This area has its own features like higher volatility. Thus, it is riskier and requires more attention to detail.
Crypto Investing vs. Trading Which Suits You Better
21 Feb, 2023
There are legends in both investing in cryptocurrency and trading it. Every person who succeeded at one of the approaches proposes advice and standards to follow. However, newcomers often get confused while comparing crypto investing vs. trading and do not know where to start. Is trading crypto better than stocks? Before answering this question, let’s point out that these intertwined ways have core differences. Both investors and traders purchase crypto. But, the first group is ready to wait until the price goes up. While the second is ready to sell their BTC, RVN, or other coins according to the market volatility. Let’s compare day trading vs investing crypto in more detail so that you can choose your pathway with open eyes.
Basics of investments
If you have enough funds and believe in some crypto, you can buy it and wait until its value will be appreciated. The time frame is going to be long and no one guarantees you the result. However, this strategy works well with such well-known options as BTC. Moreover, it may provide you with the unexpected profit from some other coin that becomes a hit.
While trading, your task will be to follow the market fluctuations and act correspondingly. The main idea is to make a purchase while the price is low and sell when it goes up. However, it only sounds easy as the situation is quite unpredictable and your short-term activity will be constantly changing.
Is it better to invest in crypto or trading?
Now let’s move on to the key differences that will influence your decision.
The time frame for these two options differs significantly: • Investors utilize a long-term approach. They held their cryptocurrencies ‘for dear life’ and believe that in the future their price will definitely rise. Such waiting may last not only moth but also years, which requires patience and an ability to do other transactions without involving the chosen crypto. • Traders are short-term players who follow the volatility of cryptocurrencies and act quickly. Their time frame may take a few seconds only bringing high profits on the spot.
The general idea is that the longer the period for investment, the lower the activity. Therefore: • Investors do not trade often and do not appear on the market daily. They are not interested in short-term changes and create the strategy for years ahead. • The number and frequency of activity for traders are high. They have to monitor the situation and react according to the changes that happen immediately.
How do both groups decide what to do exactly? When do they exchange crypto and what are their reasons for making the next step? The answer to all these issues is the proper analysis. It is always required. Still, it differs according to the chosen pathway: • For investing, fundamental analysis is the basic tool. This strategy is like a long-term belief in the coin. Therefore, its fundamentals and potential must be thoroughly evaluated. Investors use a variety of metrics that differs greatly from those applied to traditional stocks. Thus, this type of analysis is not a routine but a real art. • For trading, technical analysis is the right option. To forecast the movements in the market and future prices, they analyze historical data together with technical indicators. Different platforms provide instruments of varying difficulty and accuracy. The task here is to learn at least the basics and then continue the development of your analytical skills.
There are different fees that you have to pay. Exchanges like Exolix have a range of fees for their services including swap, trading, and others. Miners get network fees. The average percentage is from 0.1% to 1% per trade. For traders with high daily activity transaction fees are in the first place. They may also pay some taxes according to the profit obtained. For investors, costs are generally less pronounced as they convert and trade less. As for your starting capital, it can be small or large. Here everything depends on your abilities and goals.
Risks of trading vs investing cryptocurrency
Crypto is associated with high risk due to its volatility. Nevertheless, greater risks are related to bigger rewards. And that is one of the main reasons why this area gets so much attention. Coming to this world, you take some risk level that is marked as risk tolerance. That is another point where investors and traders differ: • Tolerance for risk while investing is smaller, as daily volatility means not so much for you. After a long time, this volatility has to smooth out and an upward trend must follow. • Risks are much higher for traders who must follow the smallest changes and try to benefit from them. Risk management is crucial for both cases. In addition, any activity with borrowed funds increases them.
The profit comes according to the chosen strategy: • Investors receive straightforward profits in case of price appreciation. The latter should cover the cost of investment, fees, etc. • Traders find their profits in price changes. They also use leverage to gain more on small capital. Still, it is a risky choice. Both a bull and a bear market give chances to gain for traders. As for investors, they need to wait for bear markets and not forget about airdrops, staking, and yield farming.
In a nutshell, to select the strategy you have to think over time, costs, and risks. If taken seriously, each of the options described above will lead you to a profit. Traders can get it quicker but their risks are higher. Investors should be more patient and coherent.
Frequently Asked Questions
Crypto can lead to higher profits if you have the proper background and follow the chosen strategy.
This market is known for volatility and risks. However, experts observe good dynamics for well-known coins and new ones.