Cryptocurrencies have been the hottest trending financial product of late. According to SoFi Invest, “Crypto is decentralized, meaning that it is not controlled by a central authority like a bank or government and instead is exchanged person-to-person.” You’ve likely seen those exciting stories of how small investors took a few hundred dollars and turned it into thousands and even millions overnight. But for every life changed for the better, the unregulated and highly volatile cryptocurrency market has also wiped out a lot of trading accounts of those who weren’t as lucky. Those who trade cryptocurrency on eToro or Coinbase might get to have the chance to make huge returns in a short span of time even if they don’t have enough trading experience but there are also alot of those who risk losing their investments. Here’s a beginner’s guide on how to trade and invest in cryptocurrencies in a financially responsible and profitable manner.
Table of Contents
Be Financially Prepared
First things first, never invest or trade money that’s meant to pay your next month’s rent or your kid’s tuition fees. Investing with money that you have earmarked for basic necessities increases the risk of impulse trading in the event that you start losing money in the market. In an attempt to make the money back quickly, you might start to over-leverage your cryptocurrency portfolio or trade more frequently. Instead, build an emergency fund and clear any debt under your name, i.e. credit cards or student loans.
Know What Moves the Market
As with any financial market, macroeconomic and microeconomic factors move prices and guide their long-term direction. Real estate, for instance, tends to surge in demand and, correspondingly, property prices during summertime, which means seasonality is something that investors have to account for. Tech stocks, meanwhile, can move significantly after new government regulations are announced. Adoption is unarguably the biggest hurdle for cryptocurrency that Bitcoin, Ethereum, and other cryptocurrencies and tokens face. As more businesses accept cryptocurrencies, the value becomes potentially higher.
Aside from providing news about upcoming investment opportunities, financial newsletters also offer advice on long-term market trends and macroeconomic indicators. In addition, some newsletters specialize in a particular industry or region, enabling them to provide insight into the evolution of a market more accurately than the average reader. Listed below are some tips for picking the best investment newsletters. So check them out to make sure you’re getting the best advice! After all, who better to invest in than those who have made it themselves?
Know Where to Buy/Sell
Similar to buying/selling traditional investment vehicles, like stocks and bonds, crypto trading can only happen through exchanges. In the cryptocurrency space, the current top players include Coinbase, Binance, Kraken, and Gemini. These exchanges are privately run and offer their own dedicated platforms to trade cryptocurrencies. Platforms like SoFi are also gaining popularity thanks to a number of perks that their user base is getting, such as financial planning tools, VIP member experiences, and career services for members.
Manage Risk
Risk management is perhaps the most important part of any investing or trading plan. This is especially important when trading with assets as volatile as cryptocurrencies. How you manage risk can vary from traders to investors. A long-term investor might use a simple buy-and-hold approach to protect their portfolio from short-term price whiplashes. For short-term traders or speculators, however, risk management may include limiting the dollar amount used per trade, the leverage percentage, and number of trades opened/closed per month. Regardless of the risk management measures you use, the follow-through of your risk management plan is what makes a difference in the long run.
Trading and investing in cryptocurrencies can be a lucrative endeavor that can make you passive income, accelerate your portfolio’s growth, and lead you to early retirement. That said, crypto trading can also act as a double-edged sword in that it can lead to financial ruin, so make sure to use the guide above to help you responsibly and profitably traverse the crypto market.
