Cryptocurrency: Holding vs Trading
In the world of cryptocurrencies, investors have two clear paths. One side prefers to buy and hold, while the other side chooses to buy and sell. We refer to holding and trading, respectively. It is important to make a distinction between them, the first focuses on long-term preservation, while trading focuses on making quick profits.
What is HODL?
For many, the formula of being a millionaire consists of prolonged retention of a certain cryptocurrency. Therefore, hold or holding is a trading approach based on storing investments for a long period and then selling them. Its strategy is based on the thesis that long-term markets must increase. On dissimilar occasions, investors hold their stocks for years on the premise that the stock should grow
The term came up by mistake, the appropriate one would be HOLD, but it was too late. This “slip” quickly gained acceptance among the entire community and is now widely known. A spelling error was not limiting for the traders in this sector, who try to buy promising cryptocurrencies at the lowest price. However, the ups and downs of the market can be a determining factor influencing a premature sale of that asset.
By definition, holders should ignore short-term market volatility, withholding the currency to its maximum valuation. However, it is recommended not to lose sight of the investment, in case the market does not behave in the long term as expected, continually study the assets, and do not stop investigating the project thoroughly.
What is trading?
Trading with cryptocurrencies consists of using various techniques to generate purchases and sales, with the objective of obtaining profits. The premise of trading is to take advantage of the inherent volatility of the cryptocurrency market. The majority of the cases consist of daily operations, which, as the name implies, take advantage of fluctuations in currency prices that occur within a 24-hour period. However, it does not prevent the operations can extend over a series of days, or even a couple of weeks.
Comparison between Holding and Trading
Now that we know the essential characteristics of holding and trading, let’s make a comparison between the two to help you decide which one you can lean towards. We base on some important factors that every investor diligently values when adopting positions in their financial operations:
1. Complexity
A first point to compare these two types of investment is the complexity of executing each one. For many investors, holding is a basic and simple way to invest, as it consists of patiently buying and holding cryptocurrencies, and then waiting for a considerable increase in value to sell them. On the other hand, trading is a bit more complicated activity. This technique is much more active than the previous one. It is bought and sold continuously, taking advantage of the volatility of the market to generate profit at all times. It requires the practitioner to pay constant attention unless using automated trading strategies.
2. Investment time
Investment time is one of the most important factors when comparing trading and holding. The investment terms in holding are quite long. They usually last for months, years, and even decades. On the other hand, trading, having a more agile character, retains its investments for a short time. We are talking about days, hours, and even minutes.
If you are a passive person, who takes your time waiting for a great profit without losing your cool, you can opt for holding. If, on the contrary, you would like to see money recurring to your portfolio, day by day, and enjoy small doses of success, trading is preferable.
3. Attention required
The attention paid to these activities is another point of debate. In holding, investors do not constantly control their assets. In general, they assume passive positions waiting for the moment they consider correct, which can take years, as explained above. The opposite happens in trading, where the principle is to take advantage of all the fluctuations in the market to generate profits continuously. For this, you must remain alert at all times, mostly if you are doing manually.
4. Tax rate
At HOLD, investments are planned to hold currencies for at least one year, allowing for a favorable tax rate. In trading, on the contrary, numerous purchase-sale cycles are accompanied by the payment of the corresponding transaction fees. However, this value can be taken into account within the profit that will be obtained and can be easily underestimated in the total balance.
5. Risks
All investments have risks, and those made in cryptocurrencies are no exception. For the most part, holders invest exaggerated sums of money, hoping overtime to take a big hit and win an alarming figure. However, things don’t always go as expected. In fact, in 2018 the cryptocurrency market plummeted almost 80%, in relation to its values at the beginning of that year, which had a broad negative effect on this type of investor. On the other hand, trading does not require a large capital investment, and its active nature generally allows it to take advantage of market volatility and react to sudden changes.
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In general, both HOLD and trading have their pros and cons, and it is up to each user to decide how they prefer to use their investment, as well as the risks they are willing to take. In addition, although at first glance some of them seem more advantageous, we must emphasize that the advantages and disadvantages of each type of investment depend largely on the market, the cryptocurrencies used, the strengths of each investor, etc … We must also highlight that many so-called “disadvantages” of trading can be easily solved with the use of various strategies, such as automated tools.
Therefore, if you are interested in entering the world of crypto assets, you should sit down and calmly reflect on which investment is best for you.
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This information is provided for educational and informational purposes. It should not be considered as a guarantee or indication to buy or invest in certain assets or software. It is important to note that no system or methodology can guarantee a profit or be free from loss. And always remember: don’t risk more than you are willing to lose.
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