Crypto Trading vs Crypto Investing: Which Is Better For You?
Table of Contents
- What is the difference between trading Crypto and investing in Crypto?
- How do you choose between Crypto Trading and Crypto Investing?
- Types of Crypto Trading Strategies
- HODL: The Major Crypto Investment Strategy
- Breaking down HODL in Cryptocurrency
- What is the first step you need to take before trading or investing in Crypto?
- Extra Tip: Take Risk Management Seriously
- FAQs
Crypto trading and crypto investing are two sides of the same coin.
Let's unpack their differences to explain them better.
What is the difference between trading Crypto and investing in Crypto?
1. Trading is a short-term strategy, while investing is for the long term. If you're keen on making and taking profits quickly and often, trading is the way to go. If you're focused on the bigger picture and playing the long return game, investing is the better option.
2. Trading has higher risks due to market fluctuations. Imagine if you bought a coin for $10 today and the price increases to $15 in the next 12 hours; that would give you a profit of $5. However, the next day, the price could drop to $9.
Investing, however, requires waiting for extended periods, thus reducing the risk involved - because Crypto typically appreciates over time, even if the daily price fluctuates.
3. Trading is more focused on daily price movements while investing focuses mainly on an asset/coin's use cases and track record.
How do you choose between Crypto Trading and Crypto Investing?
Answering the specific questions below will help you determine choose between crypto trading or crypto investing as your strategy:
- What are your financial goals?
Are you looking to make quick profits?
Or Are you more interested in building a solid investment portfolio over time?
- How much available capital do you have?
How much capital do you have available?
How much can you set aside from your income to buy cryptocurrency?
If you have a little capital, trading may be in your favour. If you have a more sizable amount of capital, you might benefit more from investing.
- How much do you know about Crypto and the crypto market?
Your knowledge level is vital in choosing which strategy to begin with. However, here are five questions to ask before buying cryptocurrency as an investor or trader:
- Who are the creators of the token or coin?
- Does the coin or token have an official website and social media page?
- What is the purpose of the token/coin?
- How many holders does the crypto coin/token have?
- What is the liquidity and transaction volume?
Types of Crypto Trading Strategies
1. Day-trading
As the name implies, it refers to buying and selling daily. Traders that use this strategy make both gains and losses every day.
2. Swing trading
This involves holding off on selling for a bit while monitoring the market. When traders notice that a change is soon to happen, they properly position themselves to catch the change in trends when it happens.
3. Scalping
This is one of the popular strategies. In this method, a trader makes very little profit but accumulates many of these profits into something tangible.
4. Position trading
This trading strategy is similar to investing. This is because the trader holds off on making any trade, be it buying or selling, for months. They swoop in and trade when the market looks favourable enough for them.
HODL: The Major Crypto Investment Strategy
HODL, which originated from a misspelling of the word "hold," is an acronym that stands for "Hold On for Dear Life." HODLing in cryptocurrency means holding onto your digital assets, like Bitcoin or Ethereum, for an extended period, regardless of market instability or price fluctuations
Breaking down HODL in Cryptocurrency
1. Long-term HODL: This is the most straightforward strategy. It involves buying a cryptocurrency and holding it for an extended period, often years. It's akin to investing in a promising startup and waiting for it to grow. An example is Bitcoin; if you had bought it in its early days and held onto it, the price appreciation would have yielded significant returns.
2. Dollar-Cost Averaging (DCA): DCA is a method where you invest a fixed amount at regular intervals, regardless of the asset's price. For instance, if you invest $100 in Bitcoin every month, you buy more when the price is low and less when it's high. Over time, this averages out your purchase price, reducing the risk of buying at the peak.
3. Asset Diversification: This involves spreading your investments across various cryptocurrencies rather than putting all your funds into a single asset. It helps manage risk by reducing your exposure to one coin's price fluctuations. For instance, you might hold Bitcoin, Ethereum, and a few other altcoins.
4. HODL with a Goal: Determine a specific financial goal or milestone for your cryptocurrency investment. This could be buying a house, paying for your child's education, or retiring early. Once you reach your target, you can decide to sell or continue HODLing.
5. Rebalancing: Regularly assess your portfolio's performance and adjust it as needed. Suppose a particular cryptocurrency has performed exceptionally well and now represents a disproportionate part of your portfolio. In that case, you might consider selling some to maintain a balanced allocation.
What is the first step you need to take before trading or investing in Crypto?
- Choose a Reliable Crypto Exchange and set up your wallet
Selecting a reputable and secure cryptocurrency exchange is non-negotiable. Research different exchanges and read their reviews online.
On Obiex, you can buy and sell Crypto at competitive market rates, use Crypto to pay for utilities, and swap Crypto without waiting for blockchain confirmation.
Furthermore, as a cryptocurrency exchange, we have established solid infrastructure and strategies to safeguard our customers against hacks and other security breaches. Read more about how we secure your assets here.
Once you set up an account on a crypto exchange, you can create different wallets for different cryptocurrencies. On Obiex, you get access to over 15 cryptocurrency wallets. Create an account in less than 2 minutes for free here.
Extra Tip: Take Risk Management Seriously
Risk management is a concept both beginners and seasoned traders must always prioritise.
As a crypto trader/investor, you must understand the best way to manage risk and set up a strategy that helps you minimise loss.
For instance, your risk management strategy can involve establishing strict rules on when to hold and when to sell. You could decide to sell only when a coin or token has risen 20% or hold as long as the coin doesn't fall below 15%.
FAQs
Q: Is crypto trading profitable?
A: Crypto trading can be profitable, but it also carries significant risks. Success in crypto trading depends on various factors such as market knowledge, timing, risk management, and strategy.
Q: Does trading Crypto mean buying?
A: Trading crypto involves buying and selling digital currencies in the hope of making a profit.
Q: Is buying Crypto the same as investing?
A: Buying Crypto can be considered a form of investing, but it's important to distinguish between short-term speculation and long-term investment. Long-term investors typically hold crypto assets for extended periods, while traders aim to profit from short-term price fluctuations.
Q: Which Crypto is best to invest in?
A: The best Crypto to invest in depends on individual risk tolerance, investment goals, and market research. Bitcoin and Ethereum are among the most popular cryptocurrencies for long-term investment. Still, it's essential to conduct thorough due diligence before investing in any digital asset.
Q: Which trading Crypto is most profitable?
A: There is no definitive answer to which trading crypto is the most profitable, as profitability depends on various factors such as market conditions, trading strategies, and risk management. Some traders focus on highly volatile cryptocurrencies, while others prefer more stable assets.
Q: Can I learn crypto trading on my own?
A: Yes, it's possible to learn crypto trading on your own through self-study, online resources, books, and practice. However, it's essential to approach trading with caution and be prepared to invest time in learning about market dynamics, technical analysis, and risk management.
Q: How do you become successful in crypto trading?
A: To become successful in crypto trading, one must continuously educate oneself about the market, develop a sound trading strategy, manage risk effectively, stay disciplined, and adapt to changing market conditions. It also helps to learn from experienced traders and remain patient during periods of volatility.
Q: How much do I need to start crypto trading?
A: The amount needed to start crypto trading varies depending on factors such as the trading platform, your trading strategy, and your individual financial situation. Some exchanges like Obiex allow users to start trading with amounts as small as $1, while others may require a minimum deposit. It's essential to start with an amount you can afford to lose and gradually increase your investment as you gain experience and confidence in your trading abilities.
Disclaimer: This article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.