With searches for “how to invest in crypto” increasing by 1,350% in the last 12 months, this new type of currency has dominated stock market news, and as a result, people are eager to invest their money in a market they believe to be the future. But how do you start your investment journey around crypto?
Leading financial source DailyFX has designed a guide to help day traders navigate the cryptocurrency market with control and confidence and is built on decades of experience garnered by DailyFX analysts and authors.
The cryptocurrency market is extremely volatile
One of the main attractions of day trading Bitcoin (BTC), Ether (ETH), Ripple (XRP) or any one of the other liquid coins is volatility – prices that fluctuate rapidly and/or in a wide range are said to be ‘highly volatile. This volatility is one of the main draws for short-term/day traders as it gives them the opportunity to get in and out of the market, hopefully with gains.
Keep an eye on your chosen coin/s market size – and maybe the next four coins below – to make sure liquidity is constant. Also, check the total number of a particular coin in circulation and whether more coins can be printed or if an original partner/owner in that particular coin has a substantial holding.
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Choose your marketplace and provider carefully
There have been many examples of cryptocurrency exchanges that have suddenly closed down with clients losing some or all of their money. So, choose your marketplace carefully and make sure liquidity, reliability, and if possible market regulation is at the top of your list before entering any trade.
Investment firms like IG ‘ring fence’ client funds by using segregated accounts at regulated banks and are authorized and regulated by the Financial Conduct Authority (FCA). to get in and out of the market, hopefully with gains.
Discipline is key
When entering a trade, identify your entry price, your stop loss level, and your target price. Do not enter a trade without a stop-loss, without fail. Even better if your provider can offer you a guaranteed stop-loss – normally for a small premium – you should consider it carefully. Market volatility can force prices straight through a stop-loss – slippage – which can leave you at the mercy of your provider for your eventual fill.
Margin trading, if offered by your provider, ramps up volatility, and unless you are absolutely clear that you are able to use it correctly, leave it. Traders should also consider Contracts for Difference (CFDs) very carefully before using them. The market has enough volatility of its own and will continue to offer you opportunities to trade profitably.
Nicholas Cawley, Strategist at DailyFX adds:
“As we have mentioned earlier, it is extremely important to know why you are trading cryptocurrencies and what you are looking to get out of it. Stick to your goals and don’t let the market bully you into trading when you do not want to. One of the main ways that traders lose money is by losing discipline and chasing losing trades or by ‘doubling down on positions that are going against them. This is the market controlling you and taking your money right in front of your eyes.”