How Much Should You Start Trading Crypto With?
Trading cryptocurrencies has become a popular avenue for both seasoned investors and newcomers looking to enter the exciting world of digital assets. If you’ve just embarked on the crypto trading journey and decided to finally give it a try, you’re likely going to decide on a few things.
One crucial question which often arises is: How much should you start trading crypto with?
The answer to this question is not one-size-fits-all, as it largely depends on various factors including risk tolerance, financial goals and prevalent market conditions.
First things first, risk tolerance
Some crypto market participants decide to take a risk on things, such as purchasing an unpopular cryptocurrency with the belief that its price will increase in the future, while others prefer to trade on safe bets. Regardless, it’s essential to put forward an amount of money which you can afford to lose if things don’t go as planned.
Given that cryptocurrencies are inherently volatile, and that digital asset prices are prone to experiencing rapid and substantial fluctuations, a rule of thumb would be to consider using discretionary funds that won't impact your essential financial responsibilities or long-term savings goals.
The snowball effect
We all have different financial goals and envisioned ways in which to achieve them. Some of us would like to retire at 30 with a million in the bank, while others want to have enough to make ends meet with no much worry for the future. Whether you’re the former, the latter or something in between, the initial capital you put forward, given a well-thought & tested strategy, can create the snowball effect.
A successful snowball effect is as follows: the initial capital employed towards any endeavor would slowly grow as profits add up and accumulate. A snowball rolling down a hill portrays this process; it gets bigger & bigger as it rolls down further. This scene perfectly depicts the slow & steady long-term process of investing. What’s worthy to note is that the larger the snowball is at the start, i.e. your capital, the faster it will grow in time.
Start small, learn fast
If you’re a newcomer, it is best advised to start with a small amount of money but before that, it is essential to attain knowledge surrounding the building blocks of the crypto world and to stay informed about the latest market revelations and updates. This will build valuable experience and skills which will enable the opportunity to make more informed trading decisions.
In the rapidly-evolving world of today, information flows in a very fast manner and this especially applies to the crypto world which never sleeps. While it is essential to learn the underlying theories and concepts behind crypto, it is also vital to stay up-to-date with what’s happening now.
Revelations occur rather quickly and this can be utilized to the trader’s advantage by capturing market trends and acting on predominant sentiment. Learn more about the power of news and how it can provide direction to future trends.
Risk management and diversification
So, let’s say you have decided on how much money you would like to start trading crypto with. Before going ahead with your first move, it is crucial to establish a clear risk management strategy to avoid any unprecedented losses. This can involve setting limits on the amount of capital you allocate to each trade and determining the percentage of your portfolio you're willing to risk in the trade.
Besides that, diversification of your crypto portfolio is another key principle. Instead of putting all your capital into a single cryptocurrency, consider spreading your investments across multiple digital coins. This can help manage risk and reduce the impact of a potential price decline in a single cryptocurrency. Explore our guide on how to build a balanced crypto portfolio to pave your way towards stable financial growth.
Strategize, review, repeat
Strategy is key to successful crypto trading. Trading methods such as dollar-cost averaging or day trading have popularized among crypto traders and investors but do require some trading experience and a significant level of competency and goal orientation. As you build your trading experience, consider testing out a strategy that will help achieve your financial goals, given your risk tolerance and time orientation.
If the strategy didn’t work out as it was intended to, or you’re not satisfied with the results, reviewing current methods is essential towards growing the value of your crypto portfolio. Trading on the people-driven crypto market is all about adapting to prevalent market trends, and it’s best to modify strategies when needed to keep the snowball rolling.
