Bitcoin Risk: What You Must Know Before Trading

Bitcoin Risk: What You Must Know Before Trading

Trading Bitcoin comes with a great deal of risk sometimes but these can be avoided very easily. In this article, we’re going to discuss the trading Bitcoin risk that every trader takes and how to make sure that your investment is successful. 

Bitcoin’s Volatility

Bitcoin is a highly volatile digital investment, and I’m sure that even cryptocurrency enthusiasts know that well. However, it’s also one of the fastest growing digital assets today. It has been growing due to the growing community behind cryptocurrencies and specifically Bitcoin. You might think that volatility is a bad thing for traders, but you would be wrong. When there’s high volatility in the market, the price shifts are pretty unpredictable. However, the general trend of the coin remains the same. Thus, if you have a solid reasoning for why Bitcoin will rise in value today, you should buy even though it’s a volatile market. However, you can only make money from rising markets in Bitcoin trading. Shorting is pretty complex in the real world, that’s why we suggest using CFDs of Bitcoin. You can be careful and avoid the Bitcoin risk of trading. 

Leveraged Trading Risk

Leverage trading is essentially like buying commodities on a loan from your broker. You need to put in around 50% of the trade, the rest of it is paid by the broker. Think of it like this, the bigger the loan that the broker is ready to give you, the bigger your trade size can be.So the profit would be all yours, minus the capital that was borrowed. Therefore, it’s pretty useful to trade on margin since you can make higher trades. For example, leverage trading lets you bet much more than the capital you have. That means you could invest $5000 in a $50,000 commodity. If the price of the commodity rises by 50%, your profit on an investment of $5000 would be $25000. If you didn’t use Bitcoin Leverage Trading, your profit would be around $2500. Be careful, however, this brings on many risks as well. Beginner traders should always be very careful with trading in Bitcoin leverage. Even though this increases the Bitcoin risk of trading, you can set stop losses to minimize losses.

Stop Losses & Risk Management

The risk-management tools that are offered to each user on Plus500 are a great way to minimize your risks. These tools allow you to minimize your loss when for example you speculate that Bitcoin prices will rise, and it eventually plummets, the program will automatically change your position when the price drops to a specific level. This is called a guaranteed stop loss and it’s very useful for day traders.  Hedging is also one of the most important tools in trading since one needs to implement risk management strategies in volatile times. Hedging in trading refers to opening two positions in the market. If you were to make a profit on one trade, you’d make a loss on the other. For example, you go long and short on the same asset, which would technically nullify any losses or profits. Thus your total capital stays protected. This tactic rather than strategy is very important in volatile times. You can read about more Bitcoin strategies in our article here.

You can use Plus500 for trading and benefit from these risk management strategies and our article on how to invest in Bitcoin using Plus500.

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About Article Author

Michael Serrano
Michael Serrano

Michael is an engineer and a bitcoin evangelist. He has been involved in cryptocurrencies since 2013. His biggest wish? 1 billion users of bitcoin, ether and litecoin by 2020. In the last 10 years he has worked for various early-stage start-up as a back-end developer.

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