Last updated on November 16th, 2022 at 11:58 am
The cryptocurrency market is highly volatile, and trading comes with the risk of incurring losses owing to different reasons. As a crypto trader, it is crucial to practice responsible trading. Astute crypto enthusiasts tend to map out a plan to follow while trading cryptocurrencies to ensure that they attain desired milestones without depleting their resources.
People who are always logical avoid making impulsive decisions about their portfolios.
This article outlines some of the steps that can be taken to cultivate responsible trading ethics.
Steps To Take
It is advisable that when first entering the crypto market, you take the following steps to become a responsible crypto trader.
• Have a Strong Financial Foundation
Jumping into the crypto market with no background knowledge may not be a prudent move. It is advisable to have a solid financial base before purchasing any cryptocurrency or conducting any trade.
The cryptocurrency market is rife with risks, volatility, and unpredictability. Things do not always go as planned, thus having the proper knowledge allows users to know which decisions to make at certain points in time.
To gain a comprehensive understanding of the crypto sector, there are several free and paid courses available on the internet. Youtube, for example, is a free data source that could be useful. Users must sift through the noise to find authentic information.
• Always Research
Doing due diligence before purchasing any cryptocurrency can often save traders from future problems. At the moment, the crypto market is flooded with thousands of cryptocurrencies, many of which are aggressively attempting to persuade consumers to invest in their projects. Some are genuine and intend to follow through on their objectives, while others are not. When deciding on a crypto project to invest in, it is best to examine its stakeholders, use cases, tokenomics, features, team members, and other relevant factors.
Scanning through project-related information reveals several aspects of the project. Investing in a project because a celebrity or a superstar endorses it is generally a bad idea.
• Only Use Funds That Can Be Lost
Given the volatility of the crypto market, it is crucial to remember that the chance of crypto value plummeting drastically exists. Depending on market conditions, the value of a token can plummet by 50% or more in a short period of time. As a result, cryptocurrency traders should only invest funds they are willing to lose. Using one’s savings to buy or trade cryptocurrencies may be a bad idea. Selling all of one’s possessions and investing everything in cryptocurrency bears a colossal amount of risk.
• Diversify Your Crypto Portfolio
Every investor, whether in the traditional financial space or the crypto market, understands the importance of investment diversification. Diversifying cryptocurrency holdings mitigates the risks associated with them. Investors tend to diversify their token portfolios by including stable currencies, popular tokens such as Bitcoin and Ethereum, metaverse coins, and DeFi coins.
Diversification helps to ensure portfolios are balanced. If the value of one cryptocurrency declines, there is a chance that the value of other tokens will rise to compensate.
• Decide on the Right Crypto Platform
As a crypto enthusiast, especially a new one, it is necessary to opt for a crypto exchange that ticks the right boxes. Some new traders prefer trading platforms with beginner-friendly user interfaces and simple settings that make it easy to navigate the terrain.
Some countries have restricted the use of cryptocurrency trading platforms within their borders. For example, Americans cannot use the standard Binance exchange. In addition, KuCoin and OKX are not permitted in the United States.
Only a few crypto exchanges, such as Coinbase and Gemini, are permitted to operate in the United States.
Another thing to consider is if the exchange is decentralized or custodial. Custodial or centralized exchanges hold the crypto holdings of their users. Before a trader can swap tokens on a custodial exchange, they have to relinquish control of their cryptocurrencies to the crypto exchange. This means that if an attack occurs, there is a probability that they may lose their holdings. Popular centralized exchanges include Coinbase, Binance, and Kraken.
Traders that opt to swap their tokens on a decentralized exchange retain custody of their tokens. Decentralized exchanges could be peer-to-peer trading platforms or Automated Market Makers. Popular decentralized trading platforms include UniSwap, Pancakeswap, and Sushiswap.
• Know When to Cool Off
The crypto market is volatile, which may require crypto traders to make decisions on the fly. A split-second choice can either make or break a user’s portfolio. Some traders may not know when to take a break and recover in this fast-paced market.
Some exchanges have a cooling-off period feature built into their system that limits the number of trades a customer can make. This feature is available on the Binance Futures trading option. This feature is available to crypto traders on exchanges such as Binance.
If a user activates this feature, they won’t be able to undo it until the designated period elapses. Taking a vacation, especially after a loss, allows traders to strategize and make rational, emotion-free judgments.
• Adopt a Crypto Trading Strategy
Making impulsive decisions can lead to the loss of one’s crypto holdings. Because of the market’s volatility, users may experience FUD (Fear, Uncertainty, and Doubt) or FOMO (Fear of Missing Out) when making crypto trading decisions. Having a plan decreases the likelihood of a trader making decisions based on rumours or unexpected fluctuations in the value of tokens.
Typically, a crypto strategy will include the types of crypto trades that the user prefers, such as spot trading, futures trading, or margin trading.
It should also include the criteria that must be met before a trade can take place, as well as the objective of the trade.
What are the set limits? When to enter and exit positions? The plan may also include the option to utilize limit orders or stop orders.
The strategy should be developed while the trader’s thinking is clear and free of emotional entanglements.
• Follow Security Procedures
With the value attached to cryptocurrencies, scammers are constantly on the lookout for accounts and wallets to drain. For example, typing a tweet with the terms, ‘Trust Wallet’ and ‘Metamask’ on Twitter will evoke comments from several bots pretending to be part of the customer service team of the crypto wallet.
Typically, they request that users reveal the seed phrases of their wallets in exchange for assistance in resolving any issues that the users may be experiencing. If the targeted users provide their seed phrases, the cryptocurrencies in their wallets are as good as stolen.
Some cryptocurrency wallets and exchange accounts enable users to use security features such as two-factor authentication (2FA). Because of the 2FA feature, it is difficult to access the account if the password is compromised.
Crypto enthusiasts should use unique and strong passwords for all of their crypto accounts. Using the same password for all accounts increases the risk of losing all cryptocurrency assets to hackers.
In Conclusion,
- Every crypto trader needs to trade responsibly.
- Making trading decisions without keeping emotions in check may lead to problems.
- Knowing when to cool off and take a break from trading improves the overall trading process for crypto traders.
- Conducting due diligence on crypto projects reduces the risk of purchasing scam tokens.
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