Are you tired of slaving every day at your 9-5 job? Are you well overdue for a raise?
If you’re looking to drop your 9-5, investing can be a one-way ticket out. But this begs the question, what should you invest in? Stocks? Bonds? Real estate?
There are so many different options when it comes to investing, but one of the newest and top trending is trading cryptocurrencies.
Did you know, that if you had invested just $100 in Bitcoin back in 2011, your investment would be worth around $2,053,278 in 2018?
Cryptocurrencies are an emerging market, but there are some important things to know before you dive into the cryptocurrency trading world.
Read on to learn what exactly cryptocurrencies are and 13 tips every beginner should know.
- What Are Cryptocurrencies?
- Why Should You Trade Crypto?
- Crucial Cryptocurrency Trading Tips
- 1. Don’t Start with Leverage
- 2. Establish Strong Risk Management
- 3. Don’t Put All Your Eggs in the Same Basket
- 4. Only Trade with Money You Can Afford to Lose
- 5. Start with Realistic Expectations
- 6. FOMO
- 7. the Market Moves and You Should Too
- 8. Make Sure You Have the Right Analyzing Tools
- 9. ICOs
- 10. Follow the news
- Ready to Trade?
What Are Cryptocurrencies?
Cryptocurrencies are essentially digital assets. They are powered by Blockchain Technology and use strong cryptography to ensure the transparency of the transaction.
In other words, cryptocurrencies are double secured, keeping your money safe from fraud and discrepancies.
The U.S Dollar -just like every other currency in the world- used to be backed by gold. This was the famous gold standard, meaning that every bill used to have a value directly linked to gold.
The gold standard disappeared in the United States in 1933 when President Richard Nixon replaced it for fiat money. Fiat money is the paper money that’s in your bank account. Since this money isn’t backed by gold, it only has value simply because the government printed it and said that it’s the official currency.
Unlike fiat money, bitcoin and all the cryptocurrencies have value because there’s a big community behind them supporting their technology, transparency and super cheap, efficient system.
While cryptocurrencies are not backed by gold either, they’re backed by a trustworthy Blockchain technology, cryptography, and the difficulty of their algorithms.
Human beings are corruptible, technology and algorithms are not.
Why Should You Trade Crypto?
The cryptocurrency market is an emerging market that’s been steadily growing. Millions of dollars are been put in the market every single day.
While the cryptocurrency market total capitalization is currently near $211 billion, it’s smaller than some American companies like Apple.
Trading in Forex Market averages about $5 trillion per day. When we compare the two markets, you’ll notice just how much room the crypto market has to grow.
You can be one of the early adopters in this emerging market.
Crucial Cryptocurrency Trading Tips
Once you’ve decided to jump on the crypto bandwagon, there are a few things you’ll need to keep in mind. Here are a few must-know cryptocurrency trading tips to get you started:
1. Don’t Start with Leverage
Cryptocurrencies are volatile. It’s the most volatile market, as a matter of fact.
It’s a good idea to start small if you’re a beginner in trading cryptocurrencies. Some brokers and crypto-exchanges offer trading of cryptocurrencies with leverage.
Leverage simply means that you’re borrowing a certain amount of money in order to participate in higher cost trading. Meaning you can make more money with less money.
Leverage sizes could be 50:1, 100:1, or 200:1. Keep in mind that different brokers may offer different leverage sizes.
As a beginner, you want to start trading cryptocurrencies with zero leverage. If you use high leverage you can make more money, true, but you can also lose more money. You could lose all your capital very quickly if you’re not very careful.
Which it introduces us to the next section:
2. Establish Strong Risk Management
It is crucial to your investing career and your bank account that you maintain a proper risk management strategy.
You must never risk more than 2% of your capital when trading cryptocurrencies. Especially if you’re starting with a small initial investment.
The world of cryptocurrencies is so volatile that you can lose all of your money in 2 seconds. For this reason, you should always set a stop-loss in every trade you place.
3. Don’t Put All Your Eggs in the Same Basket
You’ve heard the term, but what really does it mean?
Diversify is the key to success. Diversifying your portfolio will give you some kind of protection against losses.
For example, you wouldn’t want to invest only in Bitcoin or Ethereum. You should invest in at least 5 different coins to diversify your portfolio. This is one way to “protect” your capital.
If one cryptocurrency is losing value, another one might be gaining value.
ProTip: There is no real way to protect your money in an investment. All of the money that you invest is at risk. This is why practicing strong risk management is so important to success.
4. Only Trade with Money You Can Afford to Lose
This one is crucial to any type of investment.
Never invest money that you can’t afford to lose.
Don’t ever invest money you worked so hard for years to save for the kid’s college fund or the money you have for medical emergencies. Never invest any money that you need at the end of the month to pay the rent, thinking you’ll get it back with some profits in a couple of days.
This is a sure fire way to find yourself homeless or hungry.
Okay, maybe not that extreme, but if you’re not careful how you invest your money it’s a very possible scenario.
If you don’t already have expendable cash in your savings account, see where you can cut some bills out of your life to start collecting some extra cash. Do you really need to get your hair done? Do you really need to go out to dinner?
The average American spends nearly $3,000 yearly in restaurants, imagine how much money you could make if you just stopping going out to eat?
Pinch pennies, save some extra money from your paycheck, and then you can start your crypto career.
5. Start with Realistic Expectations
You’ll fail. You’ll lose money. Then, you’ll learn.
You probably have been told to invest in bitcoin if you want to be rich in a couple months.
Don’t be fooled.
Yes, some people are rich now because they invested in bitcoin a few years or months ago. However, you’ll need to keep in mind that just because the price of the bitcoin spiked in 2017, doesn’t mean it’s going to keep spiking each month.
Just like any market, the cryptocurrency market moves up and down. It spikes in both directions. It’s important to remember that the more volatile the market is, the more difficult it will be to make smart investments.
See, investing is all about timing. If you invested $100 right before the spike in 2017, you might be celebrating with a new car or home. But, if you invested your money in the beginning of 2018, you might be in for a big loss, as the market lost nearly 90% of its value since January.
If you’re not financially equipped to take a big loss, you’ll want to spend some hours trying to learn how to read charts. Many advanced traders have learned to spot recurrent patterns in their perspective markets. This is just as easily done in the crypto-market as any other.
Of course, that’s not to say it’s easy.
Expect to spend many months studying different patterns. Keep practicing to make sure that you invest the right amount of money in the right moment.
FOMO is a phobia that creeps its way into every new trader’s mind.
What is this mysterious fear?
FOMO: Fear of missing out.
You might think you won’t be affected, but rest assured, one day you’ll find yourself waking up at 3 am to check your crypto trades.
Don’t worry, you’re not missing it. You’re still on time to make money trading cryptocurrencies.
When the cryptocurrency market hit a market capitalization of $800 billion in January 2018, and bitcoin hit almost $20,000, everybody was talking about it. Everybody thought was a good idea to invest in cryptocurrency.
Then, because these currencies were becoming a real thing, and nobody wanted to miss the opportunity, the opposite happened.
The cryptocurrency market has been losing value since January 8th, 2018, and people who invested -emotionally and without any knowledge- all their money in cryptocurrencies at the beginning of 2018, have lost almost everything.
7. the Market Moves and You Should Too
Once you start to invest in cryptocurrencies, remember to have free time for you.
Don’t check the price action every 5 minutes. This is bad for your mental health and for your pocket. You might get emotional, you might feel scared and you might close the trade too soon or open another one based on emotions.
If you want to be successful, all your decisions must be based on technical analysis and not emotions.
Take a breath, and walk away.
8. Make Sure You Have the Right Analyzing Tools
You won’t be good at anything if you can’t see what you’re doing. Depending on the exchange or broker you sign up for, they might have very primitive and basic charts that don’t offer you a clear vision of the price action.
You’ll want to sign up for a website that will offer you better tools and ways to analyze your charts before you place any trade.
When a company is looking to create a new cryptocurrency, and they need to raise funds, an ICO (Initial Coin Offering), is the way to go.
ICOs are a form of long-term investment that can be very profitable.
You have to be patient, though.
If you invest in ICO you’re investing in a cryptocurrency that hasn’t been created yet, it can take years until you see some profit.
The equivalent of an ICO in the mainstream market is an Initial Public Offering (IPO). If you choose the right ICO, it could be like investing in Apple in 1980, when they launched their Initial Public Offering (IPO) of its stock for $22.
Apple is now worth more than $1 trillion.
Warning: Beware of scams.
ICOs are not regulated by any institution or government. Because of this, there have been many cases of fake ICOs.
If you lose your money in a fake ICO there’s nothing that you can do. Your money will be gone forever and you can’t take any legal actions against anyone.
Choose wisely and don’t send money to anyone without doing some research first.
Make sure you read the white paper, check who’s behind the project, who is supporting the ICO, and make sure the final product offers a solution to a problem.
Once the cryptocurrency is live, follow the roadmap and follow up to be sure the company is actually still working on the project and updating it.
10. Follow the news
Yes, the news is very important to trade cryptocurrencies. As we said before, the market is very volatile and the news can cause big spikes in cryptocurrency prices.
If a cryptocurrency has been listed in a new exchange, if a cryptocurrency has been banned in a country, or if a cryptocurrency has a new approval from the government or a big international company, the market will react accordingly. These are all important events that you have to keep an eye on and react quickly to.
Ready to Trade?
Now that you’ve got some Dos and Don’ts of cryptocurrency trading under your belt, it’s time to get started.
Your first step into the crypto-market is signing up for a broker and trading platform. Once you get yourself signed up, check out these trading strategies for beginners.