The Things You Must Know Before Trading Bitcoin 2022

Things You Must Know Before Trading Bitcoin

2021 was a great year for Bitcoin and many cryptocurrencies. In fact, the total market cap of the whole market grew by 187.5%, and many top crypto coins provided four and five-digit returns during the year.

Although there’s still a lot of speculation about whether the value of Bitcoin or cryptocurrency will continue to rise this year, there’s no denying that there are a lot of investing and trading opportunities you can find in the cryptocurrency market.

So, regardless of your risk appetite and your own strategies when it comes to trading Bitcoin and other cryptocurrencies, it’s quite crucial for you to learn more about the market you’re investing or trading in, especially if you don’t have any prior experience with other similar investments such as stocks or mutual funds.

So, to help you gain more knowledge about the world of cryptocurrency, here are some of the things that you should know about before trading Bitcoin or other cryptocurrencies.

Doing Your Own Research

As we’ve already mentioned before, it’s very important to research the coin you’re investing in. Whether you’re investing in Bitcoin, Ethereum, or a small NFT (non-fungible token) project, it’s highly recommended that you do your own research about the given token or coin.

There are many factors involved in analyzing and predicting the future value of cryptocurrencies. As such, understanding the project or coin you’re investing in will help you better with your trading decisions. If you’re only interested in trading top crypto coins like Bitcoin, we’d suggest that you also watch out for relevant news from other financial markets as well as from governments regarding cryptocurrency.

Risk Management

Cryptocurrency trading isn’t all about taking profits. Since the value of Bitcoin or other cryptocurrencies is highly volatile, there’s also a good chance that your investment or portfolio will decrease in value from time to time. That’s why we recommend that you build a concrete plan to manage your risks as well as when trade crypto.

For example, realizing your gains is not the last step you’d want to think about since you’ll still need to decide whether you’ll reinvest your gains or set them aside as stable coins. The same can be said when you’re managing your losses.

If you’re quite emotional about the declining value of your coins, perhaps you need to cut your losses and stop trading for a while. This would be the ideal action that you’d need to take since revenge trading can lead you to potentially larger losses.

In truth, properly managing the risks you face in your decisions as a trader will allow you to become more consistent and happier with your trades.

Margin Trading

If you’ve already tried to invest on centralized cryptocurrency exchanges like Huobi and Binance, perhaps you’ve already encountered margin trading. Margin trading typically allows you to have a chance to gain substantial profits despite having a small balance in your trading account.

However, since you’ll be using borrowed capital from other parties, there’s also a high chance that you’ll incur huge losses. Margin trading is usually seen as a gamble by many investors, and most beginners will often make the mistake of trying out margin trading without learning much of it. And often times, they’ll find their portfolios liquidated by the end of the trade.

If you have a low to moderate risk appetite, are new to crypto trading, or have no concrete trading plan, spot trading is perhaps a better choice for you.

Start Small

Although it’s quite tempting to put all of your money into Bitcoin or cryptocurrency, it would be a wise idea to start small on your initial investment, especially if you’re still not familiar with your risk appetite yet.

We recommend that you start with the bare minimum or a relatively small amount of money that you’re willing to lose. This is because there’s a high chance that you’ll lose your whole initial investment if you intend to trade it.

Furthermore, if you’re a beginner when it comes to trading, you can efficiently learn more about the crypto market by opening a demo account on different trading platforms. This will allow you to get a general feel for the market and help you understand the basics of trading.

Diversification

Although investing only in Bitcoin and other top crypto coins like Ethereum and Solana can help ensure that you’ll profit in the long run, you also have the option of diversifying your whole investment portfolio.

There are other investment vehicles that you can try out, all of which can be profitable with the right strategy. For example, real estate is a very lucrative form of investment that you can enter into if you’re confident with your financing capabilities and the locations you’re interested in.

Alternatively, you can also put some of your funds in stocks or high-yield mutual funds. If you’re willing to risk more money on cryptocurrencies, you can also invest in altcoins that have a certain potential to grow.

Pump And Dump Schemes And Other Scams

Pump and dump schemes are very common in the crypto market and are often executed by groups of scammers or experts from different fields. Moreover, they usually appear as legitimate projects in the eyes of investors since they use clever and deceptive marketing strategies for their projects.

Sometimes, they also pay social media influencers to encourage people to buy their digital coins. Once the value of their coin reaches a certain amount, they’ll sell all the coins and leave their investors with worthless digital coins.

There are also other scams that are very common in the crypto market. For example, Metamask is a popular decentralized wallet that is often used by many investors. However, if you try to Google the official website of Metamask, dozens of phishing websites come up to potentially bait you into giving away the word phrase of your wallet. Unfortunately, other scams, such as Ponzi schemes and fake exchanges, are all too common in the market. That’s why you have to be very careful and attentive when it comes to suspicious messages that you receive from different platforms.

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