Investing in cryptocurrency has never been an easy task. Cryptocurrency investments go way beyond choosing a coin you like and buying it. It’s rather a complicated process, and without the right knowledge, there is a high probability that you’ll get yourself in trouble and end up with more losses than profits.
You may not know it, but there are nearly 6,000 cryptocurrencies. Now, with a number this big, it is understandable that you may be confused about where to start or which cryptocurrency to invest in.
Therefore, we have put together this guide of effective tips for beginners that would help you to get started with cryptocurrency.
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5 Effective Tips for Investing in Cryptocurrency
If you’re looking to invest in cryptocurrency, the first step would be to have all your finances in order and choose a credible site like Coingate from where you can purchase cryptocurrency.
Other than that, here are the five effective tips that you need to keep in mind when you get started.
1. Understand What You’re Investing In
Understanding what you’re investing in is perhaps one of the most vital steps to take before you decide to make an investment. As mentioned above, there are thousands of crypto coins, and all of them function differently. Hence, you need to understand the investment case for each trade.
Usually, most cryptocurrencies aren’t backed by anything at all, neither cash flow nor hard assets. Bitcoin happens to be one of them. In such cases, investors tend to rely on someone paying more for the asset than they paid for it. In simple words, crypto-assets must rely on the market to become more optimistic for you to profit.
2. Don’t Focus on the Past
Many individuals who are new to the crypto world tend to look at past trends and extrapolate that to the future. Yes, Bitcoin was worth a few pennies in the past and has reached high ground now, but the real question is whether it will continue to grow in the future or not. And even if it does continue to grow, would it be at the same meteoric rate?
Investors who are dedicated to making huge profits tend to focus on what an asset can do in the future, not what it did in the past. To become a successful trader, you need to understand tomorrow’s gains, not yesterday’s. To achieve that, reading crypto news should become a habit. This way you will be at least aware of new opportunities or possible threats you may need to face as a trader.
3. Keep a Check on the Volatility
Stepping into the world of crypto, you must know that the prices of cryptocurrencies are about as volatile as any asset can get. They may drop quickly in seconds or nothing more than any baseless rumor.
Sophisticated investors who execute trades rapidly and have a solid grasp of the fundamentals of the market may be able to benefit from this on different levels. However, investors who are new to the game and don’t possess these skills may find themselves to be in a minefield.
The volatility of cryptocurrency can shake traders, which is why new investors can easily get crushed by it. Hence, it is important for the new investors to keep a check on the volatility and invest accordingly.
4. Manage Risks Efficiently
Risk management is another essential aspect where crypto trading is concerned. Especially as a new trader, you need to be very cautious, and you need to understand the tactics to manage risks and develop a process that helps you to dodge losses.
If you’re a short-term investor, your risk management may include setting strict rules on when to sell. This rule is then to be followed under any circumstance so that you can prevent a small decline from becoming a crushing loss later.
On the flip side, if you’re a long-term investor, your risk management may include not selling regardless of the price you’re offered. The mentality of the long-term investor is to simply stick with the position.
5. Don’t Invest Money That You Can Afford to Lose
It is essential to know that you shouldn’t put money that you need into speculative and risky assets such as cryptocurrency. Whether the money is to be used for an upcoming low-cost purchase or a big investment such as a down-payment for a house, it should be kept in safe accounts so that it is there when you need it.
Other than that, it is also vital that you don’t overlook the security of any broker or exchange that you’re using. No doubt, you may own the assets legally, but it is essential that someone secures those assets with the right security protocols.
All in all, investment in cryptocurrency is risky, and one small mistake may cost you a lot. Nevertheless, with the right guidance and the right tips in mind, you can become a smart investor and make the most out of it. However, it is advised that you start small and only utilize the extra money that you can afford to lose.