Cryptocurrencies historically continue to grow in popularity and value. As a result, many people are choosing to enter the cryptocurrency market to trade, invest, or do both.
However, trading and investing are different strategies for profiting from cryptocurrency. At the same time, deciding which of them to engage in solely depends on your knowledge of risk management and time.
In this article, we will outline what crypto trading and crypto investing are, their differences, and the right pointers you need to make your choice.
What is Crypto Trading?
Crypto trading involves calculatingly timing the market to buy and sell crypto coins based on the predictions about the best entry and exit points. Trading cryptocurrencies mainly deals with generating quick profits by taking advantage of short-term market price swings.
As a trader, you must follow up on market news, have a trading plan, and use technical indicators before deciding to trade. While the short-term profits of selling crypto assets may seem appealing, it is essential to understand the significant risk associated with it.
Due to the market’s high volatility, traders, if not cautious, may lose their funds. If you are a beginner, you should consider trading with small coins to gather experience.
What is Crypto Investing?
Crypto investing involves buying and holding crypto assets for an extended period with the prediction that the investment will increase in value. Investors are also known as HODLers. They seek to buy crypto coins at a low price and sell it when it grows to a desired amount.
Long-term investors have the potential to generate profits irrespective of market fluctuations. Investing in cryptocurrencies entails lower risks compared to crypto trading, as it requires a long-term commitment.
However, it is essential to know that while investing in crypto carries less risk than trading, you must understand the market and employ necessary investment strategies to ensure the desired return on investment.
As a newbie, you must select a digital currency, choose an exchange, decide on Bitcoin investing sites, allocate funds, and manage your assets strategically.
Differences between Crypto Trading and Crypto Investing
- Risks:
Involving cryptocurrencies is generally risky. So as an investor or trader, you must remember that there’s also a risk for every reward. Risk management is crucial in trading, and you must check the market trends regularly. Because of the constant buying and selling of crypto assets, traders are exposed to a more significant loss if care is not taken.
Investors, however, are less susceptible to risk. They are not worried by the day-to-day market’s fluctuations because they buy and hold their assets for a long time.
- Trade Frequency:
Trade frequency for traders is high, and this is because they regularly make transactions to make profits. Traders always stay on the market looking for opportunities to make gains, and because of this frequent trading, they generate more earnings than investors within a short amount of time. While regular trading can create opportunities for gaining profit, it also exposes the traders to high levels of risk.
Crypto investors tend to have a low trade frequency because of their long-term approach; they only purchase crypto assets and hold onto them with hopes of gaining their value over time. If unsure how much you must invest in cryptocurrency, consider focusing on minimum Bitcoin investment requirements.
- Trade Analysis:
Traders use technical analysis to predict future price movements, market trends, and patterns. They obtain the information needed using multiple technical indicators and chart tools. These indicators include Moving Average, RSI (Relative Strength Index), Slow Stochastic, and MACD (Moving average convergence and divergence).
On the other hand, investors use fundamental market analysis before buying a crypto asset. Fundamental analysis is helpful for long-term investments since it examines the worth of crypto support and the variables that will impact its price in the future. Investors, before investing, are advised to use fundamental analysis to predict if an investment they are interested in will increase value in the future.
- Time Duration:
Traders are more focused on generating profit over a very short period from the market trends. Sometimes this time duration for gaining profit can vary for minutes, hours, days, and weeks. While investing in cryptocurrencies is quite a long-term strategy. Investors ignore short-term price movements and hold their crypto assets for years while waiting for value appreciation.
Final Thoughts
The cryptocurrency market can be overwhelming and unpredictable, so traders and investors should exercise caution before committing funds. Proper research, strategy, and risk management mechanisms must be in place to protect investments or trade.