Cryptocurrency has emerged as one of the main attractions for many investors. In this regard, there has been a surge in popular cryptos such as Bitcoin and Ethereum. Experienced traders have been speculating on the viability of cryptos as an investment option for many years.
But, if you are completely green when it comes to Cryptocurrencies, you need to equip yourself with the basics of Cryptocurrencies. You can visit sites such as Cryptovantage.com for tips on how to get started with Cryptocurrencies. If you already have the basics, here are the simple steps to follow to invest in cryptocurrency.
Before you think about investing in cryptocurrency, you should put your finances in order. This means you should have an emergency fund available, a manageable debt level, and a diversified investment portfolio. Here are five things you need to pay attention to:
Understand What You Are Investing In
Like with any other investment, you should understand what you are investing in. There are thousands of Cryptocurrencies, and each functions differently. Moreover, new ones are emerging every day.
Remember, Cryptocurrencies are not backed by anything. They are not like stocks where a company can grow its profits and drive results. Instead, cryptos rely on the market, becoming more optimistic and bullish for investors to make profits.
Some of the common cryptos in the market include Bitcoin, Dogecoin, Ethereum, and Cardano. Therefore, before you invest, ensure you understand the potential downside and upside.
Let the Past Remain In The Past
The biggest blunder a crypto investor can make is using the past to extrapolate the future. For instance, Bitcoin was worth pennies in the past, but currently, it is much more. However, the critical question you need to ask yourself is- “will this growth continue into the future?”
Successful investors look to the future and not to what an asset has done in the past. What factors will drive future returns?
Keep an Eye on Volatility
The prices of Cryptocurrencies are usually volatile. The prices can drop quickly within seconds based on something as simple as a baseless rumor. This is an excellent feature for sophisticated investors who can execute trades quickly. It is also advantageous to investors who have a solid grasp of the market’s fundamentals, its trends, and where it could go.
Therefore, if you are a new investor, you need high-powered algorithms; otherwise, it will be a minefield. Volatility can easily crush new investors because it enables experienced investors to buy low and sell high while inexperienced investors buy high and sell low.
Whenever you are trading any asset on a short-term basis, it will help to manage your risk. This is particularly true when dealing with volatile assets such as cryptocurrency.
In this regard, new crypto traders need to understand the best practices of managing risk. They also need to come up with a process that helps to lessen losses.
Moreover, risk management varies from investor to investor. For instance, risk management for a long-term investor might entail never selling despite the price. On the other hand, a short–term investor might have strict rules on when to sell, for instance, when an investment has fallen below 10%.
As a new trader, consider setting aside some amount of trading money and only use a portion of it. Suppose a position moves against you; you will still have some money left to trade with later.
The bottom line is that you cannot trade if you don’t have money. Therefore, it is critical to keep aside some money to ensure you have funds to bankroll your trading.
However, it is essential to remember that risk management comes at an emotional cost. For instance, as much as selling a losing position hurts, you might have to do it occasionally to avoid worse losses.
Only Invest What You Can Afford
It is wise not to put the money you need in speculative assets. Therefore, only invest in cryptos money that you can afford to lose. Please keep the money you need for other essential purchases in safe accounts so that you can access it when you need it.
It also helps to check the security of any exchange or broker you plan to use. You may legally own the assets, but you need someone to secure them. Therefore, their security ought to be tight. Traders who don’t think their cryptocurrency is secured properly typically store their coins offline away from hackers.
Cryptocurrency is a highly speculative market that many investors remain skeptical about investing their money in. In this regard, beginners who want to start investing in crypto trading must prepare themselves well before getting started. Like any other investment, it would be best to start small and only use the money you can afford to lose.
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