CryptoTrading is similar to trading on the stock market in several ways:
- never spend money you can't afford to lose
- don't bet all your money on one horse
- there are always risks, nothing is guaranteed
But it is also different in many ways:
- much easier to access the market
- lower fees for buying and selling
- bigger potential profit margins
Remember, when you are buying cryptocoins, you are not just betting on the value of a coin to go up or down. That would be gambling, not trading. You are investing in a company and a technology and you should study the technology, the team behind it and the competition before deciding to put money into the coin.
In this series of articles, I want to guide people interested in crypto trading in taking the first steps.
Today, we will talk about what to buy. We will address how and when another time, but before getting started and spending money, it is important to determine what risks you are willing to take.
Determine your budget
Take a piece of paper (or your favorite note taking app) and write down the amount of money you can afford to lose. Let's call this number T1. This is the total amount of money to spend for starting. Don't get tempted by shiny objects and spend more than T1, because you are about to lose control. Always stay in control of what you are doing and stick to your plan.
There are still ways to take advantage of opportunities, but I'll talk about that in a minute.
Choose your risk ratio
The second step is to decide how much risk you are willing to take. Decide on your risk ratio.
There are 2 types of risks:
- medium risk (M1)
- high risk (H1)
There is no low-risk option. These are still cryptocurrencies and the market and technology are too young and too unpredictable to have a low-risk option.
A beginner should probably start cautiously and choose a ratio of 100% Medium Risk and 0% High Risk. But it is up to you to decide how much risk you are willing to take. Whatever ration you choose, I advise never to go below 60% Medium Risk!
For the sake of example, let's say you choose a 90/10 ratio.
Your budget would be T1=0,9* M1 + 0,1 * H1. (if T1 = $1000, M1 would be $900 and H1 would be $100)
Your Medium Risk Portfolio
Now that you have decided your budget for your Medium Risk portfolio, you can assign some assets to it.
Here is my current preferred ratio for a Medium Risk portfolio.
(warning: this is just a personal opinion. Don't take this as financial advice. I'm just a guy on the Internet writing stuff, I don't have a crystal ball to predict the future.)
- 35% Bitcoin
- 30% Ethereum
- 25% ZCash
- 10% Litecoin
If we follow our previous example (T1=$1000, ratio 90/10, M1=$900, H1=$100), we come to these numbers:
- Bitcoin $315
- Ethereum $270
- ZCash $225
- Litecoin $90
Once you have these numbers on paper, you know your target. That doesn't mean you have to go out and buy all of it right now! Take advantage of ups and downs on the market. There are always some fluctuations to take advantage off.
Your High Risk Portfolio
Whatever ratio you decided on, unless it was 100/0, you still have some budget left to buy some other coins. There is no preferred scenario here. There are more than 900 coins on the market and probably about 50 of them are worth investing in as part of a high risk portfolio.
Some of them are NEO, OMG, ARK, XRP, IOT, LSK, STEEM, XMR, DASH, REP, XEM, QTUM, QRL, XLM, and many more...
You'll have to do your research and decide what project you want to support, knowing there is a big chance you will lose everything and a small change you make huge profits. I'll write more about these coins some other time.
Or you could decide to wait for a future ICO to invest in and keep the money on the side for now. Just stick with the number H1 that you wrote down earlier to stay in control of your budget.
That't it for part 1. Now you have written down and allocated your budget without actually having spend any money.
Sleep on it for a while before you take the next step. Make sure you feel comfortable with it. Do some research on the coins I mentioned if you want.
In the next parts, I'll talk about how and where to buy these coins, how to keep them save, and many more topics.
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