Trading cryptocurrency is something that more and more people are doing all the time. People are drawn to crypto because it is new, interesting, unique, and more than a little risky. For the right type of investor and with the right combination of knowledge, hard work, and a little luck, trading crypto can be incredibly exciting and very lucrative.
If you are looking to get into the crypto trading game, there are a few things to consider before you start. Trading crypto is a risky investment where the markets move fast, so doing the pre-work before you start is very important. Here are five things to do before you start trading cryptocurrencies.
1. Recognize the risk
This can’t be said enough. For every overnight cryptocurrency millionaire out there, there is someone else who lost it all just as quickly. Trading cryptocurrency is best for younger investors, investors with disposable capital, and those who are very comfortable gambling on investments. If you are risk-averse or can’t afford to lose a good chunk of what you invest, it may be best to stay away.
The risk and volatility of the market can be very good for traders though, especially day traders. For those looking to make short-term trades to turn a quick profit, cryptocurrencies offer a great platform to do this. If you like day trading but the stock market is not offering enough big swings, crypto may be for you.
2. Get to know the coins
We all know about Bitcoin. It was the original crypto and still, by far, the most well-known. The problem with Bitcoin is that, as of late 2020, it is trading at over $10,000 per coin. That is a lot of money to put into a single unit, especially for investors new to trading cryptocurrency.
The good news is, Bitcoin is no longer the only game in town. There are now over 5,000 different cryptocurrencies on the market with that number fluctuating all the time. These “altcoins,” as they are known, vary greatly in market cap, price point, and staying power.
To get to know the alternatives to Bitcoin, you first need to know the major categories of cryptocurrency. There are mining-based coins that are unearthed and operate similarly to Bitcoin. You will also find stablecoin, which is crypto backed by some tangible assets like fiat currency. Utility tokens and security tokens are two other types that operate more like traditional stocks.
3. Know which tools you plan on using
Successfully investing in crypto takes a lot of hard work, research, and strategy. Good traders don’t just go out making trades blindly. They put in the work needed and get lots of help from the right tools. These tools are critical and can spell the difference between a recreational crypto trader and a serious one.
There are many tools out there to help crypto traders find success. The key is finding the ones that make the most sense and seem the most useful to you. Cove Markets has a simple guide to crypto tools that are useful to traders.
These tools include cryptocurrency must-haves such as crypto wallets and specialized tax software. There are also research and tracking tools as well as market stats tools, chain analytics tools, and full-service analysis tools like CoveTrader. With the right combination of these investing tools, it will be much easier and you’ll be more likely to find success.
4. Understand your goals
The famed boxer Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.” If you are a cryptocurrency trader, you will get punched in the mouth at some point. You will also score some knockout blows yourself. In this fast-paced world, it is easy to get caught up in profits and losses and get carried away. That is why you need to understand your goals before you start trading.
Your trading goals should include how much you are willing to lose and how much profit would make you walk away happy. Set these numbers and keep them in mind while your trading. When you have a particularly bad run, cut bait before you lose more than you are willing to. In a good run, get out with your target profit. You may miss out on some profit that is above and beyond your goal, but there is also an equal chance you will hold on too long and walk away with nothing. Always remember your goals.
5. Watch the Markets
Trading cryptocurrency is not a passive activity. It is not something you should do one day and come back to a week or two later and check in on. You need to be fully engaged as often as possible to find success. That is why, before you start trading, you should watch the markets and make sure that you are interested enough to be engaged and you understand how they work.
You can do this by simply following along on one of the big, centralized cryptocurrency exchanges. These include places like Binance, Kraken, or Coinbase. There are also simulated crypto trading sites where you can make simulated trades for free to practice your craft.
No matter how you decide to do it, you should give crypto trading a try without spending real money first to make sure you know what you are getting into. If that goes well, you will be well on your way to becoming a real crypto trader.
For anyone considering crypto trading, the five things to do above are a great way to start. Think about these things, look into them, take your actions, and if it all checks out and you still want to trade cryptocurrency, start trading! Again, trading cryptocurrency is certainly not for every investor but if it is for you, it can be something that you truly enjoy and makes you a lot of money. Whether or not crypto is the currency of the future, right now is a great time to trade it and that is what you need to know.