Why Shouldn’t You Trade Low-volume Altcoins?
By Coinmatics on Altcoin Academy
Trading altcoins with a minimum trading volume is extremely risky. The article touches upon the most obvious and common issues that can arise when buying such currencies.
Artificial market manipulations
Low-volume coins are the most vulnerable to artificial pumps and dumps.
Big players and groups of traders use the feature: they pump an unpopular token to create an illusion of growth in the attractiveness of investments. Then they stop the artificial support, and the coin’s rate decreases back to a naturally low level.
As a result, an inexperienced trader, who had invested in such an altcoin when it was high, often has to sell it at a price two-three times lower than the original deal price. These schemes are intended to pump money out of the noobs’ wallets to the wallets of the pump and dump group members.
Not to be a noob, any time you see a pump, try to find out its real reason and cause. If there are no objective reasons for a particular coin to grow, it means that someone is pumping it artificially, which is a bad sign. It’s worth getting familiar with the whole history of a chosen coin: what are the trajectory of its rate? How frequent are its pumps and how high those pumps are?
Slippage
The essence of the phenomenon is that there is a discrepancy between the expected price of a trade and the price at which the trade is executed in reality. In most cases, the difference entails losses, rather than profits.
When trading low-volume altcoins, slippage is not uncommon. It’s also stop-loss orders that lead to slippage.
High spread
A high spread is typical for law liquidity coins. This suggests losses to a trader trying to sell newly purchased assets fast.
An ask-bid spread can be so high that the trader would be happy to break even.
High probability of delisting
The majority of exchanges require daily and monthly turnover of any listed tokens to be higher than a particular threshold. If the condition is not respected, a token is delisted. Do you want the altcoin you have invested in to be listed on a few tier 3 decentralized exchanges only?
The creators of tokens launch bots to provide their token with a decent volume. If they don’t, think about it: are the creators of the token interested in their pet project? Or is it another scam?
It is not good, though, if the trading volumes are provided by bots alone. You will hardly sell it at a good price if there is no demand for the asset among living traders.
Open positions may never be closed
If there is no demand at all, your orders will be open forever. Unfortunately, it’s not uncommon in the area of unclaimed altcoins.
Why does the volume matter?
High trading volumes indicate a high demand by a wide range of the market’s players. As a rule, it is accompanied by a decent level of capitalization, which, in turn, proves the perspective stability of a project.
High-liquidity coins are compatible with a big number of cryptocurrency wallets, which makes storage easier and more reliable. Its separate ecosystem increases the rating of the credibility of such currency in trader’s eyes
The purchase of a low-volume altcoin is justified only when the coin has just been issued and is not yet listed on exchanges. In this case, there is a chance to catch a pump, when the token becomes enlisted, and sell it at a good price.
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