Thursday, 12 May 2022 10:26

Things You Should Do Before Trading Cryptocurrencies

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If you've made it this far, you're probably ready to start trading cryptocurrencies. But before you do so, there are things you need to do first.

While many of the risks associated with cryptocurrency trading are well-known and unavoidable (namely the risks associated with exchange hacks), there are some things that traders should consider before taking the plunge.

Do Your Research

Find out what cryptocurrencies have a lot of value right now as well as which ones are most likely to make gains in the future. Don't just blindly buy into any old shitcoin. It is better if your investment has a specific mission or point of view behind it, especially if it is something like Bitcoin or Ethereum that inspires political and social movements or is used for legitimate business transactions.

Cryptocurrency exchanges can also help you with your research. For instance, you are interested in Polkadot (DOT) and what to learn about DOT in detail. So, you will have questions like what is DOT, how to buy DOT, why should I buy DOT, and so on. Top exchanges will always provide you with these answers because they know that many of their users are new to crypto. The best part is that you can always rely on them for authentic information.

Evaluate Your Financial Situation

You must assess whether putting money into cryptocurrency is something that would make sense for you.

So before you decide to trade cryptocurrencies, ask yourself the following questions:

  • What are my financial goals?
  • What is my risk tolerance? (How comfortable am I with losing money?)
  • How much time can I devote to trading cryptocurrencies? (It can take a lot of time.)
  • How much income do I need to make from this activity? What are my expenses?

Decide Your Investment Strategy

Before starting to trade cryptocurrencies, you need to plan your investment strategy. To do so, answer the following questions:

  • Do you want to invest in the short term or long term?
  • Do you want to diversify your portfolio?
  • Are you looking for a stable coin?
  • Are you looking for a volatile coin?
  • Do you want to trade or speculate?
  • Are you storing value?

If there is one thing we learned from the 2017 bull market is that it is necessary to have an investment strategy. Cryptocurrencies can be very volatile and may rise and fall by 10–20% daily. The main question should be whether your investment objectives are met by buying cryptocurrencies. If yes, then buy them all! If not, then stick with what works for now.

Learn About Risks

Before you begin trading cryptocurrencies, it is critical to consider the risks involved. While cryptocurrency trading can be a lucrative investment option, it is also fraught with risk. The volatile market of cryptocurrency presents a range of opportunities for investors.

However, this volatility also introduces risks that are very different from the risks of traditional investing. For example, the value of your invested capital can be lost in an instant if you choose to invest in tradable assets that are subject to rapid shifts in value.

There could still be a significant upside if you want to successfully navigate the crypto market and make wise investments at opportune moments. Think through both the potential downside and upside before committing any funds to cryptocurrency trading.

Protect Your Private Keys

To hold or trade cryptocurrency requires a crypto-wallet. There are many types of wallets available depending on what you want to do with them and how much access you want or need.

The security of your private keys determines the security of your coins in your wallet, so you must store them safely and keep track of where they are. They can be stored in software wallets on different devices (like a computer or mobile phone) or with hardware wallets, like USB drives and dedicated hard drive devices that aren't connected to the internet (also called cold storage).

It is crucial that if you choose to use an exchange instead of purchasing directly from another person, you know how they work and are aware of the risks involved with using one and how secure a particular exchange is before using it.

Get A Crypto Wallet

While it is possible to do cryptocurrency trading directly from an exchange platform, we advise against this. You cannot store your cryptocurrencies in the exchange, as they are only stored temporarily before you move them onto your wallet. Your wallet will be used to hold cryptocurrencies securely and allow you to send and receive digital currencies.

Understand How to Store Private Keys

Storing your private keys safely is one of the first things you should do before trading cryptocurrencies. Private keys provide access to all the digital assets associated with a wallet and are crucial components of securing your cryptocurrencies.

Private keys are sensitive information that must be protected at all times. If someone gains access to your private key, they can transfer any of your coins to their wallets without your permission—which is why you must take precautions to protect them.

It is vital to keep your private keys:

  • In a safe place (not on an exchange)
  • Out of sight from others
  • Secret from everyone else

Additionally, make sure you have a clear plan for how much money you want to invest in cryptocurrency and how long you want to hold it. Remember, no one can predict where cryptocurrencies will be in five years, let alone next week. So, prepare for that as well before you start trading.

 
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