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Cryptocurrency Trading: What does it imply and how’s it different from other markets?

Cryptocurrencies have come to the attention of the general public in the last couple of years due to enormous price increases and massive drops in the market — fluctuations that shook many people. According to European statistics, from 2020, the general interest in cryptocurrency trading is constantly growing, and people desire to do constructive things with the money they have “leftover” at the end of the month. Financial markets are diverse and offer different returns, depending on the assets we invest in and the risk involved. Besides investment, there is also active trading, which aims to bring even better returns than passive investments — if it’s done correctly.

What is cryptocurrency trading, in general?

Investments are passive — and when people purchase an asset, they believe its price will grow in the future, so they keep it in their portfolio for a limited time. Unlike investments, when it comes to cryptocurrency trading, we buy or sell assets such as stocks, bonds, commodities, traditional currencies, or cryptocurrencies — and we sell them in a shorter period of time, through various strategies, after the asset has increased in value, to make a profit from the initial investment.

There are several types and approaches to trading, and market participants can trade the rise or the fall of an asset, depending on how they think the price will develop. This activity can be profitable for experienced traders or those who are educated enough about financial markets. Active and vigorous market participation is required, which can take a lot of time, dedication, financial and mental resources.

How is the crypto market different from other markets?

If we’re talking about investments’ size, the differences are significant. The stock market, commodities, and real estate markets are based on profits made from goods and services of different companies, weather, and agriculture from the respective year, the price of construction materials, and many other variables. However, when it comes to cryptocurrency trading, things are about the same because, in short, we’re trying to guess the following movements of an asset using technical analysis that includes the price history of that asset. It’s similar to the Forex, stocks, cryptocurrencies, or non-real estate, also known as REITs, where fewer things are different, including the market’s volatility.

How is trading different when it comes to crypto?

Trading in highly volatile markets (such as crypto) is considered risky because it’s harder to develop a proper perspective, unlike in other markets, where prices take a long time to develop and perform poorly. If we follow various influencers, we’re going to observe that it’s possible to have different conclusions after the same analysis — which is entirely possible. It’s also why traders must constantly do their research. The cryptocurrency market can start motion for many reasons and variables, considering that previous price analyses done over a limited period may fail. When we consider a higher risk — strategies should be adapted accordingly.

What are the pros and cons of the crypto market?

In short, crypto promises better returns for higher risks. Thus, traders can win in many ways rather than resorting to trading: yield and liquidity farming, dual investments, swap farming — alternative markets where return percentages are high even if they’re considered passive income. Of course, if we want to trade actively and open positions with margin collateral, earnings can be even more remarkable — but the risk is also higher. The good thing about the crypto market is that it’s open 24/7, so enthusiasts can focus on it outside of work hours, including weekends and holidays, thus offering a lot of flexibility.

However, these benefits also include significant risks, depending on the chosen cryptocurrency trading methods. So we can lose capital if we don’t know exactly what we’re doing if we’re having a bad day, or simply if an unpredictable or external factor shakes the market. The cryptocurrency market is much more unpredictable than other financial markets — and requires more trading skills, education, and significantly more experience to become a successful trader with the most profitable positions.

How can those risks be avoided?

It’s impossible to be totally risk-averted in such a volatile market, but we can take advantage of lesser risky options. It is crucial to diversify trades and research more industries that are also present in the crypto market at the same time: stablecoin pairs for safer transactions, similar to Forex, the gaming industry, utility coins, or currencies that have ties to the Metaverse. There are a lot of methods that can be used to make your cryptocurrency trading experience safer — make sure to choose things that you are passionate about, to make it easier to keep up with news and innovations from these industries constantly.

Disclaimer: The content of this article is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not consider your individual needs, investment objectives, and specific financial and fiscal circumstances.

Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty, or undertaking, stated or implied, is given as to the accuracy of the information contained herein. IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.

Investment involves risk; any ideas or strategies discussed herein should, therefore, not be undertaken by any individual without prior consultation with a financial professional to assess whether the ideas or techniques discussed are suitable to you based on your personal economic and fiscal objectives, needs, and risk tolerance. IXFI disclaims any liability or loss incurred by anyone who acts on the information, ideas, or strategies discussed herein.

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