Cryptocurrencies and digital token trading and investing is an extremely high risk but high return activity which you can see your net worth raise to a dizzy height and down to an all time low in a matter of hours in terms of intra-day price movements of 60 percent or more in either direction.
In terms of the classic financial risk minimization techniques, you can also apply it to cryptocurrencies trading and investing. Here are 6 Cryptocurrencies Trading and Investing Risk Management Techniques that you should known before trading or investing cryptocurrencies
- Each cryptocurrency has its unique idiosyncratic risk, sensationalist headlines, rumors, and malicious media campaigns from rival blockchain project on a daily basis.
- To mitigate such market risk, you should diversify your cryptocurrency portfolio such as mixing large market capital Bitcoin with other alternative coins and perhaps use the Bitcoin Futures as well.
- Mid-cap and small-caps cryptocurrency has liquidity risk as compared to the big boys of Bitcoin and Ethereum, making it difficult to execute large orders and exiting a large position.
- To mitigate liquidity risk, trading liquid coins will be a wise choice.
- Whenever a major Bitcoin trading hub announces adverse cryptocurrency regulations, the cryptocurrency market will react to it just like most markets. such as the ban on initial coin offerings by China, which affect Chinese digital token, NEO by 40% on the day the ban was announced.
- To mitigate regulatory risk, do check out on cryptocurrency news on a daily basis to ensure that you are well informed on the latest progress on cryptocurrency regulations.
- Operation risk occurs while trading in cryptocurrency exchanges or storing funds in cryptocurrency wallets as cyber-criminals look to hack in centralized cryptocurrency exchanges and wallet hack such as the parity wallet hack which froze over $280 million worth of ether and ERC20 tokens.
- To mitigate operations risk, it will be wise to use decentralized exchanges and also store your holdings on cold wallet or hardware Bitcoin wallet for example.
Cyber Security Risk
- Cyber crime is now one of the most serious crimes in terms of financial losses around hte world.
- Beware of phishing email campaigns, fake or fictitious malware websites that capture wallet and exchange log in details or targeted hacking of vulnerable cryptocurrency exchanges.
- To mitigate cybersecurity risk, it is always wise to change password, clear your cache after surfing and be vigilant when surfing all websites.
- There are a lot of so called Bitcoin investment schemes that offers super high Return of Investments (ROI) that is reminiscent to High-yield investment program that are advertised on social media.
- One of the popular cryptocurrency scams is the fraudulent initial coin offerings that aims to only cheat new investors such as the recent Confido ICO exit scam .
- To mitigate fraud risk, it is always wise to do due diligence on ICOs and cryptocurrency coins or digital token that you are planning to invest in.,
This is not an investment advice and should not be treated as one. This is prepared solely for informational purposes. The opinions expressed in halvings.com do not constitute investment advice.