As one of the top economies in the world, Singapore is buzzing with a lot of action in the money markets. This is no different with cryptocurrencies wRead More
Trading Bitcoins is very much similar with any other forms of trading. The risks can range from mild to extremely damaging. You need to be careful when you are trading Bitcoins as a little greed can go a long way. The idea behind this is to ensure that you have your safety nets before jumping off the cliff with your new-found investment. Here are some safety tips.
Bitcoin Trading Ground Rules
First things first, if you are trading Bitcoins (or any other forms of trading), you need to:
- Put 100% focus into this
- Don’t get distracted and put in enough hours to learn about Bitcoin
- Understand that trading might not be everyone’s cup of tea and hence know when to exit
- Remember that you can get burnt very easily if you are not careful
Then, consider the following tips.
Have an objective
You need to have a reason when you trade. Before starting, know why you are starting the trade so that you can formulate the right strategy. Your strategy should have room for times when you are not earning. The concept here is to know that there are times when you might not be earning. You cannot win every time but not losing might just be a good strategy.
Exit Strategy in Trading Bitcoin
Set a target and make sure it is clear. If you are taking profit, then you need to have an exit strategy. Read this! You must know when to stop when you are making money. You cannot earn them all. Then there is the other side of the spectrum. If you are losing, you need to know when to cut the loss. The high and low levels must be clearly identified before starting your trade. This will give you space to calculate how much you are ready to lose and how much you could potentially earn. Once you reached those points, stick to it!
Find pockets to earn
The best strategy is to go for small profits. You can never find the peak of the movement so what you want is to build your profit based on accumulation. By managing your risk wisely, you get to earn more in the short to middle term. Bear in mind that Bitcoins are very volatile. Look for other markets that have a direct or indirect effect on Bitcoins and then work your way up.
This should be the same theory you would have heard in most investment engines. Think before acting and more important, be practical about your investments as well as the processes that you intend to go into.
- Charges – You do realize that there are some form of charges involved when you trade. This means that the more you trade the more you have to pay. So, think about reducing your costs before its too late.
- Decision making – Ultimately, you should be the one making the decision whether to trade, to cut off or to stay silent. You do not want to be pressured into making decisions that might benefit you in any way.
- Setting your goals – A lot of traders lose sight of what they set out to do in the first place. If you know you have to stop after earning a certain amount, factor that in from the start and stick to it. There will always be other opportunities. You cannot let this one spoil what’s coming in the future.
- Get market scoops – If there are news reported by major news sites, then there is a high chance they are true. Maybe its time for you to pull out of that trade and re-strategize for your next move
Market Capitalization and Market Price
There is always a lot of confusion when it comes to market capitalization and market price. If that doesn’t confuse anyone in the money market, nothing will. For an industry as new as cryptocurrencies, this is all the more confusing than ever.
What is the difference?
These terms are never easy to understand especially in these contexts. To put in simply, Market Capitalization or MarketCap in short is basically the amount of money that is being invested into any form of cryptocurrency. This is where it makes a lot of sense because it is how much USD or how much GBP you put into the cryptocurrency.
On the other hand, the price of the cryptocurrency refers to the amount that you need to fork out to buy a single token.
So, why the confusion and how crucial is it?
Have you ever asked the question: if Bitcoin can reach USD1,000 then it is possible that this coin is USD1 at least? This is a very wrong statement. This is because it is not possible to compare 2 currencies in their potential to grow. This is because in cryptocurrency, the price is determined by the supply and demand. So, what does it mean? This means that when Bitcoin’s current price is USD1,000, it must be considered with the circulating supply which could be 15 million. So, if the supply increase to say, 150 million, that means the price would drop to USD100. That’s how the law of supply and demand works.
This is in light of the fact that the same amount of money was invested. In another context, it means that if Coin A has 200 times more the supply of Coin B, it would need 200 times the amount of money invested in Coin B for both the coins to be similar.
How does MarketCap works?
For instance, if the supply of a coin is 10 billion, the market cap will come from USD10 billion being invested in it if the price is USD1. This means that the market cap would be USD10 billion.
This is a clear indication that the prices of coins cannot be compared. This is because the supply will change the price too drastically.
So, what can be compared then?
The price of 2 coins cannot be compared. That is given. Hence, the best indicator would be market cap. Since it is the amount of fiat money, it gives a real indication of the currency’s size. For example, if Litecoin is expected to become the same as Bitcoin (in terms of size). In other words, it means that the market cap of Litecoin would be the same as Bitcoin’s market cap. This is what the ‘Flippening’ phenomenon is. It is where there is a same amount of money being invested in both cryptocurerncies. This will be the best way to compared 2 currencies. The price might be easy to compare but it will not make sense. The market cap would.
Bitcoin as investment option
Bitcoin is a market not for the faint-hearted. Like any other volatile markets, investing in Bitcoin has its risks which means you can easily profit or lose. Hence, you need to take precautionary steps before jumping in. Better still, you should know what strategy before entering the market and stick to it!
Why you should invest in Bitcoin? There are almost 900 different ones, which one should you take and when would be a good time? We will try to give you the answers to these bugging questions.
How do you actually invest into Bitcoin?
The numbers never lie, the value of Bitcoin has increased by more than 25,000% since it came into the market back in 2011. Meanwhile, its alternative (and another major currency), Ethereum has increased by nearly 3,000% since 2016. As a whole, the market capitalization has already breached 10,000% in the last few years. With such an amazing performance, it is no wonder analysts are fast concluding that it is a bubbling and is heading to destruction.
Have you missed the ship?
The usual question is that since Bitcoin has already peaked, wouldn’t you have missed the chance to invest? The answer is No! because it is like investing in any other financial market. If you had known this 5 years ago, you wouldn’t have been reading this now. Before going further, know this, investing in cryptocurrencies is very high-risk.
Rule No:1 – Don’t overinvest
This is the best advice any analyst will tell you. NEVER overinvest. You need to be able to invest and go about your normal life. This means that you must be ready to lose all your investment (should it come to that!) in Bitcoin and still have enough to live by. This is one of the most important rules of investment whether it is in stocks, Forex, or any other platforms.
Bitcoin Investment & Trading plan
This can be quite easy because you need a starting point.
- Build your portfolio: Note that Bitcoin is not the only currency around. In the past, (before 2017), Bitcoin was the only one. Today, we have what is known as Altcoins and there you have more choices. Take them as penny stocks but you need to build a portfolio around it. Bitcoin is still the standard but it NOT the only one.
- Filter the good and the bad ones – Do your homework. There is no way you can make any money without any research. Look for those with very transparent vision and where the development team is constantly heard. Determining which Altcoin to invest in means you must be sure that you have access to these information as and when you need to. Transparency is key!
- Find reliable Exchanges – You can very much find the exchanges everywhere. Buying Bitcoin is quite easy but finding a reliable one might be challenging because you’d never know when they disappear after a while. It’s best not to keep your crypto in exchanges.
- Good time to buy? – This is the golden question most people will ask. Generally, there is no best time. What we have observed is to buy when the price is stable and mostly after an extreme surge follows by a nose dive and stabilised for a few months, Definitely not when it’s at its peak or when its crashing. The crashing can be prolonged to 3 to 6 months. US and Australia taxation year end month which is May to June will have a big impact and not a good time to buy for short term investment, as most buyers will sell off earlier to avoid tax.
- Not like other markets – one thing for sure, if this is a bubble, it is not the same as the other previous ones. So don’t make such comparison to decide. Take time to invest, don’t act hastily. If it jumps 500%, chances are it might happen again.