DO NOT EVER EMBARK ON BITCOIN TRADE OR INVESTMENT UNLESS YOU ARE AWARE OF THESE TEN THINGS
Bitcoin is a digital currency invented by Satoshi Nakamoto in 2008. The sharp increase in the value, resulting to the popularity of bitcoin makes it seem like it is the only cryptocurrency. However, it is only but one of the cryptocurrencies .
The global acceptability of Bitcoin as an easy, safe and quick medium of exchange in addition to its continuous increase in value, notwithstanding the occasional drop in the value, has projected bitcoin as one of the best assets to invest in.
Bitcoin as a digital asset allows people to engage in transaction without the need for a third party like bank. The fact that bitcoin is not geographically limited is an advantage. Thus bitcoin transaction can be done anywhere , notwithstanding the network ability of that location. Bitcoin transactions run on a global network and so does not depend on the network of the locality it is being performed.
Bitcoin investment and trade is a good idea. However, it is highly advised that before embarking on either bitcoin investment and trade, the intending investor or trader should get himself acquainted with the crucial features of bitcoin as an asset and the pros and cons of bitcoin trade and investment.
Some of this must-know about bitcoin trade and investment include;
- What is bitcoin? It is fundamental to prior to embarking on bitcoin trade and investment, know what bitcoin actually is. Bitcoin is a digital and decentralized currency, which uses blockchain to record verified transactions.
- Bitcoin is absolutely Decentralized: Unlike local/fiat currencies, bitcoin is a decentralized currency and this feature makes it immune to government or centralized authority interference. Thus there Is no need for the rigorous central bank or other financial institutions guidelines and interference.
- Bitcoin though a decentralized currency, is a real money: Bitcoin is a real money capable of being utilized by owners to buy commodities and ventures. Just like fiat currency, bitcoin is a genuine medium of exchange.
- Bitcoin investment and trade involves risk and so , risk management skill is of utmost necessity for a successful trade or investment. In fact, risk management is the most important skill in bitcoin trade and investment. Risk management involves understanding how much to risk on a trade, when to reduce risk, when to stop trading and when to continue. It takes time to learn and understand risk management and many beginners go broke as a result of lack of risk management skill. It is advised that anyone intending to embark on bitcoin trade and investment and desiring to be successful in it, should take out time to learn and understand risk management first.
- Note that there is a difference between bitcoin trade and investment. When you are trading on bitcoin, you don’t own the underlying asset. Also as a a bitcoin trader, your concern is the fluctuation in the price of bitcoin over a short period of time. A bitcoin trader is not interested in a long time shift in price. This is unlike an investor whose main concern is the long term price movement.
- It is very important to know your counterparty. Counterpaty in bitcoin trade is the entity that is required to meet the contractual obligation of the trades you have made. Practical example; When you enter into a short position CFD trade, you will make gains if the benchmark price of bitcoin goes down , you will make a gain and the said gain will be paid out by your counterparty(that is the party that sold the position to you. It is always very important for a successful bitcoin trade to always use a reputable broker who is also acting as a counterparty. Do not aim at using only the broker that offers the lowest trade fee. However, that does not mean that efficiency of a broker is dependent on the trade fee it charges.
- Never forget the fact that you are trading based on volatility and investing based on stability. As a trader, your concern is the fluctuation in the price over a short period of time while as an investor you are concerned with what happens to the price over a long period of time. Short term expectation(trade) deals with volatility while long term deals with stability.
- Always remember that there is a cost attached when you hold a position overnight . So take into consideration, the funding anytime you will need to hold a position for more than a day.
- You are neither trading a currency nor commodity. Bitcoin is not a fiat currency and thus its performance is not subject to any one economy nor can they be directly controlled by any central bank or authority.
- Trading is gambling. Do not be deceived into believing that there is a difference. To trade, you must get yourself acquainted with the procedures and rudiments and also develop the strong mind to accept whatever outcome. It is a win or lose game.
- Avoid emotional trading. Never embark in bitcoin trading because you are in urgent or desperate need of money.
- Bitcoin is pseudo-anonymous. The abstract/digital nature of bitcoin makes it impossible to be touched. It can only be traded on the internet and traced with the use of blockchain.
- Bitcoin is absolutely unpredictable and highly unstable.
- Get yourself acquainted with the procedure for buying and selling of bitcoin.
- You must not only trade on bitcoin. There are many potential cryptocurrencies to invest or trade on. Diversification is the key.
To embark on a successful trade and investment, there is need to first learn the tips, develop the mind and expect both the best and the worst. Read about a particular currency you intend to invest in, make sufficient research on the origin and potentials of the currency. Trading and investment involves risk. Meanwhile it is riskier not to take risk. So do not run away because of the risk involved but rather learn how to manage the said risk and trade with caution.