The first step is to figure out what the risk factors are.
If you buy on margin, you need to know the expected rate of return (ROI) you’ll get from this trading. The idea is that you need enough capital to be able to buy the coins at the expected rate by using your own margin. That means you may be able to get a higher ROI than you’d expect from investing in an exchange, however trading on margin is risky and is discouraged by many experts. If you want to get the best ROI, consider trading using a market maker (aka an ETP, or exchange-traded fund) instead, so you don’t require an investment in coins.
Let’s say you’re trading the digital currency in a wallet. This is where many of the risks arise. There are two types of wallet: exchange and mobile. The exchange wallet is where the coins you’re trading will be kept. The trading will occur by sending and receiving coins from the exchange wallet, but you may not be able to make profits. An example of this is when you send coins to an exchange wallet and they aren’t available. To use the exchange wallet, you’ll need to send coins over via an exchange to get your coins back, then you can pay with a cryptocurrency. However, this is still a risky and capital-intensive method of trading, not available to most people, so we recommend trading with a market maker to get coins back to keep your money safe.
How do you prevent losing money on trading?
You can’t just trade to avoid losses. You need to make sure you understand the risks so you can invest wisely, and you should also understand how trading decisions influence the market. Knowing the factors that drive your trading could help you avoid losing money. Here are some examples:
If you trade with less coins the price will drop and you might lose money. You need sufficient capital to meet market demand.
If you think you’re going to lose your entire investment at any moment, you’ll be more likely to take unnecessary risks, and end up paying more in coins.
If you use a market maker instead of an ETP or exchange wallet you risk missing out on trading profits because you don’t have enough funds at the beginning of the trading day.
If you sell your coins after making a profit, you’ll take less profit on the second trading day because you may not be able to buy back with a higher price.
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