The uncompelling rise of Bitcoin and Ether over the recent years is why crypto trading’s growth has been remarkable. It allowed the crypto sphere to expand and compete with traditional investment. Trading and investment have very similar goals. It is to make a profit. But investment entails a long period to see a return of investment (ROI) while trading runs in the short to medium term. Trading takes advantage of crypto’s volatility in the market. It could mean that trading can take up to minutes to a few weeks compared to investing that could last years.
While many are still tiptoeing around the idea of investing in digital currency, many success stories proved them otherwise. Crypto trading may be confusing when you are just a beginner. But we are here to give you pointers on things that you must know before you begin trading.
1. Learn to manage risks
Risk management is the one thing that should always stay in your mind. The movement of crypto in the market is very volatile. That makes it risky for anyone dealing with it. But so are any other financial instruments like stocks, futures, shares, bonds, margin products, etcetera. There are types of risks in crypto language that you should be aware of; these are the following:
- Legal Risk- involves the occurrence of a probable unlikeable event concerning regulatory rules. For example, banning crypto trading in other countries or issuing cease-and-desist orders can heavily impact the trading of digital assets.
- Operational Risk- involves the probability of a trader unable to withdraw, deposit, or trade using their crypto wallets.
- Credit Risk- refers to parties behind crypto projects which fail in completing their due obligation. It can be an act of theft or fraud.
- Market Risk- refers to the undesired movement of digital coins that do not coincide with what you prefer.
- Liquidity Risk- involves the probability of a trader unable to convert their digital asset into fiat currencies.
Given the risks involved in trading crypto, always remember to trade the amount you are willing to lose.
2. Have a balanced portfolio
Knowing how to allocate your assets properly can go a long way. Much like a traditional investment portfolio, a crypto portfolio is also the same. The difference is that a crypto portfolio has only a single asset class. One of the best ways to create a sound portfolio is to be up to date on the changes in crypto values. Another one is to do your research regarding the trend of each coin that has a high market cap. Also, learn to project the future movement of these coins.
3. Look for the most profitable crypto exchange platform.
The most popular and easiest way of buying and selling cryptocurrencies is by using an exchange platform. Cryptoner, a trusted crypto site, concurs that one of its advantages is you can do away from a risky transaction that could lead to a scam when you directly deal with another person. So if you are looking for an exchange platform, here are things you should consider:
- Security- this should be the number one thing you should look for, considering that you are dealing with a digital asset. See that the platform should at least have the 2-FA (Factor Authentication) feature. Also, make sure that its security is highly reputable.
- User Experience- look for an exchange platform app that is easy to navigate and is user-friendly. An efficient user interface will boost the trading experience for seasoned crypto investors and newbies.
- Fees- transaction fees apply to any trading actions that an investor makes. Look for an exchange platform that offers discounts on their transaction fees.
Supported coins- look for an exchange platform that can offer a wide variety of cryptocurrencies that you can buy or sell.
- Medium of purchase- some platforms may require a deposit through the use of bank transfer, credit or debit card, or even through Paypal. Make sure to look for a platform that can accept fiat currency. Also, you should note how long a purchase takes.
- Liquidity- this involves how fast a digital asset converts into another. It should have no price change or minimal difference between the price asked and price bidding.
4. Adopt a crypto strategy
Trading cryptocurrencies without a plan can potentially lead you to lose the capital you have invested. While no strategy fits all, the important thing is to learn at least one strategy that you can use or a strategy that will suit your needs. Minimizing any potential loss is one of the advantages of having a plan in place. Another one is you can also have a handsome return on your investment. Here are some strategies that you can look up: Scalping, Day Trading, Swing trading, Dollar-Cost Averaging, and, Range trading etcetera.
5. Have a second look at ICOs
ICO or Initial Coin Offerings are initiative ventures of start-up companies that need to raise money to back a new coin or app that they want to launch. Usually, they will offer the public token that has low prices and in return for a promise that they will be able to sell the coin at a much higher price. These start-ups also create a whitepaper outlining their plan for the digital currency they want to develop. It will include the total expense needed, duration of the ICO campaign, type of money it will accept, and the number of virtual tokens that the developers will keep.
However, this is where you should do a background check on the start-up company. Indeed, many ICOs turned out to be a success, but many ICOs have also turned out to be a scam. It has cost many investors the loss of millions of their capital. Aside from background checks, you have to analyze their ability to fulfill their initial promise. It is always wise to be cautious with anything relating to money.
It may seem very tempting to be seeing people move up the ladder in the financial world so quickly. But when you are dealing with cryptocurrency, especially when you are just starting, make sure that your emotions would not sway your financial decisions. On that note, we hope we have given you sensible tips before you begin your next crypto move.