CRYPTO TRADING BASIC TERMS EXPLAINED IN SIMPLE WORDS PART 1

If you are trading in crypto, especially on perp DEXs like Hyperliquid, Variational, RiseX, Lighter, or similar platforms, you will keep seeing the same words again and again.

Terms like APR, APY, funding fee, maker, taker, OI, vault, liquidation, slippage, RWA, and more.

If you do not understand these, it becomes very easy to take bad trades, pay extra fees, or misread the market.

This post explains the most important crypto trading terms in simple English, with examples.

1) Spot Trading

Spot trading means you buy or sell the actual asset.

Example:

You buy 1 SOL at $150

You now own that SOL

If price goes up, your profit increases

In spot, there is no leverage, no funding fee, and no liquidation like perps.

2) Perp Trading / Perpetual Futures

A perp is a futures contract with no expiry date.

You do not own the actual coin. You are just trading price movement.

Example:

You open a long on BTC at $60,000

If BTC goes to $62,000, you make profit

If BTC goes down, you lose

Perp trading is popular because:

you can use leverage

you can long or short

you can trade with small capital

3) Leverage

Leverage means borrowing power from the exchange to take a bigger position than your actual capital.

Example:

You have $100

You use 10x leverage

Your trade size becomes $1,000

If the market moves in your favor, profit becomes bigger. If the market goes against you, loss also becomes bigger.

Leverage can make fast profit, but it can also wipe out your position quickly.

4) Long and Short

LONG:

You go long when you expect price to go up.

Example:

Buy BTC at $60,000

Sell at $62,000

Profit = $2,000 on the position size you used

SHORT:

You go short when you expect price to go down.

Example:

Short ETH at $3,500

Buy back at $3,300

Profit from the drop

In perp DEX trading, long and short are the two main directions.

5) Maker and Taker

This is one of the most important exchange terms.

MAKER:

A maker order adds liquidity to the order book.

Usually this is a limit order that does not fill instantly.

Example:

BTC is trading at $60,000

You place a buy limit at $59,800

It waits in the order book

If someone sells at that price, your order fills

You are the maker because you added an order to the book.

TAKER:

A taker order removes liquidity from the order book.

Usually this is a market order or any order that fills instantly.

Example:

BTC is at $60,000

You click market buy

Your order fills immediately

You are the taker because you took liquidity from the book.

Why it matters

Maker fees are usually lower

Taker fees are usually higher

If you trade a lot, this fee difference matters a lot.

6) Limit Order and Market Order

Limit Order

You set your own price.

Example:

Buy ETH at $3,200

Sell ETH at $3,600

This order waits until the market hits your price.

Market Order

You buy or sell immediately at the current market price.

Example:

You want to enter right now

You click market buy

The order fills instantly

Market orders are faster, but they usually pay taker fees and can suffer from slippage.

7) Funding Fee / Funding Rate

Funding fee is one of the most important perp trading concepts.

It is a payment between long traders and short traders to keep perp price close to spot price.

Simple idea

If too many people are long, longs may pay shorts. If too many people are short, shorts may pay longs.

This helps balance the market.

Example

Funding rate is positive

Longs pay shorts

If you are holding a long position, you may pay funding every few hours

If funding is negative:

shorts pay longs

Why it matters

If you hold a position for a long time, funding can reduce profit or increase loss.

Some traders look for:

positive funding to short

negative funding to long

But that is not a guaranteed strategy. Market trend matters more.

8) APR

APR means Annual Percentage Rate.

It shows yearly return without compounding.

Example:

You stake $1,000

APR = 20%

You may earn about $200 in a year

APR does not always mean exact profit. It is usually a simple annual estimate.

9) APY

APY means Annual Percentage Yield.

It includes compounding.

Compounding means your reward gets reinvested, and then the reward also starts earning reward.

Example:

Deposit = $1,000

APY = 20%

If compounded properly, you earn slightly more than simple APR because the rewards are also reinvested.

Easy difference

APR = simple yearly return

APY = yearly return with compounding

In DeFi vaults and staking, APY is often used because compounding matters.

10) Vault

A vault is a pool or strategy where funds are deposited and managed.

Vaults are common in DeFi and perp platforms.

Simple meaning

You put assets into a vault, and the vault uses them for a strategy.

Examples:

staking vault

yield vault

liquidity vault

market-making vault

insurance vault

Example:

You deposit USDC into a vault

The vault uses that capital in a strategy

You earn yield from the strategy

Important

Vaults can generate yield, but they also carry risk:

smart contract risk

strategy risk

market risk

protocol risk

11) Open Interest (OI)

Open Interest means the total number of active futures or perp contracts that are still open.

It shows how much money or participation is in the market.

If OI is rising:

more people are opening positions

market participation is increasing

If OI is falling:

positions are being closed

participation is reducing

Example

BTC price rises

OI also rises

this can mean new buyers are entering aggressively

But OI alone does not tell direction. It must be read with price and volume.

12) Volume

Volume means how much trading happened in a time period.

High volume usually means strong interest.

Example

BTC breaks resistance with high volume

That move is more trustworthy

Low volume moves can be weak and false.

13) Liquidity

Liquidity means how easily you can buy or sell without changing price too much.

High liquidity

easy to enter and exit

tight spreads

less slippage

Low liquidity

harder to trade

price can move fast on your order

more slippage

Big pairs like BTC and ETH usually have high liquidity.

Small tokens usually have lower liquidity.

14) Slippage

Slippage means the difference between the price you expected and the actual filled price.

Example

You try to buy at $100. But due to fast movement or low liquidity, you get filled at $101.

That $1 difference is slippage.

Slippage is common in:

market orders

low-liquidity tokens

volatile markets

15) Spread

Spread is the gap between the buy price and sell price.

Example

Best bid = $99.90

Best ask = $100.10

Spread = $0.20

Smaller spread usually means better liquidity. Bigger spread means worse liquidity.

16) Bid and Ask

Bid

The price buyers want to pay.

Ask

The price sellers want to receive.

The order book is built around bids and asks.

17) Order Book

The order book shows all buy and sell orders waiting on the exchange.

It tells you:

where buyers are sitting

where sellers are sitting

possible support and resistance zones

On perp DEXs, the order book can help you understand market depth.

18) Liquidation

Liquidation happens when your position loses so much that your margin is not enough anymore.

The exchange closes your position automatically to protect itself.

Example:

You open a long with leverage

Price falls too much

Your margin gets reduced

Position gets liquidated

Liquidation is one of the biggest risks in leverage trading.

How to reduce liquidation risk:

use lower leverage

keep more margin

use stop loss

avoid overtrading

19) Margin

Margin is the capital you put into a leveraged trade.

Example:

You want a $1,000 position

You deposit $100 as margin

The platform gives you leverage

Your margin is what backs the trade.

20) Initial Margin and Maintenance Margin

Initial Margin: The minimum amount needed to open a trade.

Maintenance Margin: The minimum amount needed to keep the trade open.

If your balance falls below maintenance margin, liquidation can happen.

THANKS FOR READING!!

WAIT FOR PART 2 :))