Crypto trading can be exciting and terrifying for beginning investors. While many are looking to minimize risks and maximize their profits, the crypto market can be tricky. Therefore, it’s always wise to pay attention to different useful tricks and tips in riding the crypto trading wave.
Although mistakes are inevitable, avoiding them can be an intentional decision. For instance, you can’t prepare for theft and fraud if you don’t know how cryptocurrency scams work. Being pragmatic with your trading process will help you prevent some common beginner traders’ mistakes.
A Beginner’s Guide To Cryptocurrency
Cryptocurrencies are digital assets that enable secure trading and ownership. These assets are created using computer networking software. Supported by blockchain technology, they keep transaction and ownership records in a decentralized manner.
Cryptocurrencies can exist as individual units called coins or tokens and collective units known as decentralized autonomous organizations (DAO). Crypto can also function as exchange units, stores of value, and assets that help run vast computer networks efficiently.
Most cryptocurrencies operate without central authorities such as banks and national governments. Nevertheless, they have a defined monetary policy that allows users to create new tokens based on predetermined rules.
Cryptocurrencies exist in different kinds. Each type holds a peculiar value. The most common types of cryptocurrencies include:
- Fiat cryptocurrency: This type of cryptocurrency doesn’t hold any intrinsic value. Its value is agreed upon by the public, which establishes it as a medium of exchange. Therefore, it offers a better and cheaper currency that’s more decentralized and easier to use.
- Stable coins: The value of stable coins is usually tied to the price of another asset to minimize its volatility. While fiat cryptocurrency can create their form of money, stablecoins have to depend on other assets to maintain the benefits of cryptocurrencies.
- Utility Tokens: Utility tokens are cryptocurrencies that hold monetary value not necessarily because they’re considered a form of currency themselves but because they have a predetermined use that has demand. They’re primarily used to power business and other functions on a blockchain network.
Pros And Cons Of Trading Cryptocurrency
As cryptocurrency becomes increasingly popular and develop to different handy forms, you should understand its pros and cons as a newbie before investing. Learning about the benefits and limitations of cryptocurrency can help you decide if it’s something you really want to do.
One of the most significant advantages of cryptocurrency is that it’s a very accessible and versatile currency. It takes only a few minutes to transfer crypto. The list of places that accept them for financial transactions keeps increasing, making it versatile enough for purchasing different kinds of goods. The degree of anonymity of cryptocurrencies also makes them a more secure means of transaction.
On the flip side, though crypto decentralization is beneficial, novice investors may need to be wary of crypto for established bodies don’t regulate its operations. Hence, they’re not legally protected and losses caused by fraudulent transactions can be hard to retrieve.
Additionally, even though the number of businesses accepting cryptocurrencies is increasing, wide implementation is yet to be seen. This may impose limitations on your consumer habits if you heavily depend on crypto.
10 Common Mistakes Every Novice Investor Should Avoid When Investing On Crypto
As a beginner, it’s recommended that you take extra caution when investing your hard-earned money in cryptocurrency. Below are common mistakes you should avoid before, during, or after investing in crypto:
- Doing Poor Research
Since cryptocurrency is a relatively new technology, it’s essential to do proper research before investing. There are a lot of talks surrounding cryptocurrencies, but you can’t trust the opinions of your family and friends alone to make a decision. Instead, take time to conduct personal research on reliable information sources. You’ll be able to get information that’ll boost your confidence before trying your luck on crypto.
- Using An Unsafe Cryptocurrency Exchange
As a new investor in cryptocurrency, you should be sure of the safety of your exchange. Common mistake newbie investors make is failing to find a secure platform for converting fiat currency into digital coins and transacting with virtual cash. Be vigilant of the different cryptocurrency scams popping out almost every day.
- Investing In Only One Cryptocurrency
In the world of investments, it’s safer not to have all your eggs in one proverbial investment basket. Investors who fail to diversify their cryptocurrency portfolio may be up for a ride because most digital assets are highly volatile. A single negative market swing can make traders lose a large chunk of their investments (or all of them) if they only trade a single currency. It’s wiser and more profitable to diversify.
- Not Ensuring Proper Cybersecurity
Ignoring cybersecurity measures is said to be a big mistake that exposes investors to hackers or scammers. Without proper security, you risk losing your investments to cyber frauds. To avoid this, ensure you secure your accounts and trading wallets with the appropriate security measures. You can tighten security by not disclosing sensitive information about your investments to third parties.
- Buying Because It’s Cheap
Seasoned crypto investors regard that the affordability of a coin isn’t the only option to consider when investing; neither is it the most important. Buying because it’s cheap will be a huge mistake when you don’t understand the purpose of the asset and the maximum supply available. More so, it’d be best if you understood the market cap of every cryptocurrency before you invest in it.
- Buying More Than You Can Afford To Lose
Investing money you can’t afford to lose can lead you into a disaster if the value of an asset drops drastically out of the blue. The uncertainty of cryptocurrencies makes them a very risky form of investment for you can’t tell when they’ll rise or fall.
- Not Paying Attention To The Numbers
It’s recommended that investors do the math before they stake their resources and even after they do.
As a budding cryptocurrency investor, pay attention to the numbers to understand the profitability of your holdings. It’s said that those who ignore data are unable to make proper profit projections. You should know how the various cryptocurrencies are doing in the market and the potential they hold for investors like you.
- Making Investment Decisions Based On Emotions
Investment decisions often stir up emotions. Nonetheless, it’ll be a fatal mistake for an investor to make emotions a part of their decision process. Emotions blind the mind to instigate inaccurate judgments and poor reasoning. Rather than letting your feelings take the wheel, engage your rational mind and deal with actual data and facts head-on. That way, you can call tough shots and eventually become a top crypto investor.
- Buying High Out Of Fear
Fear-induced decisions often lead to fatal outcomes. Investors afraid of missing out on crypto trends end up buying at high prices. Making a purchase because you see certain currencies skyrocketing can lead to losses. Investing during this period creates a bigger chance of losing investments when early investors begin to take out their money. Once again, you must be led by facts, not just feelings.
- Lack Of An Exit Strategy
Some investors may forget the volatility of digital currencies and fail to develop an exit strategy. Trading without an exit strategy can be catastrophic when the chips are down. An exit strategy helps you to secure your profit by deciding upfront how you’ll mitigate losses when they arise.
Conclusion
Investing your money in cryptocurrency could turn out very profitable. Since it gained more awareness, investors in the crypto market have earned good returns from their investments. However, as a new investor, being successful in digital currency trading will require you to be cautious of the novice mistakes highlighted in this feature.
