…Not that it matters. Jokes aside I thought I would make a short beginners article about the risks of trading cryptocurrencies. If you are someone who has been around the crypto-verse for some time you may, or may not, find this useful. If you are new to the scene, I’d suggest you read on. But, then again, I would say that.
With the large swathes of people getting into crypto in order to become a millionaire overnight it is only expected that many of them dabble in trading to their own financial detriment. I say to their detriment due to the fact that they do not understand how to use crypto exchanges, especially DEXs (decentralised exchanges). This leads to bad trades and a loss of monetary value.
How Can a Lack of Knowledge Lead to Losses?
This is something which will seem like a no brainer to anybody who has been in crypto long enough. But, for someone new to the scene, it may seem like a mystifying question so I shall explain through an example. Here goes.
Imagine you just received an airdrop for an ERC20 token called Fake Coin. In this airdrop you received 5,000 FAKEs. You want to trade them ASAP as the value is pumping and your airdrop is currently worth 1 full ETH. The problem is FAKE isn’t listed on a traditional exchange. This leads you to a DEX.
You log on to the DEX and the first hurdle you face is getting your FAKE tokens into the ecosystem. This requires either downloading a web-based wallet interface, such as MetaMask, or risk putting your private key directly into the DEX’s interface. Let’s say that you’ve managed to get your FAKE tokens into the DEX’s interface, what next? You need to find the token’s listing, deposit your tokens into their smart contract and then make a sell order or take a buy order from someone else.
This is all sounds pretty simple but I can tell you from experience that the amount of room for error which will cost you is significant. Not only do you have gas prices to consider but you also have aspects such as ensuring you take the right order to ponder. If you do not know what you are doing it is all too easy to buy/sell a token at a value which is drastically lower/higher than the market price, thus screwing yourself over.
Alternatively you could use a DEX with an option to sell at the market price but, due to its low volume, the market price is ridiculously low so you end up losing out yet again.
What About Day/Margin Trading?
Again, this is something which can easily lead you to losing your money, more so than the example I provided above. Many people enter this industry in the hope of becoming a Wolf of Wallstreet type trader who buys penny-stocks and trades them for marginal profits until they have enough profits to retire forever. This is another idealist vision which is largely romanticised by people on blogs/social networks.
The fact of the matter is, if you do not know what your are doing, you will more than likely end up losing money opposed to making it. You could read Crypto-John’s ‘technical analysis’ which indicates your desired market will be doing a giraffe kartwheel and double its value. But the chances are Crypto-John is wrong and you will throw bags of money at something in decline.
A massive aspect of crypto trading which people forget to mention to newbies is the fact that, in order to sell high, someone has to buy high. The high buyers are usually the new entrants to the scene and rarely ever see a return on their initial investment (depending on the coin of their choice obviously).
So What Should You Do?
If you have read this article and are now asking yourself the above question the answer, most likely, is that you should NOT be day/margin trading. In fact, in my personal opinion, if you really do not know what you are doing you should try and avoid exchanges as much as possible and simply stick to buying an established coin which you have researched.
Apps such as Coinbase allow users to enter the cryptocurrency industry without ever having to enter an exchange and drastically limit the ways in which you can lose your funds through a simple mistake. What’s more is they allow you to cash out equally as easily (in the UK you can transfer to GBP in app).
Obviously I am not suggesting everyone needs to abandon exchanges and use Coinbase instead. But, if you are just entering the crypto industry, it may be a good idea while you research further.
Please remember that this article is not to be taken as any form of investment advice and that you should do your own research before investing your hard earned cash into anything. If you would like to assess the metrics which determined the rating for this project you can do so here. We would also like to remind you that Something Decent is not in anyway responsible for the distribution of airdrops, bounties or giveaways unless it is stated that we are personally conducting them