Investors from around the globe are trying to cash in on the volatile Forex market, by trading with the crypto-currency, Bitcoin. Well, it is quite easy to get started with online trading, but it is important for you to know that there are risks involved that you cannot afford to overlook.
As with any of the speculative or exchange markets, Bitcoin trading is also a dicey venture, which can possibly cost you a lot of money, especially if you don’t get it right. Therefore, it is essential for you to know about the risks involved, before deciding to get started with it.
If you are a newbie, who is interested in trading with Bitcoin, then you will need to first understand the basics of trade and investing.
Avoid the common errors that new traders generally tend to make
Any kind of financial investment can bring losses, instead of profits. Similarly, with the highly unstable Bitcoin market, you can expect both, profits and losses. It is all about making the right decisions at the right time.
Most of the beginners tend to lose money by making the wrong decisions that are generally driven by greed and poor analytical skills. Experts say that you should not venture into trading, if you are not ready to lose money. Basically, such an approach helps you in coping up mentally for the worst possibilities.
Diversify the portfolio
First, successful traders diversify their portfolios. Risk exposure increases if most of your funds are allocated for a single asset. It becomes harder for you to cover the losses from other assets. You cannot afford to lose more money than you invested, so avoid placing more funds on limited assets. It will help you sustain the negative trades to quite an extent.
Secondly, putting in more cash than you can afford, will also cloud your sound decision making abilities. In most cases, you will be compelled to opt for ‘desperate selling’ when market declines a little. Rather than holding through the market dip, the investor who has over-invested on the trade, is bound to panic. The person will feel the urge sell off the holding for a low price, in an attempt to lessen the losses.
You will also be losing more cash, when market recovers. It is because you will have to buy the same holding back, but at higher price.
Set goals – Emotions make you blind
Goal setting for each transaction is vital when you trade Bitcoin. It helps you stay level-headed even in the extremely volatile conditions. Therefore, you will need to first determine the price to stop your losses.
The same rule also applies for profits, especially if you let your greed take over. The benefit of setting goals is that you can easily prevent making the decisions based on emotions.
Instead, you should work towards improving your skills for reading the charts and conducting the market analysis. It is also advisable for new traders to close their losing positions in 24 hours, so as to avoid paying the recurring interest.