Cryptocurrency is a highly volatile asset when investing in which there are always risks of losing your savings. Investors use a variety of ...
Cryptocurrency is a highly volatile asset when investing in which there are always risks of losing your savings. Investors use a variety of tools to help mitigate these risks, such as diversification. By dividing the investment portfolio into assets with low correlation, it is possible to secure investments from fluctuations in quotations. There are other ways that will help reduce the risks when buying digital assets, writes RBC Crypto.
Avoid haste and greed
During periods of high volatility and rapid growth of crypto assets, traders begin to trade “with a fast pulse,” said Vadim Koleoshkin, co-founder of the Zerion platform. In his opinion, this is caused by uncertainty, fear of lost profits (FOMO), and greed. Active trading during such periods can lead not only to a loss of funds but also to a deterioration in health, the expert said.
“I think health is definitely not worth the lost profit,” said Koleoshkin.
In order not to become a hostage to the market, you need to formalize the strategy for yourself in writing and just follow it, and after some time determines the results and adapt it, advises the co-founder of the Zerion platform. Even a simple sign, which will indicate the moment of entry, the estimated period of the investment, the expected result, and the exit option, will be enough to not chase after lost profits.
FOMO stands for Fear of Missing Out. The term refers to situations where the fear of missing out on opportunities or some valuable resource becomes the reason for certain actions.
Don't use a lot of leverage
In an effort to earn $ 1 million here and now, with a deposit of $ 1,000, investors use 100x leverage, and sometimes, even more, explained Mikhail Karkhalev, a financial analyst at the Currency.com crypto exchange. According to him, in this case, one corrective candlestick that does not change the intraday trend is enough - and the deposit is lost.
"For the crypto market, 5x leverage is already quite a high risk, although 10x-20x leverage can work well in the foreign exchange market," the analyst added.
Hedge risks with leverage
In some cases, leveraged trading can be used as a hedging instrument, says Mikhail Karkhalev. For example, if after buying bitcoin for the long term, the price of an asset began to fall, you can open a short position with small leverage and thus win back the losses, explained the financial analyst of the crypto exchange Currency.com.
“To put it simply, leverage is a tool that needs to be used where it is appropriate,” the analyst said.