Trading
Cryptocurrency - How to Do it Responsibly
The most important thing when it comes to buying or selling crypto should be to trade responsibly. Planning is key to trading responsibly. By developing a trading plan, you can help keep yourself accountable for your actions later on.
It's important to keep your mind clear when making trading decisions, so you can avoid emotions playing a part in your choices. You should also consider conducting your own research, diversifying your portfolio, using stop-limit orders, and avoiding FOMO as much as possible.
Before you begin trading with leverage, be certain that you understand fully the risks involved. Many exchanges have also included features that allow you to control the amount of money you trade, such as the cooling-off period, which gives you more control over your investments. You can use this option to lock your futures account for a defined period.
Introduction
No matter how much you trade, regardless of how much you do, make sure you're trading responsibly. With a few simple tips and methods, you can reduce unnecessary risks and make sure you will only trade what you can afford to lose. It's easy for some people to get carried away. You can learn how to manage your trading better by reading our guide to determining your correct limits and enhancing your overall responsibility.
What is responsible trading？
When it comes to trading crypto responsibly, there is more to it than just watching how much you're buying and selling. It is very important to be in control of your trading behavior so that you do not rely on your emotions to influence your decisions. You should also be accountable for your trading activity and understand if it really works for you.
Cryptocurrencies can be traded or invested in many different ways. With leverage, margin trading and futures can produce large returns, but are riskier. They may be difficult for some traders to manage. In order to minimize your risk profile, it might be preferable to buy crypto on the spot market and HODL it instead.
Responsible traders won't engage in behaviors that lead to irresponsible trading. Recognizing when someone is negatively influencing your decision-making is a big part of responsible crypto trading. New traders usually trade impulsively or rely on gut instinct to learn this skill. Therefore, as much as you can avoid this, the better you will become.
Tips to trade cryptos responsibly
You are required to manage multiple aspects of your trading behavior when it comes to trading cryptocurrencies in a responsible manner. Managing your trading behavior is more than just hitting the buy or sell buttons. Try to implement as many of the tips below as possible within your routine when you start trading. Although this might seem like a lot of advice, this will assist you in improving your trading skills in the long run.
Secure your trading account and wallet
Getting your trading account secured is the most important thing you should do before you even start trading. It doesn't matter how carefully you plan your trades, if the funds, account, and password are compromised, it's pointless. A variety of methods are available to do this, including using two-factor authentication (2FA), creating a strong password, or whitelisting withdrawal addresses.
The same applies to your private key, if you also use an external cryptocurrency wallet . Just like your bank account information, you should never share your private key or seed phrase with anyone else. You may wish to consider storing extra funds on a hardware wallet in order to store them in a safe place.
Create a trading plan
The best way to not let your emotions interfere with your trading is to create a plan and stick to it. This way, sudden gains, losses, rumors, or FUD can’t disrupt your decision-making. So what goes into a trading plan?
Your plan should outline the kind of trades you want to make, conditions for trading, and your trading objectives. Your risk profile and trading style will determine what your limits are. You should create your trading plan with a clear mind and be happy to follow at a later date with what you’ve decided. Your trading plan can include:
• How much leverage you want to use if any at all
• Entry and exit prices for specific trades
• Maximum investment amount as a percentage of total capital
• How diversified your portfolio is
• Your crypto asset allocation
• When to stop trading (time, volume, etc.)
• Maximum losses
• The products or assets you trade
Use stop-limit orders
To have a greater level of control over your trading, you can use stop-limit orders.you cannot always spend your time at a screen, and since crypto is so volatile, you might be confronted with unexpected losses. The idea of leaving large amounts of crypto exposed to volatility in an unprotected manner is unwise & isn’t a responsible way to trade. It is easy to stick to a trading plan once you've created it. Using stop-limit orders will allow you to do that.
Consider for example, a scenario where you purchased a Bitcoin (BTC) for $20,000 (US dollars) and now it is worth $50,000. In addition, you would like to ensure that you won't sell for less than $40,00 if the price falls in the future. As a result, you would make a $20,000 profit. This can be done by setting up a selling stop-limit order, which allows you to automate the process.
First of all, you set the stop price to $42,000. When this price is reached, your limit order will be triggered. You then set the limit price to $40,000, which means that if the stop price is reached, your 1 BTC will be sold for $40,000 or more.
Your stop-limit order has the best chance of filling if there is a gap between the stop price and the limit price. It is possible for the market price to move below your limit price without your order being filled without a gap.
You should note that a stop-limit order is not always guaranteed to fill, but when it does, you will always get the price you set for it.
Do your own research
Through Coinverc , we do offer educational and research materials, however, this should only be the beginning of your analysis. You should do your own research (DYOR) in order to validate and double-check any information that you find online.
If you are considering cryptocurrency trading or investing, this advice goes for both trading on an exchange and using products such as Decentralized Finance (DeFi). In the end, it is only you who knows your risk profile and what is appropriate for your portfolio. You should make sure you have a good understanding of where you are putting your money before starting to invest or trade.
Diversify your portfolio
To reduce your risk level, you need to make sure that you include portfolio diversification in your trading plan. In general, it is riskier to hold only one or two assets in your portfolio. Therefore, you can diversify your holdings by investing in a number of assets across multiple asset classes.
To begin investing in crypto, you should define your asset allocation. DeFi liquidity pools, staking, derivatives, stablecoins, and altcoins are some of the options you can use to allocate your investments. In general, reducing your exposure to a single crypto class will decrease the likelihood of you suffering large losses. For instance, you might experience impermanent losses from a liquidation pool in which you have invested, but compensate for your losses through staking gains.
Depending upon the asset class, you can then diversify accordingly. In terms of stablecoins, you could hold USDT, as well as PAXG in order to reduce your overall portfolio risk even more. However, these are just a few examples. There are many ways to plan out a crypto portfolio.
Avoid FOMO
• Many traders have FOMO (Fear of Missing Out). But you have to be careful how it affects you. The fear of losing an investment opportunity could make you to abandon your trading plans and avoid your limits by making rash decisions.
Researching and finding good investment opportunities online is one thing. Watch out for scams. Coins or projects having ulterior motives will be promoted, regardless of the value of the coin or project. It will be possible for sellers to exploit traders' FOMO and manipulate their emotions. Consider taking some time to thoroughly research a project before risking your money if you feel you may be losing out on an exciting opportunity that you've never heard of before.
Several factors can result in FOMO. By understanding them, you can avoid it.
◦ Social media: There are rumors, false information, and shillers on Facebook, Telegram, Twitter, and Reddit. Always do your own research. Scammers may take advantage of your FOMO to steal your money, as many influencers get paid to promote projects and altcoins.
• Gains: Getting reckless with your gains can be tempting if you're on a winning streak. It's possible to overestimate your skills and make bad choices. It's possible to get FOMO if you make a lot of money from this investment.
• Losses: The FOMO might increase in order to recover losses. There's even a case of entering a position, exiting it after losing, then entering it again because of FOMO. That just makes things worse.
• Gossip and rumors: It is tempting to make an investment after hearing about it from others or through the internet. However, solid research and analysis should always take priority over rumors, investment advice, or recommendations.
• Volatility: There's a lot of opportunity for profit in big price changes. We often get carried away by the cryptocurrency market, whether we're investing and hoping the price will rise or shorting it in a downturn.
Understand leverage
To make larger gains, borrowing funds on margin or using futures contracts may sound like an attractive idea. Nevertheless, with this strategy comes the risk that you could end up in bankruptcy in a very short time and lose all of your capital quickly, as your losses are enlarged as well. If you are able to keep your costs within your limits, liquidation is not always a bad thing. Nonetheless, it is important to stick to your trading plan and not lose more money than you planned or risk too much money. To begin with, you need to understand how leverage works before you begin using it.
Leverage is typically displayed on financial statements as a multiplier, such as 20x, which multiplies your initial capital by 20. Leveraged 10x, $10k gets you $200k to trade . The exchange liquidates your position when your capital runs out.