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Crypto Trading vs. Crypto Investing – How are they different?
Investing in cryptocurrencies and trading them are two very different and distinct things. Each one necessitates a certain mentality and set of strategies.
Think in terms of these two popular money leaders!
Warren Buffet is a well-known long-term investor who employs a value investing strategy. Investing in underpriced investments or equities trading at a discount to their intrinsic value is referred to as value investing.
On the other hand, George Soros is a famed trader noted for his contrarian (against the grain) trading technique. He once 'broke the Bank of England' by shorting (betting against) the sterling pound and profiting almost $1 billion from that single move!
Let's discuss the distinction between investing and trading in cryptocurrencies in this article in a bit of depth.
What is Crypto Trading?
Crypto trading involves speculating on cryptocurrency price movements via a CFD trading account or buying and selling the underlying coins via an exchange. Exchanging one cryptocurrency for another, buying and selling coins, and converting fiat money into cryptocurrency are examples of this trading form.
Foreign exchange (FX) is a similar concept, where fiat currencies worldwide are traded 24 hours a day.
In recent years, the number of cryptocurrencies has skyrocketed, with estimates putting the total number at around 1,500. Many of these coins can only be obtained through a primary cryptocurrency like Bitcoin or Ethereum. As a result, if you want to participate in initial coin offers (ICOs) or use the services of a blockchain company, you'll almost certainly need to trade.
One advantage of crypto trading is that you may participate without having to mine coins yourself, which requires time, energy, technical expertise, and a lot of computational power.
Now, what is Crypto Investing?
While investing in crypto, you are using fundamentals and long-term trends to build a long-term position in digital assets and attempting to establish a position at a lower price than the price at which you will eventually sell if you intend to sell at all. There's a lot of room for buying at the wrong time.
Investors have a longer-term vision. They think in terms of years and often hold stocks through the market's fluctuation.
Investors analyze a company's potential for long-term growth or value. Investing is about buying stocks for long-term gains; one must be patient and willing to put in the time.
Cryptocurrency investors are less risk-averse than traders because they are more at ease leaving their investments alone and less unconcerned about daily price fluctuation.
Suppose you want direct exposure to the demand for digital money. In that case, cryptocurrency is an excellent investment, while stocks of firms with cryptocurrency exposure are a safer but perhaps less rewarding alternative.
Many cryptocurrencies, such as Bitcoin and Ethereum, are founded with ambitious goals that can be accomplished over long periods. While the success of any cryptocurrency initiative is not guaranteed, if it meets its objectives, early investors may be well rewarded in the long run. The reasoning behind this is that blockchain technology is still in its infancy. It could take years (or even decades) to disrupt established institutions and acquire widespread use. It should be noted that, in comparison to stock markets, the cryptocurrency market cycles are shorter.
To be regarded as a long-term success, any cryptocurrency initiative must first achieve widespread adoption – which it is clearly years away from.
The Difference
Traders and investors face distinct tax consequences because one aims to produce income while the other seeks to generate a long-term capital gain. Anyone can combine trading and investing, but the two should not be confused. The current cryptocurrency markets are traders' markets. Therefore people looking to invest should build positions gradually over time to prevent price volatility.
If you're not sure whether you want to be an investor or a trader, try both. Short-term bets that go wrong can always be turned into long-term investments. Keep in mind that trading is far more difficult from a technical standpoint, whereas investing in cryptocurrency might be emotionally challenging.
Bottom Line
Traders and investors both strive to make money by buying and selling cryptocurrencies, but their techniques and long-term objectives are different. The variation in strategy has several significant consequences, including differences in tax liability. It's critical to comprehend these distinctions to fully realize the tax implications and avoid any problems.
Both investing and trading involve patience and emotional control, and both can be difficult to master. However, mastering either can be profitable.
Whether it's trading or investing, you can do both by registering with ATAIX today to set up an account and get started.
7 Beginner Crypto Trading Mistakes to Avoid
Crypto is all the hype these days and everyone wants to get in on the game. If you are a beginner who is going to start trading, keep these few things in mind to help you on your new journey. Here are seven mistakes to avoid at all costs.
1. Not Diversifying Enough
Some clichés have some truth to them. Consider any sentence that includes the phrases "don't bet the farm" or "don't put all your eggs in one basket." Diversification has been around for thousands of years for a reason: if you gamble everything, you're more likely to lose everything. This is as true in cryptocurrency trading as it is in any other industry.
You should diversify even if you think you've found a sure thing, not merely because there isn't such a thing. It simply doesn't hurt to have a broader range of options. You win some, lose some, and occasionally both at the same time. Diversification increases your chances of losing some rather than all of your investments.
2. Thinking everything depends on Lady Luck.
Rather than relying on luck alone, trading requires you to be well-read, intelligent, and updated on the newest news. Not only that but being well-read and well-informed is how you get lucky. For many people, what appears to be luck is the consequence of hard work and perseverance.
Unfortunately, not knowing enough about the technology you're investing in is one of the most prevalent rookie blunders every crypto trader should avoid. If you're going to invest in cryptocurrency, you should know enough about it to explain it to someone who doesn't know anything about it. Otherwise, you're as doomed as anyone who put money into one of history's worst IPOs.
3. Following the Herd Mentality
One of the primary blunders that every crypto trader should avoid is not marching to the beat of their own drum. Sure, you might be able to ride a wave for a few days or even weeks, but it's an indication that a bubble is going to burst when individuals you don't know start talking to you about cryptocurrency. It's too late by the time enough people are aware of something for you to feel compelled to participate—the tipping point has already been reached.
4. Never Panic Sell
To trade, you need an iron heart, especially in a market with as many price fluctuations as crypto. Selling when things become tricky is one of the beginner blunders that every crypto trader should avoid. It makes sense to cut your losses on occasion, but they aren't losses until you sell. If you simply hold on to your investment, it may rise in value again.
You don't want to purchase high and sell low since you're essentially wasting your money. It cannot be overstated how important it is to invest wisely. Wisdom is the most potent deterrent to failure.
5. Selling at Peak Prices
In the wise words of seasoned investors, 'This isn't the top; hold and don't sell.' The argument is that you never know how much a particular token will increase in value.
If you acquired bitcoin for $100, for example, you undoubtedly felt compelled to sell it when it surged to $1,000. But you'd be kicking yourself today because the ether is already trading above $ 9,000.
You'll need a strategy to sell cryptocurrencies. Set a goal for yourself and work toward it no matter what. Yes, looking at how money moves will be challenging as the market falls. Is it, nevertheless, necessary to panic and sell everything at once? There is just one answer: no.
6. Taking Security too Lightly
This is possibly the most severe blunder in the crypto-community today. Millions of dollars were lost due to customers entrusting their data to a hacked exchange or a service that went down.
Scammers and hackers do not stand still as technology advances, and where money is freely available, and there is insufficient oversight, those are the sins for them not to take. Even if you have a small amount of money and plan to invest only for a little while, you need to take precautions to protect your data at all costs. Make sure two-factor authentication, the use of individual computers, and data encryption are all required.
Make physical copies of data, of course.
7. The Fear of Missing Out
FOMO is a fear of missing out on anything. It shows up in scenarios like selling an asset early because you're afraid of losing money, buying at the maximum because you're scared of missing out on something essential, or investing in doubtful ventures. After all, you're afraid of missing out on a promising ICO. Most of the time, it is the fear of losing money that causes us to lose money.
FOMO is challenging to overcome, but it is possible. Create a set of rules for trading on the crypto exchange or selecting a project, as well as restrictions on the maximum losses and profits that are acceptable to you.
It would help if you rose above it. Understand that fresh opportunities in the realm of cryptocurrency occur daily, so keep that in mind.
Closing Thoughts
If you keep the above seven things in mind, you will grow as a trader and go on to make money on your own terms and succeed at crypto. Are you looking for a good, safe, and easy-to-trade exchange to start with? Just sign up with ATAIX today, and you can start trading in no time.
Good luck!
