So, you’ve decided to start trading cryptocurrency. First of all, congratulations. The cryptocurrency trading world is fast-paced, exciting, and new. There are opportunities for huge profits but-watch out!- you can lose a boatload, too. Anytime you start something new, it can be daunting and a little free advice always helps. We’ve put together a few tips for beginning cryptocurrency traders to help out in your new hobby.
Understand your tolerance for risk
The best piece of advice any cryptocurrency trader can get when going in is to understand your personal risk tolerance. This is because quite a bit of risk is involved in cryptocurrency trading. Trading in this market is both loved and feared because of the volatility.
For example, in 2017, bitcoin was up 1,900% at one point and ended the year up 1,400%. That’s great if you got in early and rode the wave up. However, it also took a 36% drop and a 45% drop at different points in the year. Drops this big can wipe out investors. That is why it is so very important that you know how much risk you are willing to tolerate. If it’s a lot, then swing for the fences. If it’s not, cryptocurrency trading may not be for you.
Do your research
This is a good piece of advice when investing in any financial vehicle but it is even more important in an emerging market like cryptocurrency. One of the great aspects of trading in a new market like this is that there are not years of institutional knowledge that some traders have and others don’t. Everyone is starting from basically the same point and no one has more than a decade head start. This means that investors who do their research can be just as informed and knowledgeable as any investor in the market.
You want to make sure you fully understand what cryptocurrency is and how it works. You also need to do your research on what cryptocurrency exchanges are best for your needs and goals and which cryptocurrencies are best for you to invest in this year and beyond (HINT: It’s probably not bitcoin for most investors). When you feel comfortable with your knowledge base, you can start trading. From there, you need to keep devoting time to research since the market changes so fast and with so much unpredictability.
Use cryptocurrency tools to your advantage
It is up to you to put in the time to do your research but you aren’t totally alone when it comes to cryptocurrency trading. You can avail yourself of plenty of tools to help you trade and, hopefully, become more successful in the market. These tools can help you be a more informed, more secure, and more efficient trader.
Cove Markets has an introductory guide to different types of cryptocurrency tools that are useful to traders. It includes everything from the tools you need to get started to the tax management software you need come Tax Day. It includes things like cryptocurrency wallets, market stats tools, chain analytics tools, blockchain explorers, and more.
Start small before expanding
This should go without saying but, unfortunately, it isn’t always observed so we’ll say it here: Please don’t dump your life savings into the cryptocurrency market on Day 1. Sure, you may get incredibly lucky and find a windfall but more likely, you will lose it all before you know what hit you. That is why we suggest starting small before expanding.
Cryptocurrency markets operate all over the world, so you can trade 24/7/365. There is also an incredible number of cryptocurrencies that you can trade-in, of all different styles-from mining-based coins to stablecoins to security tokens, and more. Take some time and a small amount of money, in the beginning, to find out what type of trades you like to make and where and scale up from there when you find your avenue to success.
Always protect your coins
Many people love cryptocurrency because it is (generally) more secure than fiat currency because of the blockchain technology on which it is based. That said, although you can’t counterfeit it or double-spend it, it is still a digital currency that is created and stored online. This means that it can be vulnerable to hackers who can take it out of your possession. The best way to safeguard yourself from this is a good cryptocurrency wallet to store your coins or tokens.
There are two major categories of crypto wallets: software, and hardware. Software wallets include desktop, mobile, and web wallets. Each has its own pros and cons and they are listed here in descending order of how secure they are. A hardware wallet is a piece of physical equipment for storing the coin that you plug into your computer to protect your computer from hacking. This is the most secure because it is not connected to the internet. It will cost more than the software wallets. You will be looking at $100 and up for a good one. You can
Diversify your portfolio
So much about investing and trading cryptocurrency is different from other financial instruments but some tenants of investing remain the same. One of those classic tropes that are as true in cryptocurrency as anywhere else is that you need to have a diversified portfolio. Especially in the financial market as volatile as cryptocurrency, diversity is key to long-term success.
The best strategy is to trade a variety of cryptocurrency coins. Even better is to trade a variety of styles as well as a variety of market caps and coin prices. If you find success with one particular variety that’s fine but always keep an eye on trading multiple types so you can follow the profits and not be completely wiped out if something tanks.
These are our tips for beginning cryptocurrency traders. Hopefully, these tips helped you get an idea of what you are getting into and some of the elements you need to do to succeed. It is an incredibly exciting time to be a cryptocurrency trader and, hopefully, with this advice and a little luck, an incredibly profitable time for you as well.
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