Over the past few years the idea of becoming a ‘crypto day trader’ has gained in popularity.
There are countless YouTube videos all claiming to teach viewers the “real secret” to the high-flying, trading lifestyle. How you can spend an hour or two in front of your laptop every day and pocket upwards of $500 in profit on a daily basis.
Before we look at the validity of such a claim, let us look at the facts.
Cryptocurrency is a tradable asset, and it shares a lot of its characteristics with traditional trading markets such as Forex and stocks.
It is possible to make high returns from trading cryptocurrency, but there are high risks attached as well.
If you don’t know what you’re doing, you can easily lose all your money very quickly.
The lack of Government regulation in the crypto market also removes many of the so-called fail-safes that are present in other forms of trading and gambling.
Many refer to crypto trading as the wild west of the investment world, and to a certain degree they are right, but besides the slow creep of Governmental regulation, we also see many exchanges taking steps to regulate themselves.
One case in point is European exchange ETERBASE, known as the first regulation-compliant cryptocurrency exchange in Europe. Be it data protection, AML, KYC, GDPR, they have it covered, and this is looking like the way forward for any exchange that wishes to be taken seriously.
Many crypto exchanges, including some of the more popular platforms such as RightBTC offer beginners guides intended to help those new to the world of crypto trading get started in the right way.
Take advantage of these official guides, as they are usually more reliable than the stuff you’ll find from self-proclaimed successful traders on YouTube.
However, even if you’re trading on the most reputable, respectable exchange out there, a fundamental lack of knowledge will still see you lose a lot of money, fast.
Get Rich Quick
Anyone who decides to start trading crypto under the impression that its a get rich quick scheme is almost certain to lose all of their funds pretty quickly.
Crypto is NOT a get rich quick scheme.
For those who know how to read the markets, there is an opportunity to make a lot of money from crypto, that is true, but there’s also a very good chance that you could lose a lot of money as well.
The bottom line is quite simple. Never invest more than you can comfortably afford to lose.
No one wants to lose money, but it’s certainly going to be a whole lot easier if you lose a spare $500 you had sitting around than it would be if you lose $500 that was supposed to go towards paying your rent or energy bills that month.
The very thing that attracts people to crypto investing is what can drain your funds quickly. Volatility.
Unless you really know what you’re doing this is a dangerous tactic to use, and will more than likely see you lose a lot of your money.
Many day traders think that they can succeed where other, “less serious” traders have failed simply because they consider themselves to be day traders and someone who tracks the market very closely.
This typically makes no difference, as the inexperienced trader will many times not pull the plug until they’ve lost a lot of money.
Remember, there is virtually no cap on the growth of any particular asset, so the risk of a loss is, in theory, infinite.
Unlike owning an asset which is failing, where your maximum loss is 100% of that particular assets value, with shorting, an asset can double or even treble in value, taking your loss with it.
Many inexperienced traders take part in this type of tactic and leave it far too late before they realize they’re in over their heads.
By its very definition margin trading breaks the number one rule all traders should follow, which is not to invest more than you can afford to lose.
Most margin traders are simply being greedy and are essentially borrowing to invest, which never ends well.
Always obey the golden rule, which is only to invest what you can comfortably afford to lose.
A margin traders worst nightmare is a margin call, which is when a broker basically places a demand that an investor deposits the funds required to bring their account up to the minimum maintenance levels once again.
If the said investor cannot cover his losses, then the trade is closed, and your initial investment is history.
Margin trading is high risk even for the most experienced of day traders, so avoid it entirely unless you know the game inside out.
In conclusion, if you’re looking for a get rich quick scheme, don’t look at day trading. If you’re operating with limited funds that you cannot afford to lose, then don’t get involved in day trading.
The other side of the coin is that day trading can be fun, and you can make money, but you need to be sensible and avoid getting greedy.
Take some time to learn the ropes, trade small, pick up good habits, and you’ll be fine.
Featured Image: DepositPhotos/ dimarik