Crypto Trading and Markets Flashcards
7 cards from real Cryptocurrency practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Crypto Trading and Markets flashcards as text
What is 'impermanent loss' in the context of DeFi liquidity provision?
Answer: The opportunity cost from holding tokens in a pool versus just holding them as prices diverge
Impermanent loss occurs when the price ratio of pooled assets changes from when you deposited them, resulting in less value than simply holding the tokens.
What does a high 'bid-ask spread' on a crypto exchange typically indicate?
Answer: Low liquidity and potentially higher transaction costs for traders
A wide bid-ask spread signals low liquidity, meaning it's harder to trade without incurring significant costs or moving the price.
What is 'front-running' in the context of blockchain and crypto trading?
Answer: Inserting a transaction ahead of a known pending transaction to profit from the price impact
On-chain front-running involves paying a higher gas fee so a miner/validator places your transaction before a large known trade, profiting from the resulting price movement.
Which of the following best describes a 'bear trap' in crypto markets?
Answer: A false breakdown below support that lures short sellers before price reverses sharply upward
A bear trap is a deceptive price pattern where a temporary break below support convinces traders to short, only for the price to quickly reverse higher.
What is 'tokenomics' and why is it important when evaluating a cryptocurrency?
Answer: The economic model of a token including supply, distribution, and incentive structures
Tokenomics encompasses a project's total supply, emission schedule, vesting periods, and utility design, all of which influence a token's long-term value proposition.
In crypto trading, what is the key difference between a centralized exchange (CEX) and a decentralized exchange (DEX)?
Answer: CEXs hold user funds in custody; DEXs allow users to trade directly from their own wallets
On a CEX you deposit funds into the exchange's custody, while a DEX uses smart contracts so users always retain control of their private keys and assets.
What does 'portfolio rebalancing' mean for a cryptocurrency investor?
Answer: Periodically buying or selling assets to restore a target allocation after price movements shift weights
Rebalancing involves selling overweight assets and buying underweight ones to maintain a desired risk profile as market prices change.