Cryptocurrencies are increasingly becoming part of the mainstream financial tools. However, unlike traditional fiat currency, digital assets are not readily available for purchase. Buyers must have some basic knowledge about the type of tokens to buy and how to trade them.
As an intending participant in the crypto market, one can choose to become a trader or an investor. While both methods seem similar, they are different.
What Is Crypto Trading?
In cryptocurrency trading, traders use short-term market strategies like swing trading, position trading, and scalping to benefit from price changes at a given time. Much like other trade activities in the traditional financial sector, crypto trading has to do with predicting the price movement of assets and speculation over the future of Bitcoin and other top tokens.
Trading cryptocurrency involves accurate timing or buying and selling assets based on forecasts about the perfect price movements of the cryptocurrency. Crypto traders usually monitor current market happenings and perform technical analysis using indicators before making decisions.
Some of the trading strategies that crypto traders usually adopt in no particular order are:
Day Trading: This involves a situation where traders constantly examine the market for price differences in the intraday trading sessions to enable them to gain daily returns while ending their trades before the official closing hours. Here, each transaction may last from some minutes to hours.
Swing Trading: In swing trading, traders capitalize on the quick price swings of digital assets, with trades lasting more than a day or week. Swing traders employ technical analysis to find directional movement in crypto prices within a given period.
Position Trading: This form of trading is akin to investment and similar to swing but involves assessing long-term market trends and patterns. Position trading typically lasts several months.
Arbitrage Trading: In this form of trading, traders capitalize on the variations in the price of a digital token across various crypto exchanges. By purchasing and selling assets quickly between these crypto exchanges, users usually exploit the slight price differences to make profits.
Scalping: In scalping, traders employ a high-frequency market strategy requiring them to make numerous trades within a limited timeframe to capture the price direction. Regarded as the most active market members, scalpers make quick trades with short holding times, which typically last minutes or even seconds to generate profit without incurring risk.
Pros And Cons Of Crypto Trading
Many market players argue that the primary advantage of crypto trading is quick profit generation, low fees, secure storage, and easy accessibility. Additionally, crypto can be traded peer-to-peer, which involves lower prices than banks and other traditional financial institutions.
Meanwhile, the most significant disadvantage of crypto trading is its high risks and volatility, as prices can swing up and down in hours. As a result, this would lead to massive losses if traders are not careful enough to monitor their positions during trading hours.
What Is Crypto Investment?
Conversely, Cryptocurrency investment involves buying and holding digital assets for a specified period with the hope that the initial investment will appreciate sooner or later. Also known as “hodling” in the crypto ecosystem, digital asset investment is a long-term devotion compared to crypto trading.
Here, investors are less concerned with the short-term market outcomes as they focus more on the fundamentals of the crypto assets they buy to keep. Some crypto investment strategies investors employ include hodl, dollar-cost averaging, value investing, growth investing, and index fund investing.
Pros And Cons Of Crypto Investment
The most significant merit of crypto investment is the potential for capital appreciation over time. Even with the constant price fluctuations, historical events show that the crypto market’s steady growth means long-term investors benefit the most.
Meanwhile, crypto investment is a high-risk action due to the volatility of digital tokens. As a result, investors must be well-grounded in the fundamentals of cryptocurrency and its associated risks before deciding to invest in crypto assets.
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