We have all heard the stories: teenage kid strikes it rich after buying cryptocurrency and holding, or stay-at-home dad makes 6 figure income by trading crypto — and of course, we all want a piece of that. In fact, it’s the reason most people become interested in cryptocurrency. It is essential to understand that while these things are possible, there still is a considerable amount of risks involved as well.
Traps can be easily avoided if you know what they are! So here are the five risk management tips for trading cryptocurrencies:
Avoid losing your money to third parties
Along with the stories mentioned above, it is also common to hear about exchanges, online wallets, and companies being hacked almost every other day. While blockchain technology is incredibly robust, third-party security implementations are not. Even the slightest possibility to lose your assets due to a hacker attack means you should pay extra attention to your own security measures. However, there are some simple and basics steps to help avoid this happening to you as well as minimize damages in the unfortunate case.
First of all – never share your private key with anyone! It is private for a reason, and it is the access point to your funds on the blockchain. Always keep it safe and do not share it! Leaving coins on an exchange’s online wallet is another dangerous mistake. When you are not actively trading, you should have your currency transferred to your secured wallet, preferably offline most of the time. When trading, only use a small portion of your total funds such as 20-30%. Finally, always make sure to do a bit of research on any exchange, wallet or other crypto services and know their reputation before trusting them with your money!
It’s all about quality.
Just like you have to research third party services, you must likewise examine the actual currencies you’re going to trade. This should go without saying, but many eager traders will buy loads of whatever is cheap without knowing anything about the currency, its development team or its roadmap. You need to know if a coin is going to have a chance at success before trading. This means becoming good at technical analysis. Every coin should have open source information available to the public and if one does not – that should be an immediate red flag. The whitepaper is a great resource to start with on any coin to gain a general sense of what it will do and how it will work. From there you want to know who is developing it and what their reputation is. Finally, you need to figure out what the market trends are for established coins to accurately predict what newer coins will likely do. Which brings me to the very next point:
Don’t buy the hype
“Hype” is a compelling marketing strategy, but must be avoided when making financial decisions. This should be kept in mind when doing any research on the previous two points. Exchanges and coins alike will rely on hype to attract new customers and buyers. Too much hype or too big of promises should be another red flag for new investors. When a currency is doing well, people are going to talk about it. There are two things to consider that are genuine risks in this situation. First is “fear of missing out” or FOMO and it can be your worst enemy. When others have had success because a coin is doing well, it’s natural to want to ride that wave too. However they got their position while the value was low and by giving in to “fomo,” you may end up buying on a high – a major investing mistake. The second consideration is where your information is coming from. Traditional media outlets only report on trends AFTER they have happened and typically over-sensationalized stories for ratings. It may take getting used to, but in the case of trading and investing any assets, traditional news sources should be avoided. Instead try to find bloggers, enthusiasts, and analysts who have a good reputation and that you enjoy following for more up-to-date, realistic, and predictive information!
Know how to Leverage your trades
It is essential to diversify your trading portfolio to reduce the risk of one coin failing and losing all of your money. It’s equally important to understand how to leverage your trades correctly to avoid devastating your portfolio with small percentage drops. This is particularly true of the cryptocurrency markets. The currencies themselves are incredibly volatile, which can be an excellent benefit for experienced short-term traders, but also tend to display explosive periods of growth, making them a highly valuable long-term investment. First, you must figure out what kind of trading works best for you. Perhaps you’d like to try a little of both, and that isn’t a bad idea. Many exchanges offer leverage margins that allow you to increase order sizes and add flexibility to trading options. The higher the amount of leverage used, the easier it is to be wiped out by small percentage dips in the market. If you are already a skilled trader, you can use higher leverages to “scalp” the volatile currencies in short-term trades. If you are newer and going to use force, remember that the longer you plan to hold, the lower your margin should be. Try staying around x3. This will allow you to increase your gains while giving you enough of a buffer zone to exit a bad trade. Which brings us to the final tip:
Always Know Your Exit
Be sure to familiarize yourself with and set up stop orders on your trades to protect yourself in the event the market moves against you. While cryptocurrencies can stay generally around the price for weeks at a time, occasionally the cost can run too fast, and you want to be protected. It’s vital that you figure out what factors will support the coin you invest in and those factors that can potentially hurt it, i.e., the new competitor, recent hacks, development pitfalls, etc. If you have followed all of the other tips, then you should be able to have a reasonably accurate plan for your trades mapped out. Then you can either add to your position when trends are strong or focus on locking in profits by scaling out over time along the way. Whatever you end up choosing, know when you plan to exit and have a plan in place in the event you need to exit earlier than expected to avoid a significant loss.
Now you know how to manage the most common risks associated with crypto trading, so what’s next? Well, first of all, you will need some coins to trade. Of course, you can buy most coins on any exchange, but you can also mine several cryptocurrencies including Monero, Aeon, Bitcoin, Ethereum and others using nothing more than the computer you are on right now! Just visit MinerGate and get started. If you are new to MinerGate, then simply visit the downloads section to get the GUI miner and start generating a passive trading income today! Besides easy usability and variety of coins to mine, MinerGate also features an up to date blog to keep you informed of ongoing developments within the crypto world and provide support and tips for mining, investing, and succeeding in this changing digital landscape. The best part is that unlike other third-party services that charge network fees to transfer funds to and from their platforms, MinerGate works seamlessly with the very secure Freewallet suite. From there you can trade currencies among your Freewallet accounts as well! This makes loading funds to your chosen trading platform a breeze and gives you somewhere to store coins securely when you aren’t trading. Keep in mind you may still want to set up a private offline wallet for the best security, especially as you grow your portfolio and mining profits.
Happy mining and best of luck in all your trade