esfinance21.com – Some of you here are certainly very familiar with crypto. Indeed, in recent years, crypto has been very popular, especially among traders.
Some laypeople may think that crypto trading is the same as stock trading. Indeed, there is nothing wrong with this. However, it should be emphasized that crypto trading and stock trading are very different. The difference is in the transaction object. The object of transactions in crypto is cryptocurrency.
The beginning of the presence of cryptocurrency was the existence of blockchain and the digital currency market among the public. Some types of cryptocurrency have fantastic value.
What is Crypto Trading?
Here, of course, you want to really know what is meant by crypto trading. So, crypto trading is the act of speculating on cryptocurrency price movements via a CFD trading account or buying and selling the underlying coins via an exchange.
Several countries prohibit the use of cryptocurrency as a transaction tool because they are considered to be able to disrupt the country’s economic and financial order, threaten the security of public assets, and disrupt people’s welfare. Also, cryptocurrencies carry high risks and no party is responsible if their prices fall.
However, crypto assets can be used as investments and traded. However, before you choose crypto as an investment tool, there are several things you need to pay attention to. This is because crypto trading has very high risks.
Crypto Trading Risks
As previously explained, crypto trading has very high risks. By knowing some of the risks, you can be more careful in starting crypto trading and making it an investment. These are the crypto trading risks you have to know:
1. The Valur Drops Drastically
In crypto trading, of course, you are tempted by the profits that can come in fantastic amounts. Indeed, the cryptocurrency could go up without any restrictions and bring abundant profits. However, the same is true for declines. It is possible for the value of crypto to fall without limit so that it can make you lose a lot of money too.
The difference with stock markets such as stock exchanges and mutual funds is that they are monitored by state agencies. Usually, the maximum limit for stock decline during a day is 7%. And, if the losses continue for days, there are several policies to be implemented, one of which is to carry out a suspension. That way, the losses and risks that traders get can be limited.
However, minimal risk equals minimal gain. Unlike crypto, which can go up to hundreds of percent, stocks can’t experience that big of a gain.
2. Fundamentals that Cannot be Analyzed
This is different from shares which can be analyzed using certain formulas so you can determine when to buy and when to sell. Crypto has no fundamentals that can be analyzed. The rise and fall in crypto is erratic. So, you cannot know the fair value and valuation of cryptocurrency values.
What is meant here is that rises and falls in crypto cannot be analyzed and predicted. So you will not know whether you will profit or lose when doing crypto trading.
3. Nobody is Responsible
Crypto trading is illegal, there are no state bodies or institutions that regulate it. So, when something happens, no one can be held responsible. For example, you use a debit card or credit card to shop but there are obstacles or problems. And, if you want to dispute it, the company can process it and return your money back. Meanwhile, cryptocurrencies are not.
When you make a purchase with cryptocurrency, you can get your money back if the person you sent the money to sends it back. Therefore, before you make a purchase, make sure you first research the seller’s reputation.
The Differences of Trading and Investment
Before determining and trading or investing, you need to know the difference between these two first. In short, trading is for the short term. And investment is for the long term.
Investors will keep their assets for a long period of time. So, when there is a daily decline, they will not immediately sell their assets. Instead, wait until the time when their assets have a high selling value. However, this is still based on proper analysis. Meanwhile, traders will usually monitor the market every day and can sell their assets when they feel they are profitable.
Generally, investors create wealth with compound interest and dividends. Meanwhile, traders create wealth based on market value or market time. Therefore, traders must be more careful in determining the right time for them to buy and sell their assets.
However, investment and trading have their respective advantages and risks. You can determine all this according to your needs.
Final Words
With several countries legalizing the use of crypto, you can determine whether crypto trading is the right choice for investing or not. Also, knowing some of the risks described above, you can consider them before trading crypto. However, indeed, the benefits obtained from crypto are also tempting. This is because the higher the profit, the higher the risk you will get. So, be wise in making your choice. Good luck!