Despite its volatility, cryptocurrency is undoubtedly one that every investor is looking forward to profiting from.
Cryptocurrencies such as Bitcoin, BTC, and Ethereum for a while now are one of the best performing digital currencies on the market. Although other currencies are performing well too.
Experts traders have been speculating on cryptocurrencies for a while now which has drawn the attention of many individuals who seek to trade in this digital currency. What if you are new to this and looking forward to getting a piece of the action.
Some questions you will ask yourself is; What is cryptocurrency? How does it work? How do I profit from trading in cryptocurrency?
Fuss Ghana has got you covered with all the basics you need to know about trading in crypto.
How To invest in Cryptocurrency:
To begin with, cryptocurrency is not what experts claim it is. To begin investing you need to have your finance in order, have an emergency fund, and above all have an idea of how investment work. Do not solely rely on crypto for your livelihood, however crypto returns can add up to your income.
Here are five major things to look out for when you are starting your crypto investment:
Have A Deep Insight Into What You Are Investing In:
As you would for any investment, understand precisely what you’re capitalizing in. If you’re buying stocks, it’s important to read the prospectus and decipher the companies thoroughly. Plan to do the same with any cryptocurrencies, since there are literally thousands of them, they all function contrary and new ones are being generated every day. You need to understand the investment possibility for each trade.
In the case of many cryptocurrencies, they’re backed by nothing at all, neither hard assets nor cash flow. That’s the case for Bitcoin, for example, where investors rely exclusively on someone paying more for the asset than they paid for it. In other words, unlike stock, where a company can grow its profits and drive returns for you that way, many crypto assets must rely on the market becoming more optimistic and bullish for you to profit.
Some of the most popular coins include Ethereum, Dogecoin, Cardano and XRP. Solana has been another massively successful coin as well. So before investing, understand the potential upside and downside. If your financial investment is not backed by an asset or cash flow, it could end up being worth nothing.
Remember, the past is past
A mistake that many new investors make is looking at the past and extrapolating that to the future. Yes, Bitcoin used to be worth pennies, but now is worth much more. The key question, however, is “Will that growth continue into the future, even if it’s not at quite that meteoric rate?”
Investors look to the future, not to what an asset has done in the past. What will drive future returns? Traders buying a cryptocurrency today need tomorrow’s gains, not yesterday’s.
Watch that volatility
The prices of cryptocurrencies are about as volatile as an asset can get. They could drop quickly in seconds on nothing more than a rumor that ends up proving baseless. That can be great for sophisticated investors who can execute trades rapidly or who have a solid grasp on the market’s fundamentals, how the market is trending and where it could go. For new investors without these skills – or the high-powered algorithms that direct these trades – it’s a minefield.
Volatility is a game for high-powered Wall Street traders, each of whom is trying to outgun other deep-pocketed investors. A new investor can easily get crushed by the volatility.
That’s because volatility shakes out traders, especially beginners, who get scared. Meanwhile, other traders may step in and buy on the cheap. In short, volatility can help sophisticated traders “buy low and sell high” while inexperienced investors “buy high and sell low.”
Manage your risk
If you’re trading any asset on a short-term basis, you need to manage your risk, and that can be especially true with volatile assets such as cryptocurrency. So as a newer trader, you’ll need to understand how best to manage risk and develop a process that helps you mitigate losses. And that process can vary from individual to individual:
- Risk management for a long-term investor might simply be never selling, regardless of the price. The long-term mentality allows the investor to stick with the position.
- Risk management for a short-term trader, however, might be setting strict rules on when to sell, such as when an investment has fallen 10 percent. The trader then rotely follows the rule so that a relatively small decline doesn’t become a crushing loss later.
Newer traders should consider setting aside a certain amount of trading money and then using only a portion of it, at least at first. If a position moves against them, they’ll still have money in reserve to trade with later. The ultimate point is that you can’t trade if you don’t have any money. So keeping some money in reserve means you’ll always have a bankroll to fund your trading.
It’s important to manage risk, but that will come at an emotional cost. Selling a losing position hurts, but doing so can help you avoid worse losses later.
Don’t invest more than you can afford to lose
Finally, it’s important to avoid putting money that you need into speculative assets. If you can’t afford to lose it – all of it – you can’t afford to put it into risky assets such as cryptocurrency, or other market-based assets such as stocks or ETFs, for that matter.
Whether it’s a down payment for a houseor an important upcoming purchase, money that you need in the next few years should be kept in safe accounts so that it’s there when you need it. And if you’re looking for an absolutely sure return, your best option is to pay off debt. You’re guaranteed to earn (or save) whatever interest rate you’re paying on the debt. You can’t lose there.
Finally, don’t overlook the security of any exchange or broker you’re using. You may own the assets legally, but someone still has to secure them, and their security needs to be tight. If they don’t think their cryptocurrency is properly secured, some traders choose to invest in a crypto walletto hold their coins offline so they’re inaccessible to hackers or others.