Cryptocurrency: To Invest or To Trade?

Cryptocurrency: To Invest or To Trade?

by March 21, 2019

The XXI century can be called the Cryptocurrency Rush. In 2017, digital money became incredibly popular due to fast growth and increasing interest among investors.

Even after the fiasco of January 2018, interest to cryptocurrency remains: the number of coins available for trading stands at thousands and the daily turnover of the cryptocurrency market counts to billions of dollars.

Cryptocurrencies are the financial trend of the last few years. Stories about lucky investors who succeeded to make fortunes on digital coins, as well as high volatility led to a growing demand for digital currencies and numerous speculations on cryptocurrency exchanges.

How to trade cryptocurrency

Trading crypto is more dynamic and unpredictable than trading currency or stock. While other assets rarely reach 2% of daily price change, cryptocurrency is often above 10%. This makes crypto a prime opportunity for high-risk investments and trading.

There are two ways to make money off cryptocurrency– investing and trading.

Investing in cryptocurrency

Investing is buying and holding crypto in order to sell it off later. Of course, it only works if the price of your coins is rising – and that’s not a guarantee. For example, the last couple of months have been remarkably bearish on the cryptocurrency market.

FUN FACT: The other name for cryptocurrency investors is “hodlers”. The name emerged around 2011 from the miswritten word “holder” and became a meme among the early crypto adopters.

 

Cryptocurrency market is extremely volatile and the investors are forced to follow it. While on the upward trending market investing is a lot safer than trading, it becomes unreasonable when the market enters a bearish mood. However, that’s where the traders come in.

Trading cryptocurrency

While investors are after the long-term profit and sometimes can even accept a short-term loss, traders are all about immediate gratification. They don’t care about the state of the cryptocurrency market and where it is moving – the only thing they need to make money is movement itself.

When the market is on the rise, the traders are essentially the mini-investors – they buy crypto in the morning and sell it at the end of the day, or when the price begins to dangerously tip. However, when the market is falling, the traders employ shorting – a different trading mechanism specifically designed for the downward markets.

GLOSSARY: Shorting is borrowing some crypto, selling it, then buying it back at the end of the day to repay the debt. If the price falls after the initial sale, the trader ends up with some profit on the repurchase.

 

However, you need an external source of crypto in order to short it. Most traders use cryptocurrency brokers, who provide them with a constant supply of coins. They also give access to a larger amount of coins and tokens. For example, JustForex offers 39 trading instruments on the Crypto account, including BTC, ETH, Ripple, BCH, EMC, LTC.

How to be a successful cryptocurrency trader

The trader should have the skills of technical analysis, a good understanding of the trading principles. The forecasts made after careful analysis are the basis for opening positions to buy or sell.

Traders often trade on the news. When there is good news on an asset, buy it and wait for the price to rise. When bad news release, start shorting. For example, there was news that a large investment fund plans to invest in Bitcoin, BTC/USD rate is likely to grow and you should open long positions.
The choice of a trading strategy depends on your goals. Investing is well suited for leisurely assets formation. At the same time, trading allows you to receive a stable income.

 

Featured image credit: Edited via Unsplash from here and here

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