How to trade crypto responsibly

With a particularly volatile market, crypto trading can prove to be a thrilling experience, but with this comes the risk of incurring losses. However, if done correctly, trading cryptocurrencies can prove lucrative. Statistics show that globally, one in 10 people invest in digital assets.

Even if you’ve traded before – perhaps invested in gold or sold company shares – crypto trading is like nothing before. This is not a stable or fairly predictable market. Fluctuations cannot be ascribed to business performance and we are looking at a digital currency whose value can rise or fall in the blink of an eye.

What is responsible trading?

In a nutshell, responsible trading is about restraint, accountability, risk mitigation and calculated decision-making. You need to take control of your trading behavior, steer away from impulsiveness and avoid actions based on emotions.

As mentioned earlier, unlike traditional investment, cryptocurrency has no underlying asset. Crypto trades are based on how people feel – a combination of FOMO (fear of missing out) and how the crypto is viewed at the time.

Fluctuations in cryptocurrency prices are purely down to speculation among investors as to whether internal or external influences will make the value rise or fall. This is why you must learn to keep your emotions in check and face trading with a cool business mind.

Here are some important tips that will help you to trade crypto responsibly:

Secure your account and wallet.
Before you start trading, you’ll need to ensure the security of your account and crypto wallet. There are multiple ways to keep your details safe:
Two-factor authentication: activates an extra layer of security using SMS or Google Authenticator.
Password protection: create a strong password and do not share it with anyone.
Private key protection: do not share your private key details with anyone else.
Hardware wallet: consider using a hardware wallet for maximum security of your funds.
Create a cryptocurrency trading plan.

By creating a crypto trading plan, you will essentially decrease the likelihood of acting upon emotions, rumors or sudden fluctuation in cryptocurrency prices. Due to crypto market volatility, traders can be prone to FUD (fear, uncertainty and doubt) or FOMO.

Sticking to your well-thought-out plan helps to keep these emotions in check. So, what goes into your trading plan? First and foremost, you’ll need to decide which cryptos you want to trade. There are over 10,000, so you won’t be stuck for choice when going through this extensive cryptocurrency list.

When creating your plan, keep the following points in mind:

What assets you wish to trade.
Maximum losses you can afford.
Crypto-asset allocation.
Entry or exit prices for specific trades.
How much leverage to use, if any.
Diversification of your portfolio.
Max investment amount as a percentage of total capital.
When to stop trading (time, volume etc.)

What determines your limits are your trading style and individual risk profile.

Stop-limit orders

It’s nigh-on impossible to be in front of your screen 24/7, so using stop-limit orders gives you greater control over your trading. With the crypto market being so volatile, it would be irresponsible to leave your investment open to unexpected losses.

Cryptocurrency prices can fluctuate without warning and when you least expect them to. Using a stop-limit order can provide a buffer for a preset value. For example, you purchased one Bitcoin at $5,000 and the price is now $30,000. You don’t want to sell for less than $25,000, leaving you with $20,000 profit.

Firstly, you set the stop price at $27,000 – this will trigger your limit order. You then set the limit price to $25,000, meaning the Bitcoin will sell for $25,000 or more if the stop price is reached.

Diversify your portfolio

Holding just one or two assets in your crypto portfolio tends to be riskier than holding more. With just one or two assets, you could be vulnerable to extreme highs or lows, however, by diversifying your holdings with different assets across multiple asset classes, the risk will be reduced and a balanced portfolio achieved.

Show FOMO the door

The fear of missing out is commonly experienced by many traders, but don’t let your feelings get the better of you. Going off plan can give rise to rash decisions and the abandonment of limits, which you may very well regret later on down the line.

Feeling that you’re missing out on ‘the next big thing’ can really eat away at your emotions, while knowing certain triggers can help you to avoid jumping in head first and allow pause for thought (and good research!). Here are some influential factors to be aware of: