Crypto Basics Crypto Metrics

Crypto Trading vs. Crypto Investing 

Trading and investing are the two methods used to make money in the financial markets. Investors and traders both hope to profit from the market trends. Investors generally buy and hold their assets to get higher returns in the long term. On the other hand, traders benefit by taking advantage of the market movements in the short term. 

In this article, we’ll explain the key differences between crypto trading and crypto investing to help you decide which approach to the crypto markets suits you better. 

Crypto Investing 

The most typical example of investing in the crypto market is buying digital assets (coins, tokens, NFTs) and holding them in the hope that their value will increase over time. Generally, investors aren’t too concerned with the daily price movements, price trends, or picking the best time to buy or sell their digital assets. 

A key aspect is that investors buy crypto assets that they fundamentally believe in and hold them for a long time. A cryptocurrency investor is also referred to as a “HODLer” since they tend to hold the position regardless of the price or market conditions. 

Another way of crypto investing is going long on companies that specialize in the industry. For instance, you can invest in mining companies, mining equipment, and crypto hedge funds. Also, you can invest in companies that have some exposure to crypto like Tesla, Paypal, or Robinhood. 

How to Invest in Crypto

To invest in cryptocurrency, you must first choose a cryptocurrency exchange. Here are some of the most reputable exchanges:

You need to create and verify your account with the exchange. After making the account, you must choose the digital currency you want to buy. Here is an example of the top 5 cryptocurrencies by market capitalization

The final decision is where to store your cryptocurrency to keep it secure. Because some crypto exchanges aren’t protected by the FDIC (Federal Deposit Insurance Corporation), you run the risk of losing all your money to fraud or theft if you keep it in the exchange. Additionally, you risk losing all your money if you lose the access codes to your account. 

Here are some alternatives to storing your crypto investments: 

Hot wallets are online cryptocurrency wallets that are useful to store, send and receive crypto, but since they are linked to the internet, there is a chance of theft. 

Cold wallets are offline cryptocurrency wallets. Cold wallets are the safest way to store your cryptocurrency because they aren’t connected to the internet. Still, you must take precautions because you will never be able to retrieve your cryptocurrency if you forget your wallet’s private keys.

Crypto Trading 

Trading cryptocurrencies consists of making predictions about future price movements using a trading account or an exchange to buy or sell the assets. In trading, you can take two positions, long (buy) if you’re expecting the price to rise or short (sell) if you speculate the price will drop. 

A thing to keep in mind is that trading in crypto is riskier than in traditional markets due to its high volatility. In any trading, especially with cryptocurrencies, it is crucial to have a trading plan with risk management that allows you to protect your initial investment. Also, it is essential to remember to only risk what you can afford to lose. 

Trading Strategies

  • Day trading is holding the position for minutes to hours without holding it overnight. Day traders generally use leverage because they target relatively small movements in the price.
  • Scalping takes advantage of an asset’s small price movements, which generally take seconds to minutes. A scalper is typically the most active trader and makes several daily trades. 
  • Swing trading is anticipating the trend of the price movement in a larger time frame. Position traders tend to hold their trade for one week to months, and they are not concerned about price fluctuations in a short period because they believe in their long-term prediction of the movement. 

Platforms to do margin Trading with Cryptocurrency

Here are some of the platforms crypto traders use:

These platforms allow you to trade using leverage to take on larger positions while investing less money. Like in the stock market, the crypto exchanges act as brokerages. However, employing margin trading is riskier in a market with high volatility, so you should take precautions. Learn more about margin trading here.

Crypto Trading vs. Crypto Investment

One of the most notable differences between trading and investing is the time frame in which they are made. In investing, the time horizon is longer, and different variables are considered in the fundamental analysis to forecast future values of the digital asset, such as market cap or currency adoption rates.

Trading focuses on smaller time frames where the trader benefits from relatively small movements and doesn’t consider the future value of the assets. That’s why traders use technical analysis to forecast these movements with tools such as moving averages, Fibonacci retracements, price indicators, or trend lines. Traders must have a profound understanding of technical analysis to take the trade at the correct time and take advantage of the volatility.

Both trading and investing can result in profits. Still, cryptocurrency trading offers faster returns at the cost of a higher risk-to-reward ratio and a more vital requirement for technical analysis knowledge. 

Final Take

Trading and investing are two main ways to make money in the exciting and highly volatile cryptocurrency market. Depending on your tolerance for risk and time constraints, you can decide which option is best for you. Trading may be the best course of action for you if you’re able to monitor markets regularly and are okay taking on frequent risks. If you like to take things more slowly, you should consider long-term investments. 

Remember that both traders and investors must have an effective trading plan and proper risk management strategy to succeed in the crypto markets. 

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