8 Things to Keep in Mind before Delving into Crypto Trading

In simple words, Crypto trading in exchanges like Bitcoin Era means buying and selling cryptocurrencies. Cryptocurrency is regarded as a digital asset or medium of exchange for carrying out monetary transactions.

Crypto Trading

The basic difference between cryptocurrency and regular currency is that the former follows a decentralized control system while the latter is regulated by central banks.

Since cryptocurrency is not regulated, most people believe that crypto trade is highly volatile and insecure. Despite this belief, the phenomenon has shown tremendous growth during the past few years.

Cryptocurrency is digital. It utilizes modern technology to track the value of the currency, and identify its owner.

Bitcoin was the first cryptocurrency that was introduced in 2009. It is still considered the most popular. Apart from Bitcoin, several other cryptocurrencies are also available on the internet.

Crypto trading is only carried out through an exchange.

Before delving headfirst into crypto trading, it is important to research the topic and weigh your options against the risks involved.

The following article discusses a few points that prove to be very helpful before your first venture in this field.

  1. Un Regulated Currency and Trade

Perhaps the most important point against crypto trade is that it deals in a unregulated currency.

It is a virtual currency that is unbacked and intangible. There is no support of a central bank behind this currency. Its value can go down at any time without any reason.

However, there is good news for all prospective crypto traders: two bills have recently been introduced in the US which seek to regulate crypto trade so that the general public is protected against fraudsters.

The bills are clear indicators that the US government is taking crypto trading seriously and thus, it may have a bright future.

  • A Risky Investment Option

Well known investors like Warren Buffet, have made known their distaste for crypto trading. In their opinion, buying cryptocurrencies for investment purpose is one of the worst ideas which only suits speculators and gamblers.

In fact, it is true that cryptocurrencies do not have any intrinsic value. A person who is trading these currencies hopes that someday someone will come out of nowhere, and pay them more for their digital asset.

This idea is not incompatible with traditional business theories where the seller is either supplying a product or delivering value against currency receipt. This renders crypto trading a very risky option.  

  • Crypto Trading has Less Immunity

Several individual users and even some institutions carry out crypto trading. The currency involved in this trading is virtual and stored on computers.

A system crash or a virus attack can simply wipe out the currency present on a particular computer.

If traders forget their password, their currency may never be recovered. Computer fraudsters can access a trader’s personal cell phones and find out their account numbers and passwords for accessing crypto accounts.

This renders crypto trading exposed to all kinds of frauds and scams.

  • Unpredictable Market

Cryptocurrency has shown a very unpredictable trend over the years in terms of demand and price.

It has changed its value from a few hundred to thousands of dollars at a very fast pace.

This means that there is no way one can predict the future price of the currency based on research and assessment. There is no way of carrying out cryptocurrency fundamental analysis.

This also means that crypto trading is a kind of wager that can either give you good results or simply take all of your investments down the drain within a very short span of time.

  • Crypto Trading may Boost Business Deals

Any kind of money transfer, carried out around the world, requires a bank or a money changer.

Proponents of crypto trading foresee a future in which buyers and sellers will be able to make a direct transfer with the help of cryptocurrency.

The transaction ledger will be maintained by the blockchain technology. Each transaction must be verified by the buyer and the seller at their ends.

  • Limited Exposure

A few investors who are involved with cryptocurrency think that it is generally misunderstood by people.

They also see nothing wrong with crypto trading, however, these investors will advise you to take only limited exposure in this segment.

The idea is to invest around 5% of your total investment portfolio in cryptocurrencies. If you have limited exposure, you will be immune to any financial risk emanating from its crash.

  • Risk and Reward

An investor would put their money after assessing the risks associated with an investment, and expected rewards from those investments.

If you are planning to start crypto trading, you should first weigh your options. Are your expected rewards worth the risk?

Can the existing portfolio take a big hit?

If you can answer these questions in the affirmative, you should go for crypto trading.

  • Transact with Your Eyes Open

Markets and ideas have boomed and busted. Investors have made lots of money when an idea worked. Similarly, they have also lost even more money when a great idea failed.

Though there are seemingly no backings for cryptocurrency. It is not backed by a regulator, even then it is doing fine within its limited financial market.

If you keep your eyes open and follow the movement of this currency, your crypto trading venture will become profitable.

The Final Word

Crypto trading is becoming mainstream as more people enter this market. It is also being used as a medium of exchange – of course on a very smaller level.

If cryptocurrency becomes regulated, it will have the edge it is missing until now.

Dealing in cryptocurrency is everyone’s individual decision. It should be done with prudence and caution.

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Article Author Details

James Smith