Cryptocurrency trading is still a brand new concept to a lot of people. As cryptos become more prominent though, and more people recognise them as an avenue for investment, it’s worth considering some of the basics of the market. So, for those who might be considering crypto investment — or who may just be generally curious — here are some of the “dos” and “don’ts” of crypto trading.
- Learn About Exchanges & Wallets – There are ways to trade cryptos without the use of an exchange or a digital wallet. But they’re not particularly common, especially among market newcomers. We asked ‘What is a Cryptocurrency Exchange?’ in a past article, and provided most of the relevant information you’ll need to get started. But basically, an exchange is where you can buy, sell, and trade cryptocurrencies 24/7. A wallet, meanwhile, is used for storing the cryptocurrency you own — though some prominent wallets do include exchange features.
- Consider Diversifying – When you’re first buying into the crypto market, it can be tempting to pick a single asset to invest in. This is particularly true because generally, cryptos have the reputation of moving somewhat in sync with one another. Nevertheless, movement does not coincide exactly, and there are times when a given crypto excels while another does not. Therefore, it’s typically a good idea — as with most forms of investment — to diversify your holdings. Investing a little in a few cryptocurrencies, rather than a lot in just one, makes a net gain more likely.
- Respect Market Volatility – Cryptocurrency markets are almost unfailingly volatile. Case in point, at the time of this writing the bitcoin chart on Plus500 show a price of roughly $7,073 (or £5,678). The same platform shows price movement over time as well, however, and indicates that just three days prior to this writing, bitcoin was at $6,606 (£5,303); about a week before that, it was $7,069 (£5,675). And frankly, these aren’t even the most volatile short-term swings you’ll see. So, no matter how well you come to understand cryptocurrency markets, always remember to respect their potential for fairly dramatic fluctuation.
- Trade Without Stop Orders – A stop order, or stop-loss order, is something you may well be familiar with if you’ve invested in other markets. But now that crypto exchanges are offering their own versions of these features, it’s vital not to trade without taking advantage of them. Basically, these are commands you can put in place to automatically withdraw funds from an asset if it falls to a certain point, such that you prevent losses beyond what you’re willing to risk.
- Trust All Experts – It’s quite common to see that a given cryptocurrency or investment expert has gone public with a cryptocurrency prediction. Last September, for instance, The Independent published a prediction from billionaire investor Tim Draper that bitcoin reaching $250,000 (£200,693) was “conservative.” And yet, there have recently been some long-time crypto analysts predicting drops. The simple fact is that these predictions tend to be all over the map. Trusting all of them will only confuse you, and may lead to some poor decisions.
- Trade With Emotion – Trading without emotion is a general rule of thumb. US News & World Report put it well, stating simply that “investing is an exercise in managing your emotions, not an exercise in logic.” It cited the 2008 market debacle as a time in which investors who panicked emotionally were among those hit hardest. This is particularly important to keep in mind with regard to cryptos though. Because of the aforementioned volatility, it can be easy to let your emotions get the better of you — to take a single day’s movement as a devastating collapse or a monumental gain. It’s important not to succumb to these emotional reactions, but rather to trade in a calm and strategic manner.
Investing in cryptocurrency is fairly complicated in the end, but let these dos and don’ts serve as a general guide while you’re getting started. That should help you to start learning about the market in a responsible way that will lead to sensible trading.