Even though crypto currencies cannot be equated with equities from a purely regulatory point of view, the market offers certain similarities to trading on the stock exchange. One buys certain coins with the hope of a price increase through increased demand or the success of the underlying concept.
In this very young and unregulated market, this strong speculation leads to enormous price fluctuations, which have already enabled some investors to make a fantastic profit in a short period of time. However, these success stories conceal not only opportunities but also numerous risks.
Apart from the danger of a market which is exposed to strong external influences due to events such as hacks or intervention by authorities, there are many so-called “scams” due to the lack of regulations. These include crypto currencies or ICOs with false promises or even special fraud groups that deliberately manipulate currencies with small volumes in order to make it easier for bona fide newcomers to invest.
Mostly, however, one hears about the unbelievable profits without apparent effort. That can be correct naturally also, everything at the word one should take however naturally not. Finally these stories do not want to deter uninvolved ones, but to get on board – because more demand causes following a price increase.
On this occasion here are five tips for beginners in Cryptocurrency Trading:
1.) First of all – it seems self-evident, but is often disregarded due to greed:
Invest only as much money as you are willing to lose.
Even if the market becomes more stable, there are scenarios in which the investment can be strongly decimated or completely gone overnight. A loss of the entire stake should not significantly worsen life.
2.) Do your own research.
Everyone wants the currency in which they have invested to rise. Advice from proven traders is good, but mostly not without ulterior motives. The research pool for crypto currencies is large, so you should include several sources. Official websites with serious whitepapers, Twitter, Reddit, Bitcointalk and various blogs are a good basis – be careful with special Facebook groups, for more information see point 4. Information is key for any BTC investment.
3.) Diversify your portfolio.
Bitcoin and Ethereum are by far the market leaders and seem to be a safe investment, but that was also said about MySpace and Yahoo. There is no guarantee that these technologies will prevail.
Remember the dotcom bubble? Losses of this magnitude are also conceivable in the blockchain sector. Of course one could also invest in the new Google or Amazon. In this sense: Don’t put all your eggs in one basket.
4.) Stay away from so-called “Pump & Dump” groups.
The game runs as follows: A crypto currency is announced, which is to be “pumped” by the members involved – so many people buy at short notice in order to increase the price. This should give outsiders the impression of a rally, which is why they hopefully want to jump on the train and increase the price even further. It is the plan of the group to “dump” the coins (sell them quickly) and make a profit at the expense of the career changers.
The whole thing has already been agreed in advance on a smaller scale, however, in that a few organizers of such groups buy the crypto currency before the announcement, the group members invest their money in the “pump”, external investors are absent and the organizers sell at the expense of the group members during the pump.
5.) Do not keep your property permanently on trading platforms.
As soon as you send a crypto currency to your wallet on a trading platform, you lose complete control over your coins. The private keys to the wallets on the platform are managed by their operators, you only get access to the possibility for transactions through a “user/password system”. If a platform goes offline, this access may be lost forever. (The Mt.Gox scandal is a good example: https://www.wired.com/2014/03/bitcoin-exchange/)
- Therefore, it is recommended to keep only the portion on an Exchange that is intended for regular trading. The remaining coins are stored more securely on hardware or paper wallets.
- In summary, active trading with crypto currencies offers enormous opportunities, but you should also always keep the risks in mind and even with slight suspicion of fraud investigate twice.
- We believe in blockchain technology and are convinced of the coming technological upheaval – therefore a long-term investment in various crypto currencies is out of the question for us. But through good reche