Benjamin Graham, the father of value investing, said, “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioural discipline that are likely to get you where you want to go.”
Cryptocurrency can be profitable when you have a financial plan to maximise your crypto investment. It is not enough to just buy random coins and hope for the best. You need a plan and strategies to ensure the market gives you gains more than losses. Here are four efficient strategies to maximise your cryptocurrency investment:
Hedging is an investment strategy involving making a trade in one direction you estimate the market to go and another trade in the opposite direction. The guiding principle behind this is that if the market goes against your estimation, the backup trade will be profitable enough to counter the losses from the first trade. Hedging can lower the risk and losses caused by adverse market price movements.
Crypto traders and investors hedge trades by going short or long in the futures market. A futures market is a marketplace where digital assets are sold at pre-set prices and pre-agreed future dates. Traders come to a legal agreement to buy a particular cryptocurrency at its current price in future after agreeing to either go long or go short.
Going Long means agreeing to buy an asset at its current price at a pre-set time in the future because you expect its price to increase.
For example, if ETH is currently trading at $1,348 in October and you believe its price will increase two months from now, you can hedge on it by agreeing to buy it at $1,348 on the 28th of December.
Going Short means agreeing to sell an asset at its current price at a pre-set time in the future because you expect its price to reduce.
For example, if ETH is currently trading at $1,348 in October and you believe its price will fall two months from now, you can hedge on it by agreeing to sell it at $1,348 on the 28th of December.
Please note that futures trading and hedging are for experienced traders. It is financially inadvisable for beginner traders to attempt hedging crypto. You can maximise your crypto investment, but you can also lose heavily.
Crypto staking means locking a cryptocurrency in a wallet for a specific period to secure a blockchain network and validate its transactions. The blockchain selects stakers randomly or by the number of tokens they’ve staked. Selected stakers receive cryptocurrency in exchange for participating in the blockchain validation process as long as they confirm the correct information.
The crypto you earn is a combination of the crypto within the validated block and the fees users paid for validated transactions.
Staking rewards differ from coin to coin. You can get as low as 1-2% profit from staking or as high as 150% per annum.
Typically, coins and tokens with high market caps offer lower annual percentage yields (APYs) than cryptocurrencies with lower market caps. For instance, Ethereum (ETH), which has a current market cap of $164.45 Billion, offers 5-6% staking profit, while assets like DefiChain (DFI), which has a current market cap of $395,938, offer up to 70–75% profit annually. Rewards also vary by crypto exchange platform. Some offer up to 6%, while others offer 3-4%.
3. Copy Trading
Copy trading means automatically copying the trade moves a professional investor makes. It's a great way to trade crypto without tracking and studying the market yourself.
To set up copy trading, follow these steps:
- Join a trading platform that offers copy trading.
- Choose a trader to copy based on their performance history and overall risk score.
- Link your trading account to their movements.
- Your portfolio will begin automatically following their trade movements. When they buy a crypto asset, your account will do the same. When they sell a crypto asset, your account will do the same.
After choosing a trader or trades to copy, distribute your investment capital in percentages to each trader. For instance, if you have $2000 to invest, you can allocate 5% to trader A, which is $100, and 10% to trader B, which is $200. This means if trader A, one of the traders you're copying, spends 10% of his assets to buy BTC, your account will automatically make the same trade. However, it will be 10% of the $100 you allocated to the first trader, which is $10.
You can always switch or remove traders or increase the percentage of capital allocated as the market progresses.
It is important to note that professional traders won’t always make the right investment moves. To reduce the potential risk of bad trades, set up a loss limit. A loss limit is an automatic order that stops copy trading on your account if you lose a set amount or an asset loses more value than expected.
4. Diversify Your Portfolio
Diversification means investing in different crypto assets. For example, Stanley and Thelma both have $1500 to invest in their crypto portfolios. Thelma invests $100 across 15 different cryptos, while Stanley invests all the $1500 in one crypto. Stanley will have heavy losses if the market crashes or falls, while Thelma will likely lose less.
Splitting your portfolio into low-risk, moderate-risk, and high-risk assets is advisable. If you have more high-risk investments, there’s potential for huge gains and equally huge losses. Conversely, more low-risk assets will bring minimal losses but low returns. Regardless of your risk appetite, your portfolio should be as balanced as possible.
Cryptocurrency offers multiple ways to maximise your crypto investments, like hedging, staking and copy trading. Your risk appetite, available investment for capital, and market assessment abilities should serve as pointers towards which investment maximisation strategy to choose.
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.