Trading in traditional markets isn’t much risk as there are checks in place to ensure that new investors have the required experience and that they know the risk of what they are doing. In fact, governments regulate these trading platforms to protect customers.
On the other hand, there is little done by governments in the way to protect traders in crypto. However, the complex network involved in building the cryptocurrencies has made them extremely difficult to breach. It is a peer-to-peer decentralized electronic cash system, which is secured using an ideal combination of economics and cryptography. Breaching into this system would require a hacker to solve a daunting cryptographic puzzle with the help of powerful computers, and these computers are not easy to buy.
Trading crypto doesn’t guarantee that you will make money. Similarly, trading traditional stocks also doesn’t guarantee the profit. There will always be winners and there will always be losers. Thus, it is important if you get that you only invest what you can afford to lose, and you develop a strategy that gives you an edge over other traders.
This long intro leads me into explaining the top 10 ways you can lose money trading Crypto:
1. Lack of strategy
Not every trader is making a profit from trading crypto as this is a zero-sum game, which means for every person that benefits, someone else is losing. In fact, there is never going to be a perfect time to buy and sell in trading. It is better to start a trade only when you have figure out why you’re starting and have a proper plan for the future. Even if you are one of the traders who is aspired to trade on the daily base, it is better not to do anything at all on someday and wait. It will save you from the danger zones, and expose your coins to losses. In my experience, there are days when you don’t trade and keep your profits.
2. Focusing on short-term gains
Crypto is constantly growing at parabolic rates. It is quite natural that people will get attracted to this growing market. Everyone wants to be a part of it. Nevertheless, crypto isn’t going to make you rich in a short period of time. Too many people trying to get into this get-rich-quick scheme will probably decrease the current rate of cryptocurrencies.
Understand that crypto is a highly speculative market where some are losing, and many are getting rich quickly. Last year, crypto was up +1141%. This year, it is +750%tol date. This trending graph may continue for another week, probably a month or a year. But, it surely is not going to continue growing. History has proved that for everything that goes up, comes a point, it starts crashing down so that it can start growing again.
In fact, in 2013, crypto market observed a huge crash from a global high of about $15 billion during the end of 2013 to a low of $3.3 billion during the first month of 2014. If this statistic tells us anything, in particular, is that the market crashed down once, and it can happen again. Those assuming crypto is a get-rich-quick scheme, the ball may be in your court right now, but there is no guarantee it will stay there. It is better to make a well-planned decision instead of a poor unplanned decision, and then lose money.
3. Mismanagement of risks involved
There is a saying that ‘little pig eats a lot, the big pig gets eaten’, which fits true to the current crypto market. Profitable leaders don’t wait for the peak of the movement. Instead, they look for the small profits that will compile into a big one. Managing risk wisely across the portfolio is imminent. It is better to invest not more than a small percentage of your money in a non-liquid market. Those trades are assigned greater tolerance, and hence the stop-loss target level is chosen far from the buying level.
4. Ignoring the fact that middlemen take their cut
Most of the people dealing with crypto are unaware of the fact that middlemen take their cut. This is how they make money. Ignorance of this fact has led middlemen to get away with service fees, exorbitant penalties, and exchange rates. Those who are not careful about these pieces of the puzzle will end-up make more money for middlemen and less for themselves. Below are the costs that everyone should be aware of:
- Cost of Funding
- Cost of intermediate Crypto-coin to Crypto-coin Funding
- Fees per Trade
- Withdrawal Fees
- Crypto-coin to Fiat Conversion
5. Getting under pressure
Fear of missing out on the most profitable trades often leads to the pressure of “why didn’t I invest in it?” It really isn’t fun when a certain currency is growing with two-digit gains and you didn’t see it coming. It’s possible that it can continue rising. But, getting under the pressure of “what should I do now” isn’t the right choice! Simply, keep moving forward.
Prices are now high, and it may continue to be high, but keep in mind that the market can go down anytime, and accordingly take the next course of action. It is better to start trading only when you have the optimal conditions to make the decision to start a trade and have known when to get out of it.
6. Day trading without patience and discipline
Day trading means you are looking for a point to enter and a point to exit a trade with a goal to use the gathered information to find an ideal time to make a profit. It requires constant efforts to see the flowing trend of the market, the following prices and the movements and reactions. Yes, there are automated tools, but day-trading becomes a kind of obsession.
Not only it is stressful but also requires patience and dedication of a monk. Surely, there are people making profits out of day trading crypto, but there are also people who have gone bankrupt because of this obsession. Suffice to say, day-trading is extremely difficult and requires a trader to keep a constant eye on pre-market, open-market and post-market.
7. Trading before researching
As mentioned earlier, thorough research on investment plays a key role in the output. Knowing the ins and outs of any cryptocurrency gives a deep understanding of the right time to invest. Following the crowd doesn’t guarantee a profit. It is better to make your own decision based on the research.
A cryptocurrency that is at a low value can explode as soon as people who research on it start buying into it. Therefore, the person who has researched well on various cryptocurrencies can know their long-term value and thus invest intelligently.
Undoubtedly, cryptocurrencies are extremely volatile. Without using any leveraging, you can double your capital in a day, or you can lose more than half of it. There are risks involved. But, there is a risk in everything we do on daily basis. Knowing your strengths allows you to lead a good, healthy life.
Similarly, understanding the Cryptocurrency can yield a great profit for you. Due to the high volatility, this might cause a lot of people to sell, dropping constantly the price. This cause even more people to sell. However, after this initial peak, and consequent drop, I believe the market will be more stable.