Cryptocurrency Investing vs Trading: What’s the Difference?
There are many ways to increase your savings with Bitcoin and other digital assets. For example, you can resort to investing, trading, mining, and other methods. Do not know what works best for you? Let us dive deep into this question and talk about cryptocurrency trading and investing.
Crypto Trading
Trading involves short-term speculation, making a lot of transactions. Exchanges are best suited for quickly buying or selling cryptocurrency. There is also an option for margin cryptocurrency trading with leverage. However, it is suitable only for professionals since it comes with multiple pitfalls. Cryptocurrencies are extremely volatile, so it’s better to start trading them with a demo account. Thus, you will get acquainted with the exchange and its instruments, get an idea of how a virtual balance sheet functions, and how to use all the tools.
There is also algorithmic trading that is carried out by using high-frequency trading instruments. These are special programs that automatically look for opportunities to make money, sell and buy positions in a second. Due to the strong fluctuations in cryptocurrency rates, such are becoming more and more popular. Algorithmic trading systems are used by both professional traders and amateurs.
What to Use for Crypto Trading?
There are three main categories of software for working with crypto-exchanges:
- Simple bots with predefined logic;
- Trained trading robots based on AI and machine learning technologies;
- Robots-advisors (do not make deals but give recommendations).
The first two options are hardly suitable for beginners. System performance is difficult to predict and impossible to guarantee 100% winning results. It is not necessary to completely outsource exchange operations to the software, but you can try robot advisors and independently evaluate their effectiveness.
Investing in Cryptocurrencies
Another good way of making money on digital assets is by investing in cryptocurrency. In this case, you simply buy a digital monetary unit. There are several ways to invest in cryptocurrency.
- Simple investment – The first method is somewhat similar to a bank deposit. For example, you can buy Bitcoin, Ether, or any other cryptocurrency and wait for its rate to grow. Since cryptocurrencies have great potential for growth, such an investment can bring significant profits after a certain time. The disadvantage of this method is that the negative scenario is possible as well. There is a risk that the crypto value can fall sharply. Therefore, it is important to find the right moment to invest. You should also keep in mind that this method comes with a long “wait” time, which can be a couple of years or so.
- Trust management – The second method is a variation of trust management. That is, you invest in a trader who makes transactions on a cryptocurrency exchange and gets your share of the profit. Ideally, you don’t even need to delve into the tech specs of the market but just periodically receive your percentage. There are some disadvantages of trust management. In practice, no trader can guarantee stable profits. That is, instead of making a profit, there is a possibility of losing the invested funds.
Since crypto investing requires substantial capital, you should approach this business with special care and responsibility. Otherwise, there is a risk that you will fail.
