5 Mistakes to Avoid in Cryptocurrency Trading
Financial technology has paved the way to limitless possibilities in trade, ecommerce, and even the foreign exchange market. Investors may now put money into digital coins even without prior trading experience, and one of Fintech’s main trading ground is in the form of cryptocurrency that’s running on blockchain technology.
Cryptocurrency is considered one of the latest and most talked about financial investments in the 21st century. With an ongoing stream of investments that aim to improve blockchain technology, it has emitted a polarizing reception from traders as well as financial institutions, where some even label it as either a revolution or a hindrance.
In order to start your trading career on the right path, here are some common mistakes you need to avoid:
1. Not using the right cryptocurrency exchange platform
With so many crypto coins to choose from, one can easily become overwhelmed especially if they are still in the beginning phases of their career. When deciding which coin to invest in first, it helps to use professional comparison of cryptocurrency exchanges in order to get the right coin at the right price.
Here are some of the ways to make sure you’re choosing the correct cryptocurrency exchange platform:
- Check its existing reputation. Since financial technology is a fairly new industry, there are a lot of eyes fixed on it. Because of this fact, when there’s something positive or negative about a platform, you’ll definitely read about it. Make sure that they are legitimate and not paid reviews.
- Most cryptocurrency platforms require commissions but they could come in a number of ways. It’s important to check the terms of payment, and how much they expect to earn. Just to give you an idea, the average commission is around 0.2 percent.
- **Trading pairs available. **The basic rule is that the more currencies are being offered in the platform, the better it is for cryptocurrency traders because it provides access to variety.
- In trade, liquidity refers to the ability of the coin or currency to transact in a smooth and efficient manner. If you’re planning to trade in large amounts of crypto coins then make sure you’re trading in a platform with high liquidity so that you can have high profits. A competent marketplace will have high liquidity and a lot of trade activities.
Once you have invested in the right platform, you can then find ways on how you can manage your investments while still making a profit out of your career. Additionally, it also helps to make sure to check on whether or not cryptocurrency is legal in your country before starting first.
2. Buying into the hype
When a coin suddenly rises to a significant amount, many investors are willing to strike while the iron is hot only to find that its current value can easily sink in no less than a few days. This phenomenon stems from their psychological fear of missing out or FOMO, which usually goes unnoticed until it’s too late.
To avoid falling prey into this notion, consider doing your research first to understand the features of said coin. Enumerate its features and see how it differs itself from other options. If you can imagine yourself making long-term investments with it then it’s certainly worth investing in. However, to avoid incurring losses, start with a small amount first and gradually increase it later if the market conditions are favorable.
3. Falling for Pump-and-Dump scams
The problem with FOMO is that certain companies can use this to their advantage and create schemes known as Pump and Dumps or PNDs. This scenario usually happens when a seemingly unknown coin suddenly skyrockets in value as little as 24 hours, in order to create a buzz and get a lot of investors.
Companies may accompany this scam with a fake Twitter account of a celebrity, urging users to start investing as early as today. This scam is called a pump and dump because scam artists can seemingly pump the price and then dump it on investors who simply didn’t know any better. In order to avoid falling for such scams, it’s important to do a background check before putting your money into any cryptocurrency.
4. Not doing your digital currency research
Considering that a cryptocurrency market is a volatile place, it’s best that one leaves no stone unturned when it comes to keeping investments safe. This can be applied to any aspect of your trading career. Whether you are:
- Investing in a coin with little to no information
- Working with partners from a company with a shady past
- Encouraged by friend’s to invest in the latest coin
- Following the advice of financial advisers on social media
Investors should play an active role in ensuring they are not victims of any fraudulent activity. To do this, consider researching on all aspects of your activity before making a decision. This includes the company history, crypto coin features, former projects of the team members and the whitepaper.
5. Getting too emotional
Getting too emotional usually happens when the price of a currency goes down. Many investors who have spent a hefty portion of their investment may feel discouraged only to find that said coin is decreasing in value. To make the most of it, these investors may sell their investment to make up for their losses. While it may seem responsible, this step can actually be irresponsible since you are playing into your emotions.
While selling can certainly earn you a profit, you need to stop and think first by asking these questions:
- Did any of the fundamentals change?
- What factors were made that would otherwise affect the price?
- Does this coin still have potential to achieve my long-term goals?