So, you’ve decided to dive into the cryptoverse and start your trading journey. You’re probably excited and eager to get moving, so in this list, we’ll give you 10 important tips on what to keep in mind for when you start trading cryptocurrency.
10. Understand the token
No two cryptocurrencies are the same, that’s pretty obvious, right? Well, this is important because you can’t judge the future performance of one token based on the past performances of others. Every crypto serves a different purpose and has certain token economics, or tokenomics, attached to it.
For example, Bitcoin has a fixed supply of 21 million coins, whereas a currency like Polkadot has just under one billion. Does this mean that it’s impossible for Polkadot to reach Bitcoin’s current price? No, but it would require a much higher market cap (overall value) than what’s currently present in Bitcoin.
→Related article: How to Buy Bitcoin in New Zealand
9. Know your order types (try limits!)
Once you’re ready to buy or sell – how will you do it? There are a number of tools at your disposal when it comes to making a trade. The simplest is a market buy/sell, which will allow you to buy or sell your crypto at the current given price. Alternatively, you could set a limit order, which will execute your trade if a certain price is reached. There is no right or wrong way to do this; it generally falls upon your personal strategy.
8. Set targets
What’s your goal? Do you plan to trade in order to accumulate more fiat or crypto? Are these long-term or short-term holds? Or, simply, how much profit are you looking to make? Without a target, you’ll blindly enter trades and, most likely, disappoint yourself as a result.
7. Say no to FOMO
So another dog coin has surged +10,000% in the past week and the success stories are flooding your news feed. You’re now itching to buy it “in case there’s still room to moon”. We’ve all been there at some stage.
Markets are psychological, let’s make no mistake of this. Half of the battle is trying not to jump into trades because everyone is telling us to. A good point to note: prices can fall just as fast as they can rise.
6. Trading volume
While the markets are hot, one way to check the pulse of a market is to see the daily volume for the pair you want to trade, eg. BTC/NZD. The higher the volume, the more active the market is likely to be. So why is an active market important? Simple, price is more likely to move in either direction if volume increases.
5. Fees and Spreads
This is a rather overlooked area, but it’s extremely important to take note of. High fees and wide spreads can chew into your gains. Fees refer to the amount of brokerage paid to the exchange when executing a trade, usually expressed as a percentage. Spreads refer to the difference in the buy and sell price of a cryptocurrency. Compare these across various exchanges to get an idea of which platform offers the lowest fees and the tightest spreads.
The display order does not reflect any ranking or rating by Canstar. The table does not include all providers in the market.
|Provider||Link to Provider||Fiat Currencies||Bitcoin||Other Currencies||Est.|
|NZD, AUD, USD||Yes||24||2013|
|Easy Crypto||NZD, AUD||Yes||100+||2018|
This information is not an endorsement by Canstar of cryptocurrency or any specific provider. Canstar is providing factual information supplied by providers. Cryptocurrencies are speculative, complex and involve significant risks. Canstar is not providing a recommendation for your individual circumstances or in relation to any particular product or provider.
4. Risk Management
There needs to be some level of managing risk when opening up a trade. Can things go wrong? Most definitely, so you need to mitigate your risk or, better yet, ask yourself how much risk you are willing to take on for a trade. For example, if you have $1000 in your account, are you comfortable risking the whole $1000 (100%) or $50 (5%)?
3. Don’t be afraid of red days
What if you’re in the red or making losses? Don’t panic, this is normal! If your trade is taking on a loss, it’s important to know that with green (gain) days come red. This, of course, takes into account that you’ve done your due diligence and heavily researched the asset you’ve decided to trade. This brings us to the next point …
2. Well sourced information
Don’t take news/research/data/opinions at face value. Cross-check everything! At the end of the day, you are spending your hard-earned money, so why play around with it? You should have conviction when opening up a position.
1. You aren’t too late
The crypto space is still young and maturing. The total market cap still sits at just under US$3 trillion. This is just a fraction of the size of markets such as US real estate or gold. There is still a lot of room to grow and plenty of opportunities for you to invest.
Bonus Tip: Dollar Cost Average
Would you like to remove the guesswork out of trading? Dollar cost averaging (DCA) is a tried and tested strategy used by seasoned investors. It consists of investing a fixed amount of money at regular time intervals. So, for example, if you buy $50 of Bitcoin every week – that would be dollar cost averaging.
Some of the benefits include:
- No sizeable upfront investment
- Your dollar buys you more when the price is low
- Smaller purchases tend to limit exposure to volatility
The crypto markets are tricky but can also present many opportunities – always tread with caution but remember to enjoy the process!
Candice is a Marketing Assistant and Content Producer at Independent Reserve. Established in 2013, Independent Reserve is Australasia’s most trusted cryptocurrency exchange. Hundreds of thousands of Kiwis and Australians trust Independent Reserve to easily buy and sell Bitcoin, Ethereum, XRP and other major cryptocurrencies.
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