Bitcoin is a relatively new asset class but it’s been making waves in the market for some years now. And there’s no sign of slowing down, that’s why bitcoin trading is actually a thing nowadays. For beginners, here are some of the most useful tips you can use before you commit your capital to bitcoin.
Perform Your Due Diligence
You can always find risks in any investment. Risks are inherent and it’s quite impossible to completely eliminate them. That’s why it’s extremely important that investors do their due diligence before committing any amount of money into any investments.
More traditional investments like stocks and bonds have a certain level of risk. With bitcoin, you’re faced with an asset that is more speculative in nature.
You can look at the revenues and earnings when evaluating a stock. You can analyze interest rate payments when you’re evaluating bonds. But bitcoin’s fundamental factors are pretty much less concrete.
Aside from having no solid fundamental indicators, bitcoin’s underlying tech is complicated. You will have to spend a lot of time and energy learning about it. The good news is that there are lots of good resources that present useful information about bitcoin and how it works.
Be Extra Careful
You can use various methods to manage the risks related to bitcoin trading. For beginners, you as a beginner should keep in mind to never invest what you cannot afford to lose.
In addition, you can set up a practice or demo account on an exchange. This account will help you become more familiar with how the market really works and how it feels to actually trade.
Once you have gotten a good feel of the market, you can set up a regular account and use a small amount of money to trade the cryptocurrency.
Always have a Plan
You should not forego having a plan in place before you start trading. Not having a trading plan is a rookie mistake that you shouldn’t commit before making any trades. You should find the best time for entering a trade as well as the perfect time to get out.
Before you start out and make a trade, determine a specific profit goal. Be clear on how much you are willing to lose. This way, you can help yourself create appropriate stop losses.
Add More Every Once in a While (Staging In)
Staging in involves the habit of adding incremental funds in the digital currency. This is among the best ways to manage bitcoin’s volatility.
If you want to begin trading by putting in $100 to bitcoin, you can buy $25 worth of the virtual currency for the first week, and then wait for the next week to come before investing another $25.
Another good way to manage the risk of wild volatility in bitcoin is to hedge. There are many different tools for this purpose.
For instance, you can choose to trade options for hedging. Options contracts let you as the contract holder to manage the risks associated with a specific asset’s strength or weakness. You can buy an options contract that would let you have a payout should the underlying asset (bitcoin, in this case) slump in value.
Overall, if you hold bitcoin, you can buy some options contracts to reduce any losses that you would experience if the cryptocurrency slips in value.