Cryptocurrencies are the hot commodity. Appeared in 2008 at the hands of Bitcoin with Satoshi Nakamoto, they have managed to carve out a niche for themselves in digital wallets. Trading cryptocurrencies is also another option you have at your disposal. Now, are they reliable? What are the risks of trading cryptocurrencies?
Trading cryptocurrencies is high risk, but the same risk as trading any other security or currency. Lack of knowledge or executing risky trades are just 2 of them. But when talking about cryptocurrencies, other types of risks also appear implicit. The most prominent are the volatility, lack of regulation, and theft or scams involving these virtual currencies.
Volatility is something implicit in a general way to cryptocurrencies. If you already negotiate with them you will have been able to verify the enormous oscillations to which they are subjected. These are due to supply and demand, as well as speculation. If you invest in cryptocurrencies you have to take into account that you can find high profits and losses.
But in volatility is where the spark of cryptocurrencies lies and what allows the possibility of making money. As long as you comply with the premise of not investing capital whose loss poses a risk to your economy. A small investment in cryptocurrencies can bring you some joy. In the event of extreme volatility that catches you off guard, you won’t be taking too much risk.
This should also give you the opportunity to diversify your portfolio. A trader never “puts all his eggs in one basket”, but instead has his investments in different securities.
The lack of regulation of virtual currencies
The magic of cryptocurrencies also lies in the fundamental fact that they are not subject to any government. That free spirit is what allows cryptocurrencies to have the concept of globality associated with them. But it must also help you to be clear about one thing, this lack of government support means that investors do not trust cryptocurrencies as much as standardized currencies.
The European Union is already working on regulations that allow the legal framework to be given to the digital currency market. The lack of regulation implies that volatility is high and that there are doubts on the part of investors. Regulating in this sense perhaps causes the magic of cryptocurrencies to dissipate somewhat, but it is probably a necessary measure to be able to give them consistency and avoid the most common problems associated with them.
Thefts and scams
Cryptocurrency thefts, in addition to scams, are usually very notorious. First of all, because they usually involve a large amount of money, and secondly, because everything that happens virtually always attracts attention. Many customers have lost their wallets due to security breaches or because they were duped by scammers who, under false promises of high returns, have ended up emptying their cryptocurrency wallets.
To the usual security measures that we take in our digital universe, we must add that it is always better and safer that you trust recognized exchanges than others that promise what they cannot finally deliver. Be very careful with what you receive by email, since phishing is one of the gateways for a Trojan to get hold of your wallet and empty it. The worst of all is that, in most cases, these crimes go unpunished.
To avoid the risks associated with investments involving cryptocurrencies, we have to approach the issue of security from a global perspective. Not only to avoid situations like those described in the previous section, but also so that you can make your experience with cryptocurrencies worthwhile.
What is technical and fundamental analysis for in trading?
They are ways of making investments and approaching them from a different perspective. One is not better than another and they can complement each other and both seek the same thing, to generate valid predictions that allow us to obtain profitability. Technical analysis studies the movements of the present, of today, to predict those of tomorrow. Your investment horizon is always short.
On the other hand, fundamental analysis is based on the law of supply and demand for an asset, in this case cryptocurrencies. It has a longer term horizon.
Having an understanding of how these securities work, as well as how attractive cryptocurrencies are to the public, can be a good tool for profiting. As we have said, in the case of virtual currencies, volatility can be extreme. The case of the LUNA crypto is notorious, it lost 95% of its value in 10 days.
What is the use of studying the price and volume
The concept of volume tells us what is being demanded and in what quantity, and the price is its price at a given moment. Studying these parameters in the case of cryptocurrencies can help you improve your investment strategy and reduce risks.
In general, when the price drops and the trading volume is high, an interest in selling is generated. Therefore, the price will continue to decline. But when the price drops and the trading volume is also small, the market shows its strongest face. This is because investors wait for the price to rise again to sell. However, when the price goes up and the trading volume is small, the market becomes weak. Investors do not trust a rise and do not buy
Investing means having a cool head and putting emotions aside, or at least knowing how to manage them. Impulsivity is never a good companion when it comes to trading, and with cryptocurrencies less so. Moving by rationality and not by pressure always gives good results and is one of the compulsory subjects in the school of life that involves investing with cryptocurrencies.
Indeed, cryptocurrencies are not without risk, but that is not why you should put them aside. They are a good instrument with which to carry out trading and their future may be more than promising, especially if the long-awaited regulation is produced that allows to soften the most negative aspects that they possess.
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