Thanks to July’s 304% Bitcoin surge, cryptos are back in the headlines. Of course, Bitcoin isn’t the only cryptocurrency out there, just the biggest (a figure determined by the size of its blockchain network). According to CoinMarketCap, at the time of writing this article there are 2,345 cryptocurrencies available on the market, representing a total market cap of $255,996,586,045.* Not all of them are mineable, and unless you’re some sort of expert on cryptos, you probably haven’t heard of most of them, but nonetheless people are trading them left and right.
Crypto’s biggest draw is the belief that it can make people rich, like Facebook’s famous Winklevoss twins, who became the first crypto-made billionaires after parlaying their Facebook lawsuit payout into Bitcoin, and claim to own approximately 1% of all Bitcoins in circulation.** Sure, not everybody banked that much, but the “I made $X dollars in crypto” headlines from some random Twitter user called John in Yorkshire can give the wrong impression that trading crypto currencies is a sure thing. It’s not. The cryptocurrency market is a highly-volatile industry that’s still fairly new and unregulated, and while for tech-heads that can be an interesting prospect, there are still plenty of mistakes both new and experienced crypto traders can make if their heads are in the clouds rather than focused on their trading platform, where the cold, hard facts are.
At Vestle UK, we’ve done the research and come up with four common mistakes a crypto trader can make to help you better understand what you’re up against. Bear in mind that, even though these are taken from the most reputable sources we could find, they’re in no way meant as advice – just cleverly worded caveat emptor designed to help light the way, should you venture into the world of crypto.
1. Not using proper risk management
Trading crypto is risky, thus risk management should be in place at all times. Sounds like a given, right? You’d be surprised. When flashy words like Bitcoin and Ethereum fly in from all directions, one’s judgment often falters. The basic rule here is that you should never enter a position without placing a Stop Loss and Take Profit order. These two risk management tools give you crucial control over your account. With a Stop Loss, you set a rate at which a losing deal will close, preventing excessive losses and saving you from having to constantly monitor your account. This is especially important when trading crypto CFDs using leverage. A Take Profit tells the platform to close out a trade if it hits a price above the current market level, maximising profits. As helpful as Stop Loss and Take Profit orders are, neither are fool proof and may need adjusting once the deal is already open. The key is to learn as much as you can about how they work so you can use them as accurately as possible.
2. Not having a trading strategy
Trying to trade crypto without a proper trading strategy is like closing your eyes while driving and hope you end up at your destination. Or setting sail without a map. Or trying to build a house without blueprints. See where we’re going with this? All are recipes for disaster. If you’re going to trade on crypto volatility, as in the case of CFDs, your trading strategy should contain, at the bare minimum, the amount of capital you’re dealing with, the maximum loss you’re willing to take, and what your Stop Loss level is (see above). After you know the facts, do as much research as you can on your chosen crypto. Read the news and monitor its past performance on trusted trading platforms like Vestle UK. Naturally, past performance should never be considered an indicator for future performance, but it’s always a good idea to see what kind of movements an instrument is capable of.
With the number of influencers flouting it like the latest sustainable fashion accessory, the crypto industry is nothing if not trendy, and the right social media post can make us afraid that we’ll miss out on the next big opportunity. The thing to remember here though is that influencers are not experts, so no matter how exciting and promising their “Make a fortune on crypto if you join my squad” messages seem, even if they’re accompanied by photos of them drinking prosecco on a yacht bathing in a pool of fifty pound notes, they’re not to be trusted. Even worse are the self-ascribed “financial experts” who dole out advice unabashedly, outright telling you to buy or sell. Admittedly, the bigger their reputation is the more difficult it can be to dodge their ostensibly “helpful” advice. The key is to rise above it. It’s fine to read what they have to say and take in all the facts that led to their conclusion, but at the end of the day remember that opportunities in the world of crypto come and go on a daily basis. If you set up your own set of rules and limits, you’ll be able to identify the crypto trading opportunities that suit you best.
4. Thinking you’re going to get rich quick
There’s a reason the term “get rich quick” is often followed by the word “scheme.” It seems crypto’s biggest wins make the headlines far more frequently than its losses (the latter of which may actually outnumber the former). According to Forbes, many people still see crypto as a trading opportunity that affords skipping through the difficult work associated with the success in other industries and trading their way to millions in no time.*** Not true. Or that because crypto is relatively new, the unprecedented financial opportunities it presents somehow come with mitigated risk. Again, not true. Crypto may be new, and it may come with its own proprietary technology (blockchain) but if history can teach us one thing, it’s that putting your hard-earned money into something that sounds too good to be true is never a good idea.
When it comes to crypto, you need to be extra aware of your own underlying biases and assumptions. Drop your expectations and enter the arena with an open mind because, in addition to the pitfalls, it’s an industry rife with opportunity as well. There are ups and downs, opinions flying left and right, and the only constant is you, so if you’re interested in trading crypto, do it with intelligence. Enter the market with a trusted platform like Vestle UK, a regulated broker where you’ll find all the top cryptos like Bitcoin, Ethereum, Ripple, EOS, Litecoin, Monero and Dash, as well as a wealth of educational resources, market charts and indicators, notifications and more to keep you as informed as possible.
The materials contained on this document have been created in cooperation with Vestle and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 59.5% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer:
This is an article provided by our partners network. It does not reflect the views or opinions of our editorial team and management.
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