Are you a crypto trader or a crypto investor? While both crypto trading and investing are aimed at making money, they are fundamentally different methods. If you’re confused about the difference, you have come to the right place.
After reading this guide, you won’t only know the difference between the two, you’ll know which one to go into so that you can increase your chances of maximizing profit from whatever crypto you’re interested in. We’ll start with crypto trading and then crypto investing, highlighting what it is, its pros and cons as well as what makes one different from another.
What Is Crypto Trading?
Technically speaking, crypto trading is the process of selling one crypto asset for another. It requires accurate timing, careful selection of the asset to trade, and managing risks. For example, if I wish to trade Bitcoin, I have to trade it against another asset, say Ethereum. BTC/ETH now becomes my trading pair.
The next thing is for me to research the market using different tools and conclude that BTC will rise against ETH or the other way around. I will then place my sell or buy order for BTC against ETH based on this conclusion and watch. Crypto trading involves high risk and to minimize that risk, traders use many tools.
To minimize loses should my conclusion be wrong, I’ll set a stop loss – a price at which the trade will stop automatically if I’m losing. I’ll also set a take profit, which is a the price at which the trade stops and I harvest my profits if I’m right. You don’t want to get greedy and lose the gains you already have.
There are many trading strategies that crypto traders employ, depending on their level of experience and many other factors. These include:
Arbitrage trading: This takes advantage of price differences of an asset on different exchanges. BTC may be selling for $10,000 on Binance for instance, but selling at $11,000 on a Japanese exchange. I’ll then buy on Binance and sell on that exchange, making $1,000 on each BTC.
Day trading: traders engaging in this only trade within 24 hours, so they’re always looking out for trade opportunities to take advantage of.
Swing trading: involves taking advantage of huge price movements in a certain direction to make profits within a short time.
These are just few of the trading strategies you can use to trade. It is however quite risky and you’ll need time to be good at it and make more profits than losses.
What Is Crypto Investing?
Crypto investing is quite a different ball game because it doesn’t involve the kind of strategizing required to trade safely. Instead, you simply acquire the asset and wait for the price to appreciate. While crypto trading can yield quick results, crypto investing is usually a long-term game, and your risks are minimized.
This also doesn’t require so much technical knowledge. Anyone can buy and hold crypto assets if they can operate a crypto wallet. There are even options for you to invest and have someone else manage your portfolio, which makes it even easier. However, the safest way to hold crypto is to hold it yourself. For if it’s not your keys, it’s not your asset.
Just like crypto trading though, there are different strategies you can use to invest in crypto. These include:
Hodl: this is the good old hodling where you simply buy and hold the asset in your wallet. You don’t need to do anything other than wait for the market to move in your favour and then sell to make proit.
Dollar cost averaging: this is just like hodling, but you keep adding to your portfolio at regular intervals, regardless of what the market is doing. This ends up giving you an excellent average purchasing price, thus increasing your chances of profiting.
These are the basic methods and every other method such as value investing, growth investing, and index fund investing are just variations of them. If you’re just entering the crypto space, you’ll be better off with crypto investing until you learn to trade.
