Cryptocurrency Trading & Investment Flashcards

What is the primary purpose of using a stop-loss order in cryptocurrency trading?

Answer: To limit potential losses by closing a position at a set price

A stop-loss order automatically closes a position when the price reaches a specified level, capping the trader's downside risk.

Which metric measures the percentage gain required to recover from a drawdown?

Answer: Return on drawdown (RoD)

Return on drawdown (RoD) expresses the gain needed to recover from a peak-to-trough loss, highlighting how severe drawdowns compound recovery difficulty.

In technical analysis, what does a 'death cross' signal?

Answer: The 50-day MA crosses below the 200-day MA

A death cross occurs when the short-term 50-day moving average crosses below the long-term 200-day moving average, signaling bearish momentum.

What does 'slippage' refer to in cryptocurrency trading?

Answer: The difference between expected and actual execution price

Slippage is the difference between the anticipated trade price and the price at which the trade is actually executed, often caused by low liquidity or rapid price movement.

Which order type guarantees execution but not price in crypto markets?

Answer: Market order

A market order executes immediately at the best available price, guaranteeing execution but exposing the trader to slippage.

What is 'dollar-cost averaging' (DCA) in the context of crypto investment?

Answer: Investing a fixed dollar amount at regular intervals regardless of price

DCA involves investing a fixed amount at regular intervals, reducing the impact of volatility by accumulating more units when prices are low and fewer when prices are high.

When a trader uses 10x leverage on a $1,000 position, what is the liquidation risk?

Answer: Position is liquidated if price moves 10% against the trader

With 10x leverage, a 10% adverse price move wipes out the entire margin, triggering automatic liquidation by the exchange.