Trading and investing
In this lecture, we will talk about what trading and investing in the cryptocurrency market is.
Cryptocurrency trading involves opening speculative positions to buy or sell a token in order to earn money.
This work is done on special exchanges by people who, in most cases, have money to invest. Main task of traiders is to buy an asset on the exchange at a lower price and sell it at a higher price.
There are 2 main methods:
The first is buying an asset at a low price and selling it at a higher price. This difference results in a profit.
The second method is more complicated — this is the conclusion of an asset purchase and sale agreement at the current, high price with delivery later.
In this case, the trader buys the asset when the price of it falls, and transfers it by agreement, having received a higher price for it in advance.
You can often hear that trading cryptocurrencies is easy. This is not true.
The same laws apply here as in other markets. 95% of traders lose money, only 5% end up in a long-term profit.
Trading types:
Creation of a crypto portfolio.
HODL.
Arbitrage.
Automated trading.
Classic trading.
Creation of a crypto portfolio
This sophisticated cryptocurrency trading strategy is based on an assessment of the state of the cryptocurrency market. To use it effectively, it is necessary not only to monitor the situation on the cryptocurrency market, but also to take into account many fundamental factors.
HODL
the trader buys only selected crypto assets and keeps them in his wallet until they increase significantly in value. Often, the HODL strategy is already used by investors or traders who have received a significant loss on a position and do not want to fix it, but are waiting for a bull market
Arbitrage
You buy cryptocurrency on one exchange at a low price and sell it on another exchange for as high a price as possible.
Automated trading
Tech-savvy traders can create robots with a set of programming environments and tools for creating trading robots.
Classic trading — scalping, intraday, swing, etc. — uses the same approaches as in the stock market, with great emphasis on technical analysis and trend tracking.
Advantages of cryptocurrency trading on a digital exchange:
The trader is the owner of the cryptocurrency.
Even if its price falls, it still remains in the owner’s account.
A large number of tools.
More than 4,900 tokens have been provided on digital trading platforms.
Arbitrage trading.
You can trade one currency on several platforms at once. That is, having an account in the same cryptocurrency on two exchanges, you can make a profit due to the difference in the price of an asset on different platforms.
Minuses:
Lack of transparent regulation.
Hacker attacks.
Limited liquidity.
Minuses:
Lack of transparent regulation.
Not all digital platforms are in the area of responsibility of financial regulators.
Hacker attacks.
E-wallets of exchanges can be attacked by intruders, which can lead to an irretrievable loss of funds.
Limited liquidity.
The liquidity of assets is limited, especially at times of a sharp drop in the value of cryptocurrencies.
Every year more and more people begin to be interested in cryptocurrencies and invest in them. Let’s talk about what an investor is.
The investor is another participant in the market. But it is usually aimed at buying and holding assets. Unlike a trader, an investor plans long-term income. The longer a financial instrument gives a profit, the better. An asset can be in an investment portfolio from several months to several years, but this is far from the limit. Therefore, when talking about a trader and an investor, the difference lies in the approach to stock trading and investment goals.
Many investors are attracted by the potential profit from investing in cryptocurrencies. But even experienced investors must first understand how it works.
Ways to invest in crypto:
Buy and store coins.
Invest in cryptocurrency companies.
Invest in crypto-focused funds.
Ways to invest in crypto:
Buy and store coins. You can buy popular coins such as Bitcoin or Ethereum, or you can buy lesser known ones. For example, Dogecoin, Solana and others. In the long run, there is a chance that their price will rise. But there are also risks that some crypto may disappear, which means you will lose funds.
Invest in cryptocurrency companies. These are companies partially or completely focused on cryptocurrency. For example, they are engaged in mining, that is, they mine cryptocurrencies, produce equipment for mining, have large amounts of cryptocurrency on their balance sheets, and so on.
Invest in crypto-focused funds. If you don’t want to choose among individual cryptocurrency companies, you can invest in funds. They manage investors’ money so that they receive a return on deposits greater than the rate of bank deposits.
It is safer to invest in large well-known projects, although this is not a guarantee of success.
Advantages and disadvantages of investing in cryptocurrencies
Advantages:
High yield
Diversification
Limited number of objects of some cryptosystems
Protection against currency depreciation and inflation
Flaws:
High volatility, high potential losses
Positive correction with stocks and gold
Low value retention
No regulation in terms of legislation
Subject to hacker attacks
What is the difference between a trader and an investor?
Multiple people can participate in stock trading and their roles should not be confused. The roles of a trader and an investor are similar, their tasks are different, and the tools may also differ. The trader trades for profit in the short-term speculation of assets, and the investor can purchase the asset before further resale in a few years