Risks and Rewards in cryptocurrency trading

As you are already aware all the trading involves both risk as well as reward. The process is same as the normal share market trading. There is a difference however. One cannot easily compare cryptocurrency trading with that of share market trading. In the share market trading you will be able to check several aspects like graph analysis, technical analysis, company’s performance, global market trend, investor’s mood etc. Though some of these predictions are applicable for Cryptocurrency as well, some aspects are quite unpredictable in cryptocurrency trading. Everyone should understand the fact clearly that nobody in this world can ever determine how the market will be tomorrow. Some experts based on their previous experience can just speculate how the market trend will be tomorrow. But they will not be able to say anything for sure.

Risk factors

In another worlds some people even call this a luck. If luck is in favor of someone, they will be well rewarded. If luck is not in their favor, the will incur loss even when the market is growing very well. So ultimately it is purely unpredictable. The following 3 factors can be a big hurdle for cryptocurrency trading acting as a risk factor.

1. Market fluctuation Risk – As mentioned above, it is quite impossible to predict the trend of the market. With this fluctuating market there can be a case where a person can end up with complete loss. If people globally start to sell a particular cryptocurrency, then obviously the price of that particular coin/token will decline leading to a huge loss. People planning to invest in cryptocurrencies should be ready for such decline and be clear about when they should exit.
2. Security Risk – We have been continuously hearing news about Bitcoin servers being hacked. Recently there was a news about 4700 bitcoins looted from a particular server. As the cryptocurrencies are purely digital, there is a high possibility that the coins stored in the wallet can be hacked by someone and taken away. If they identify your private key and transfer the coins to their wallet, then the process cannot be reversed or tracked. It is just gone.
3. Government legislation – There is a high possibility that any country’s government can interfere in these trading aspects and pass a legislative regulation to the trading. From the point of view of government, it is purely a welcome note to protect criminal transactions from happening. This can even lead to ban in trading or usage of a particular coin. In such cases you will not be able to trade from a particular country. If they try to impose any regulation to these transactions, then it will look similar to the normal money transaction only.

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Reward factors

When people think about how rewarded they will be, the risk factors discussed above will completely go away from their eyes. You can easily show examples for rewards that a person can get from cryptocurrencies. That is the only reason why people are excited to invest in cryptocurrencies. In order to get good returns or reward a person will definitely need good patience. Rewards are always motivating but one should not be carried away by the rewards alone. Without proper planning rewards may not be that easy to achieve.

1. People who invested a minimum value in the year 2011 on bit coins are not multi-millionaires.
2. If you are investing on a particular coin/token have a list in your hand to justify why you believe that you will be rewarded from it. Don’t blindly invest just because everyone is investing.
3. Know the right time to enter and exit from a coin. This strategy is similar to that of share trading as well.
4. Patience is very important. Frequent trading will not help your money grow.
5. Long term investment is always good. That is how people invested in 2011 reaped their fruit in 2017.
6. Never be greedy. If you are happy with the profit that you have got so far then just exit. If you are okay even if the price drops, then stay invested for long period of time.
7. Do not put all your eggs in the same basket. My advice is to have your holdings in multiple wallet. Considering the risk factors in mind, if one wallet is gone at least you can compensate the loss with other wallets.

It is purely based on how the individual is capable of maintaining the capital and the risk factors. Your risk or reward is completely dependent on how you handle the situation.

Read More:

How to Trade Cryptocurrencies from India
Platform to Trade Cryptocurrencies from India

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