Cryptocurrency Trader or Investor?
Getting involved in cryptocurrencies is exciting. There are many reasons why someone would want to purchase digital assets, but the two main reasons are for the purposes of trading and investing. These are two very different approaches with very different goals. Before you decide to start acquiring some tokens of your own, you need to ask yourself where your preference lies. Are you a cryptocurrency trader or an investor? Here is some information that might help you sort it all out.
The Cryptocurrency Trader
Those who prefer the trading approach when it comes to digital assets are those who look to make money when the price of a token rises or falls. These individuals do not purchase tokens with the idea of holding on the them. They only view crypto as a liquid asset which may be disposed of at will. Trading is a means to an end for these individuals. They do not view crypto the way that they view the money in their wallets. It is simply a tool with which they can make a profit.
The trader will choose to create an account on a cryptocurrency exchange. Once they have established their account, they will fund it with fiat or cryptocurrency. They will then use these funds to leverage positions on other currencies. This type of trading is not all that different from trading Forex or stocks. These individuals are sometimes referred to as day traders, although the positions they enter may or may not be open and closed within a single day of trading.
Here is a very simple example of how a cryptocurrency trader approaches the market. At an exchange, the trader has an option of either going long or short on a trade. This essentially means that the trader is betting on whether or not the currency they buy will rise or fall in value. To go long is to buy. This is a bet that he value of a currency will rise. To go short is to sell, or to bet that the currency will fall in value.
Let’s sat that a trader has decided to purchase Bitcoin at a value of $9,000 per token. If the currency rises over $9,000, the trader is making a profit in proportion to the amount of Bitcoin he has bought. He can then close the trade and take his profit. If the value falls, the trader has then assumed a loss on the trade. The process is not as simple as that, but this is the basic premise. Trading in this fashion requires that an individual do extensive homework to determine which position is best to take. Traders use tools like candlestick charts to help them make their trading decisions.
Those who trade cryptocurrencies are typically willing to take risks. Trading carries inherent risk that is beyond the comfort zone of the investor. The trader must have nerves of steel to withstand the ups and downs of the market and not panic. It is also more time consuming to trade than it is to invest. Also, traders generally have more capital to work with. This is required to open various positions
The Cryptocurrency Investor
Investors in cryptocurrencies have an entirely different mentality than traders. They are focused on long-term gains instead of quick profits. The general approach of an investor is to buy and hold. There is an acronym in the cryptocurrency community: HODL. It stands for Hold On For Dear Life, and that is what many investors will do.
The investor looks for opportunities to purchase crypto tokens when they are priced very low. There is another saying among investors: Buy the Dip and Sell the Rip. The investor has a single goal of buying low and selling high. They may buy tokens and hold them for years before they decide to sell. These individuals have a Warren Buffet mentality when it comes to securities. Buy and hold.
Investors tend to be more averse to risk than traders. They do not like to put their money into something on the basis of speculation. The investor is looking for a solid rate of return year after year. That return may seem small, but when it compounds the profits can be great. Think of those individuals who purchased Bitcoin for less than $100 a few short years ago. Some of these people have literally become millionaires.
Unlike a trader, an investor will not necessarily participate in a cryptocurrency exchange. They may simply use an exchange to make purchases and then hold the tokens in their own wallets. An investor doesn’t have need of all the tools that a trader does, although they may want access to some basic charts.
What is Your Cryptocurrency Interest?
Determining which way is the best way to go for you will depend upon the financial goals that you wish to achieve. Are you looking to make larger returns in a short period of time with higher risk, or are you willing to take smaller gains over longer time frames with less risk? This is the question that all those who purchase securities have had to answer for many years.
Both trading and investing carry some measure of risk. The cryptocurrency market can be very volatile. There is even the possibility that governments will try to regulate digital assets at some point. You cannot avoid risk if you are interested in buying digital tokens. But, you can take risks that have been carefully measured.
If you are going to trade, these are some simple guidelines:
Have enough capital to trade profitably
Be willing to accept higher risks
Be willing to study the markets and do extensive research
Make a long-term plan
Study ICOs for buying opportunities
Do not panic sell when the market takes a temporary dive
You have the freedom to choose whichever approach is right for you. Do not let someone pressure you into an action that you are not comfortable with. Assess your own personality to evaluate your feelings about risk. That is the most critical factor in determining what you will be.
And remember, there are no guarantees with cryptocurrency. You could become the next crypto millionaire or you could lose your investment. If you are wise, you will limit the amount of money you stand to lose while looking to maximize your potential earnings. No strategy is right for everyone that wants to get in the market. What has worked for others may not work for you. You will have to decide on your own methods and stand by those choices. Hopefully, they will be the right ones.