Cryptocurrency or digital currency is a medium of exchange designed to be secure and anonymous in most cases. With traditional forms of money, you’ll find it challenging to have anonymity.
Still, with cryptocurrency, the same value can be transferred from one account to another without any central authority knowing either side. Cryptocurrencies make use of cryptography and thus fall under electronic money (e-money). You can use this link to get more information on this.
The idea of cryptocurrency is relatively new and still not entirely understood by many people, making it easy to make mistakes when advising about this subject matter.
Not researching investing
One of the people’s primary mistakes is not researching a coin or token before buying into it. It’s easy to hear about a new coin and want to be part of the hype, but this could turn out badly for you. Take the wrong coin’s advice, and you’ll struggle to recoup any losses in future.
Before buying, do your research and read up on what a project aims to do, how they’ll go about it and check their progress updates. It will indicate whether the team behind that particular project can achieve their goals or not. Even if they can’t get their product out there, at least you won’t have lost money by following someone else’s advice which isn’t knowledgeable.
Not setting stop-loss orders
For people who are getting into trading or investing, not knowing how to set stop-loss orders is like playing with fire. This mistake can make you lose money very quickly, and you need to understand what they are and when best to use them. A stop-loss order is placed with your broker and instructs them to sell off an asset once it reaches a specific price.
These can be used in cryptocurrency trading. Rather than just having one trade on at all times, stopping out of the position once it hits a certain pointcut makes your losses short in that particular trade but leaves the option open for later down the line prices change again.
However, stop-losses are only helpful if you place them correctly. If you set your stop-loss too close to an upward trend, the order may never even make it onto the market because once it reaches a specific price, it’s likely to go up again, leaving your stop-loss sitting there doing nothing.
Not keeping an eye on trends
Upward trends are expected in cryptocurrency markets and can happen very fast, but it’s also easy for them to fall into decline after having reached their tipping point. When this occurs, traders tend to sell off their initial investment, harming prices further down the line. Instead of selling out once an asset turns against you, why not hold out and hope for a price reversal?
That way, you can get an even better pay-off from your initial investment. Since most people have short attention spans, it’s unlikely that they’ll stick around to see if their trade will turn back around, which means you’ve got a higher chance of experiencing a positive outcome.
Not understanding market volatility
The cryptocurrency market changes very fast, and there are significant variations in prices between exchanges. One minute you could be trading Bitcoin at $9000 on one exchange and then see it drop down to $8000 on another exchange a few hours later. Never assume that just because an asset is listed as worth X amount on one exchange, it will always remain at this price. Ensure you know how to protect yourself against volatility and avoid getting caught out.
Not knowing what the exchanges charge fees are
Fees can eat into your returns, so it’s crucial that you understand at least the basics of what they are before trading or investing in cryptocurrency. It’s easy to get carried away in an emotional wave of excitement for a new project but remember that if there is money to be made, others will have noticed this too.
Meaning the value of your token may be lower than what you were expecting when you first bought them. There is no promise that just because a coin is listed on one exchange, it will remain so the next day.
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