Moctar BouraimaThe cryptocurrency market has grown exponentially in recent years, attracting a large number of investors and traders. However, there is a fundamental difference between trading and investing crypto.
In this article, we will describe the two activities and the differences between them.
What links are there between trading and crypto investment?
Trading aims to make a short-term profit by buying and selling assets over a period of time. Traders use technical and fundamental analysis tools to determine the market trends and make buying and selling decisions accordingly.
As for crypto investment, generally speaking, this aims to make a long-term profit by purchasing cryptocurrencies. They are then held in a wallet, in the hope that their value will increase over time.
Furthermore, investors are relying more on fundamental analysis to assess the quality and long-term potential of a cryptocurrency project. On the other hand, even if traders can use fundamental analysis, they will use more what is called technical analysis. This consists of analyzing price curves in order to detect “patterns”.
The difference in associated risks
Trading is a risky activity which involves high volatility, regulatory uncertainty and security concerns. Traders must be able to manage risk and manage their losses effectively.
Today, trading platforms are obliged to point out on their sites that the majority of traders lose money.
Trading can be a risky activity because it may seem “simple” at first. However, this simplicity is an illusion. Trading requires in-depth knowledge of the markets, concepts in market psychology and also a mastery of his emotions.
It can be very tempting to use leverage, for example, to increase your profits. However, we must not forget that the losses may also be higher.
Crypto investing also carries risks, including market volatility and the possibility that cryptocurrency projects will fail. Indeed, the crypto-asset industry is still “young” and very few projects are profitable in the long term. This requires a certain financial acuity to grasp the potential of certain projects. THE newbie investors naturally make more mistakes than others.
–> Read the article: The 6 mistakes of beginners investing in cryptocurrencies
The differences between trading and investing
The strategy used by traders to make profits is different from that used by crypto investors.
Strategies used
Traders use different strategies to make short-term profits. Among these strategies, we find day trading and swing trading. Day trading or intraday involves buying and selling cryptocurrencies in the same day. When it comes to swing trading, it involves holding positions for several days or weeks.
Traders also use technical analysis tools to determine market trends and make buying and selling decisions accordingly. Fundamental analysis can also be used to assess the quality and long-term potential of a cryptocurrency project.
The tools available
Crypto traders use a variety of tools to help analyze the market and make buying and selling decisions. Technical analysis involves the use of charts and technical indicators to determine market trends. This analysis is mainly based on price monitoring.
Fundamental analysis involves the evaluation of economic, financial and technological factors that affect the value of a cryptocurrency project. Trading signals can also be used to help traders make timely buy and sell decisions. This type of analysis helps market speculators know which direction the market is going to take.
Some Tips for Trading Beginners
Beginners in crypto trading should master the basics of trading before they start investing their money. They must understand the basic principles of technical and fundamental analysis and be able to use crypto trading tools in an effective way. They must also be aware of the risks associated with crypto trading and be able to manage their risk accordingly.
Moreover, beginners should not get carried away by emotions and they should also not make impulsive decisions. They are recommended to start with small amounts of money and gradually increase the size of their transactions.
You must also choose good trading platforms that offer you the tools you need. You can opt for centralized trading platforms as bybit ou decentralized (DEX). Depending on your skills and ability, you will be able to trade on decentralized platforms.
-> The best crypto trading platforms
-> The 3 best DEXs for decentralized trading
Crypto investment strategies
Crypto investors tend to take a long-term approach to investing. Common strategies include holding, dollar-cost averaging (DCA), and portfolio diversification.
👉 The holding allows you to hold cryptocurrencies for an extended period of time, often years, in the hope that their value will increase over time.
👉 The dollar-cost averaging (DCA) iinvolves investing fixed amounts in cryptocurrencies at regular intervals, regardless of the market value. This then allows to save regularly and thereby make an investment in a simple and affordable way.
-> The 5 sites to save bitcoin every month (DCA)
👉 The diversification of assets in its portfolio is a strategy that involves investing in several different cryptocurrency projects to reduce risk. This strategy is particularly useful for investors looking to avoid putting all their eggs in one basket. Thus, it is possible to invest in bitcoin, in different cryptocurrencies and even in commodities likeor for example.
Key factors to consider for crypto investing
Investors should evaluate several key factors before investing in a cryptocurrency project. THE economic, financial and technological factors can affect the value of a project.
They must also review the underlying projects and assess their potential in the short, medium and long term. Additionally, these investors must also examine the ecosystem in which the project operates and evaluate its adoption by users and businesses.
What to learn from the difference between crypto trading and investing?
Crypto trading and investing are two distinct activities that involve different risks and different goals. THE Traders seek to make short-term profits by buying and selling cryptocurrencies over a short period of time, while investors seek to make long-term gains by holding cryptocurrencies for an extended period of time.
Note: This is not investment advice. Always do your own research. All investments involve risks.
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