A reference of key terms used across PARAGON's education library. Each definition links to the relevant in-depth article for further reading.
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ADL (Auto-Deleveraging) — A risk management mechanism where an exchange forcibly reduces the positions of the most profitable traders to cover losses from liquidations that exceed the insurance fund. Learn more →
Annualized Return — A return figure scaled to a one-year period for comparison purposes. A 2% return over 90 days annualizes to approximately 8.1%. Learn more →
Ask (Offer) — The lowest price at which a seller is willing to sell an asset on an exchange. The ask side of the order book represents available supply. Learn more →
ATR (Average True Range) — A volatility indicator measuring the average range of price movement over a specified period. Used for stop-loss placement and regime detection. Learn more →
Backwardation — A market condition where the futures price trades below the spot price. In crypto, this typically occurs during bearish periods or when hedging demand is high. Learn more →
Basis — The difference between a futures contract price and the underlying spot price. Positive basis (contango) means futures trade above spot. Learn more →
Bid — The highest price at which a buyer is willing to purchase an asset. The bid side of the order book represents available demand. Learn more →
Bollinger Bands — A volatility envelope consisting of a moving average plus/minus two standard deviations. Band width contraction signals low volatility; expansion signals high volatility. Learn more →
Breakout — A price move above resistance or below support, often used as a trend-following entry signal. Breakout systems define risk as the distance from the highest high to the lowest low of the lookback period. Learn more →
Carry Trade — A strategy that profits from holding a position that earns a recurring payment (e.g., funding rate income or basis convergence). In crypto, the most common carry trade is long spot / short perpetual. Learn more →
Cascade — See Liquidation Cascade. Learn more →
Confirmation Bias — The tendency to seek information that confirms your existing position and dismiss contradictory evidence. One of the most damaging behavioral biases in trading. Learn more →
Contango — A market condition where the futures price trades above the spot price. This is the normal state for crypto futures due to speculative demand and cost of capital. Learn more →
Credit Spread — An options strategy that sells a nearer option and buys a further option at the same expiry, collecting net premium with defined maximum loss. Learn more →
Cross Margin — A margin mode where your entire account balance serves as collateral for all open positions. More capital-efficient but riskier — one bad trade can drain margin from other positions. Learn more →
Delta — The rate of change of an option's value relative to a $1 change in the underlying asset. A delta of 0.50 means the option gains $0.50 for every $1 the underlying moves. Learn more →
Delta Neutral — A portfolio constructed so that total delta is approximately zero, eliminating directional exposure. Used for funding capture, volatility trading, and basis arbitrage. Learn more →
DXY (U.S. Dollar Index) — A measure of the dollar's value against a basket of major currencies. BTC has a persistent inverse correlation with DXY. Learn more →
Funding Rate — A periodic payment exchanged between long and short holders of perpetual futures, designed to keep the perpetual price anchored to spot. Positive funding = longs pay shorts. Learn more →
Gamma — The rate of change of an option's delta. High gamma means delta shifts rapidly with small price moves. Gamma is highest for at-the-money options near expiry. Learn more →
Geometric Mean — The Nth root of the product of N return multipliers. Used to measure compound growth rate; captures both return magnitude and consistency. Learn more →
HPR (Holding Period Return) — The return multiplier for a single trade. A 5% gain = 1.05; a 3% loss = 0.97. Used in optimal f and Kelly calculations. Learn more →
Hurst Exponent — A statistical measure of time series persistence. Values >0.5 indicate trending behavior; <0.5 indicates mean reversion; 0.5 is random. Learn more →
Implied Volatility (IV) — The volatility value derived from an option's market price by inverting a pricing model. Represents the market's consensus forecast of future price movement. Learn more →
Initial Balance — In Market Profile, the price range established during the first hour of a trading session. Used to classify the day as trending or balanced. Learn more →
Insurance Fund — A reserve held by exchanges to cover losses from liquidations that execute past the bankruptcy price. Funded by surplus from profitable liquidation closures. Learn more →
Iron Condor — An options strategy combining a bull put spread and a bear call spread, profiting when the underlying stays within a defined range. Maximum profit equals the total premium collected. Learn more →
Isolated Margin — A margin mode where each position has its own allocated collateral. If liquidated, only the assigned margin is lost; other positions and unused balance are unaffected. Learn more →
Kelly Criterion — A formula that calculates the optimal fraction of capital to risk per trade to maximize long-run geometric growth: f* = (bp − q) / b. Learn more →
Leverage — The ratio of total position exposure to the margin posted as collateral. 10× leverage means $1,000 margin controls $10,000 exposure. Learn more →
Limit Order — An order to buy or sell at a specified price or better. Rests in the order book until filled or cancelled, providing liquidity. Learn more →
Liquidation — The forced closure of a leveraged position by the exchange when unrealized losses consume the position's margin below the maintenance requirement. Learn more →
Liquidation Cascade — A self-reinforcing chain reaction where forced liquidations at one price level trigger further liquidations at the next, creating rapid, violent price moves. Learn more →
Liquidation Heatmap — A visual tool mapping the price levels where leveraged positions are estimated to face forced closure. Dense zones indicate structural fragility. Learn more →
Loss Aversion — The cognitive bias where losses feel approximately 2–2.5× more painful than equivalent gains feel good. Causes traders to hold losers and cut winners prematurely. Learn more →
Maintenance Margin — The minimum margin level required to keep a position open. If equity falls below this level, the exchange triggers liquidation. Learn more →
Market Impact — The adverse price movement caused by executing a trade, particularly for large orders that consume multiple price levels in the order book. Learn more →
Market Maker — A participant who continuously posts bid and ask orders, providing liquidity and profiting from the spread. Learn more →
Market Order — An order to buy or sell immediately at the best available price. Removes liquidity from the order book. Learn more →
Market Profile — A charting method that organizes price data by time or volume to show where the market spent the most activity. The value area (~68% of activity) represents fair price. Learn more →
Mean Reversion — A trading approach based on the observation that prices tend to return toward a statistical average after moving away from it. Learn more →
Open Interest (OI) — The total number of outstanding derivative contracts that haven't been settled. Measures market commitment, not activity. Learn more →
Optimal f — The fraction of equity to risk per trade that maximizes long-run geometric growth (Terminal Wealth Relative). Overbetting beyond optimal f degrades growth and can lead to ruin. Learn more →
Perpetual Futures (Perps) — Futures contracts with no expiry date that use funding rates to track the spot price. The dominant derivative instrument in crypto. Learn more →
Point of Control (POC) — In Market Profile, the single price level with the most activity (time or volume). Represents the market's "fairest price" for the session. Learn more →
Realized Volatility — The actual measured standard deviation of past price changes over a specified period. Contrasted with implied volatility, which is forward-looking. Learn more →
Risk of Ruin — The probability of losing enough capital to be unable to continue trading. Approximated as R ≈ (q/p)^k where p = win rate, q = 1−p, k = capital units. Learn more →
Short Squeeze — A rapid price increase caused by short sellers being forced to buy back positions, creating a self-reinforcing buying cascade. Learn more →
Spread (Bid-Ask) — The difference between the highest bid and lowest ask in an order book. Represents the cost of immediate execution and the market maker's gross profit. Learn more →
Theta — The rate of time decay of an option's value. Theta is negative for long options (they lose value daily) and positive for short options (they gain value daily). Learn more →
Trend Following — A trading approach based on the observation that prices in motion tend to stay in motion. Uses breakout or moving average signals to enter in the direction of the trend. Learn more →
TWR (Terminal Wealth Relative) — The cumulative product of all holding period returns; measures total account growth as a multiple of starting capital. Learn more →
Value Area — In Market Profile, the price range encompassing approximately 68% of a session's activity (one standard deviation). Bounded by Value Area High (VAH) and Value Area Low (VAL). Learn more →
Vega — The change in an option's value for a one-percentage-point change in implied volatility. Long vega positions profit when IV increases; short vega positions profit when IV decreases. Learn more →
Volatility Risk Premium — The persistent tendency for implied volatility to exceed realized volatility. Option sellers collect this premium; option buyers pay it. Learn more →
Volume — The total number of contracts or units traded during a specified period. Measures activity, not commitment (contrast with open interest). Learn more →
VWAP (Volume-Weighted Average Price) — The average price of an asset weighted by volume traded at each price level. Used as a fair-value reference and execution benchmark. Learn more →
Wall — A large resting order at a single price level in the order book. Can act as support (bid wall) or resistance (ask wall), but can also be spoofed (placed and quickly cancelled). Learn more →
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