. See also bid and spread.
- Auto-deleveraging (ADL)
- A last-resort mechanism on futures exchanges: when a liquidated position cannot be closed at a price the insurance fund can cover, the exchange closes part of the most profitable opposite positions. Traders with high profit and high leverage are first in the queue.
B
- Backtest
- Running a trading rule on past data to see how it would have done. A backtest is only evidence if the rules were fixed before seeing the results, it is compared with chance, and it holds on data not used to design it. Our checklist: how a strategy gets a verdict.
- Basis
- The difference between a futures price and the spot price of the same asset. On perpetual futures the funding rate is what keeps the basis small.
- Bid
- The highest price at which someone is currently willing to buy. A market sell order fills against bids. See also ask.
C
- Cross margin
- A margin mode where all positions share the account balance. A losing position can draw on the whole balance before it is liquidated, so one bad trade can take more than its own margin. Compare isolated margin.
D
- Drawdown
- The fall from a peak in account value to the following low, in percent. The maximum drawdown is the worst such fall over a period - a measure of how painful a strategy was to hold.
E
- Edge
- A repeatable advantage: a rule that makes more than chance would, after costs, on data it was not designed on. Most popular trading ideas we tested had none: research.
F
- Funding fee
- The amount a position actually pays or receives at each funding time: position size times the funding rate. Only positions open at the funding time pay or receive it.
- Funding rate
- A periodic payment between longs and shorts on perpetual futures that keeps the contract price close to spot. When the rate is positive, longs pay shorts; when negative, shorts pay longs. It is charged every 1 to 8 hours depending on the exchange and contract. Live rates: funding rates; cost of holding: funding calculator.
- Funding rate arbitrage
- Holding opposite positions in the same coin on two exchanges - short where funding is higher, long where it is lower - to collect the rate difference while price moves cancel out. Risks: rates change, prices drift apart, one leg can be liquidated. Live spreads: funding rate arbitrage scanner.
- Futures contract
- An agreement to buy or sell an asset at a set price on a later date. Crypto exchanges mostly trade perpetual futures, which have no expiry date.
I
- Initial margin
- The money you put up to open a leveraged position: position size divided by leverage. $1,000 at 10x controls a $10,000 position. See crypto leverage trading.
- Isolated margin
- A margin mode where each position has its own margin. If it is liquidated, only that margin is lost. Compare cross margin.
L
- Leverage
- Trading a position larger than your margin. At 10x, a 1% move in price is a 10% move in your margin, and a move of roughly 1 divided by the leverage against you ends the position. How often that happened on real data: how fast would you get liquidated?
- Liquidation
- The forced closing of a leveraged position when losses have used up the margin down to the maintenance requirement. A long is closed with a market sell, a short with a market buy. Live feed: crypto liquidations.
- Liquidation cluster
- A price area where many positions would be liquidated at once, shown as a bright band on a liquidation heatmap. Whether price is "pulled" to clusters is the claim we test: liquidation heatmap test.
- Liquidation heatmap
- A chart that estimates how much leveraged position value would be liquidated at each price level over time. Exchanges do not publish these levels, so every heatmap is a model. Ours, with the model published: bitcoin liquidation heatmap; how to read one: guide.
- Liquidation map
- Usually the same estimate as a liquidation heatmap, but for the current moment only: estimated liquidation volume by price level above and below price. See the key levels on the liquidation heatmap page.
- Liquidation price
- The price at which a leveraged position is liquidated. For an isolated long, roughly entry x (1 - 1/leverage + maintenance margin); for a short, entry x (1 + 1/leverage - maintenance margin). Calculate yours: liquidation price calculator.
- Liquidity
- How easily an asset can be bought or sold without moving its price. In trading it is measured by the resting orders in the order book near the current price: the more size within a small distance, the more liquid the market. Live depth: liquidity heatmap.
- Liquidity heatmap
- A chart of real resting limit orders in the order book over time, by price level. Unlike a liquidation heatmap it is not a model. Ours: bitcoin liquidity heatmap. Some sites use the name for liquidation maps too.
- Liquidity sweep
- A quick move beyond a level where many stop orders or liquidations sit, which triggers them, followed by a reversal. Traders call it a "stop hunt". The idea assumes price is drawn to such levels; our test of that for liquidation clusters is still undecided: liquidation heatmap test.
- Long
- A position that gains when price rises. On futures, a long position is opened by buying the contract.
- Long squeeze
- A fast drop in which falling price liquidates leveraged longs, whose forced sells push price lower and liquidate more longs. The mirror of a short squeeze.
M
- Maintenance margin
- The minimum margin a position must keep, as a share of its size. When losses push the margin below it, the position is liquidated. For bitcoin perpetuals on large exchanges it starts around 0.4% for small positions and rises in tiers for larger ones.
- Maker and taker
- A maker adds an order to the book (a limit order that waits); a taker removes one (a market order or a limit order that fills at once). Exchanges usually charge takers more. Taker buy and sell volume shows who was in a hurry.
- Mark price
- The price an exchange uses for unrealized profit and loss and for liquidations. It is based on spot prices from several exchanges, so a brief spike on one futures market does not by itself liquidate positions.
O
- Open interest
- The number (or dollar value) of futures or options contracts that are open and not yet closed. It rises when new positions are opened and falls when they are closed. Not the same as volume: what is open interest?; live data: crypto open interest.
- Order book
- The list of resting buy (bid) and sell (ask) limit orders at each price. Its depth near the current price is the market's liquidity.
- Out of sample
- Data that was not used to design or tune a trading rule. A result that holds only in sample is usually a fit to noise, which is why each of our tests checks a second period separately.
P
- p-value
- The chance of getting a result at least this good if there were no real effect. A p-value of 0.125 means chance alone produces such a result about one time in eight - not rare enough to call an edge.
- Perpetual futures (perps)
- Futures contracts with no expiry date, the main crypto derivative. They track spot through the funding rate and can be traded with leverage.
- Pre-registration
- Writing down the rules, data and pass criterion of a test before loading the data, so the result cannot be bent to fit. Every test on this site is pre-registered: method.
- Pump and dump
- A sharp price spike, often in a small coin, followed by a fall. Organized pump-and-dump schemes are market manipulation and illegal in many countries. Live spikes and what happened next: pump and dump scanner; do pumps always dump? our test.
R
- Rainbow chart
- A bitcoin chart with colored bands around a logarithmic regression line, read as "buy in blue, sell in red". It is fitted on the whole history, so it looks right in hindsight: live rainbow chart and the test without hindsight.
S
- Average return divided by the variability of returns, usually annualized. It compares how much return a strategy gave per unit of risk taken.
- Short
- A position that gains when price falls. On futures, a short position is opened by selling the contract, without owning the coin.
- Short squeeze
- A fast rise in which climbing price liquidates leveraged shorts, whose forced buys push price higher and liquidate more shorts. In our test of shorting high funding, 21 of 8,560 shorts lost more than the whole position within a day: extreme funding test.
- Slippage
- The difference between the price you expected and the price you got. It grows with order size and with thin liquidity, and is part of the real cost of every trade.
- Spread
- The gap between the best ask and the best bid. Buying and immediately selling costs at least the spread.
U
- Uptober
- The belief that bitcoin tends to rise in October. October has often been green, but with 13 years of data it is not distinguishable from chance: is Uptober real?, monthly returns.
W
- Win rate
- The share of trades that made money. On its own it says little: a strategy can win most trades and lose overall if the losses are larger. Examples from our tests.
Missing a term? The guides go deeper: liquidation heatmaps, open interest, leverage. All tests: crypto trading strategies, tested.