With Bitcoin prices going through the roof investors are now desperate to add cryptos to their portfolios. But if you are new to crypto investing, there are important things to understand. The crypto market is not the same as the stock market; prices here are driven by market sentiment, not dependent on a company’s performance.
With the Bitcoin having held its ground despite the recent pandemic, would-be crypto investors are hopeful of favorable returns. They are now comparing Bitcoin with gold, giving it the status of a safe asset. But, do you know the basic rules of crypto trading? If not, you should follow these guidelines before diving deep into the crypto waters.
7 rules for crypto trading new investors should know about:
- Do not risk everything you have: It is a grave mistake to go all out when investing in cryptocurrencies. While the prospect of phenomenal returns will tempt you to invest more than necessary, you need to understand that much of what you hear is “noise” and you should not get carried away. Taking large bets is a gross blunder and one that will cost you dearly. Even if you have a reasonably high risk appetite, you need to start off with small allocations. Ideally, do not allocate greater than 2% of your portfolio to cryptos.
- Choose reliable crypto trading platforms: Perhaps the biggest roadblock to a wider acceptance of cryptos is the absence of regulations. Similarly, if you make a wrong choice of a trading platform, you can put your funds at risk. It is necessary to select a reliable exchange or trading platform which prioritizes security, offers different payment options, and has an impressive trading volume.
- Focus on the stable coins: Just like the stock market, there are blue chip coins in the crypto market too. While the big coins may be a tad costlier, they are certainly more stable, like the Bitcoin or Ethereum. Prices of the BTC drives market sentiment; so, it is recommended that you allocate your funds to these stable coins and diversify your crypto portfolio by assigning some funds to emerging coins and tokens like the Dogecoin. Coins that have a high market cap will be less susceptible to manipulation than those being held by a handful of investors.
- Be prepared for volatility: The crypto market is known to be volatile and it is in your interest that you accept this right from the start. You must have an appetite for risks, no matter how much you invest. Prices in the crypto space fluctuate dramatically; this is even true of blue chip coins like the Bitcoin.
- Verify information before acting on it: You will find a lot of information about cryptos that are readily available online. But, not all sources are credible and trustworthy. As an investor, if you rely on unverified information, you can end up losing a lot of money. Self-styled analysts make WhatsApp groups and circulate incorrect news for trapping gullible new investors. So, remember to check the information you wish to use; it is always advisable to look at the trading volumes and market cap of a crypto before buying it.
- Be aware of what is happening around you: Any global development or breaking news can influence crypto prices; so, update yourself with the latest news both in the domestic and international setting.
- Consider the taxation issue: If you are a new investor, remember that there is taxes payable on income earned through crypto trading. While cryptos may not be categorically mentioned in tax laws, earnings derived from any source should be liable to taxation.