All You Need to Know Before Trading Bitcoin
This article covers the basics of trading cryptocurrencies and answers common FAQs. If you are interested in trading strategies, click here!
Cash and Bitcoin serve as a medium of exchange. Cryptocurrency is simply a fancy word for digital currency. It has the same attributes of cash, it is measurable, valuable, and hard to duplicate.
What are the common Cryptocurrencies?
Bitcoin aka (BTC)
Ethereum aka (ETH)
You only need to know is these two currencies because these two currencies have the largest market capitalization. Hence, only trade with these two. Other digital coins like Ripple may be popular, but you should stick with the most liquid and stable ones. (BTC & ETH)
Why do investors buy cryptocurrencies?
Investors believe in the potential development of technology
More merchants are using it for business exchanges
Investors want to make huge profits from it
What are the concerns for trading cryptocurrencies?
Extremely Volatile (It could be worth $1000 HKD today but $500 tomorrow)
Risky
Who should invest in cryptocurrencies?
Investors who are looking for long term investments. (I will release another article on how to trade cryptocurrencies in the short term).
Investor who believe Bitcoin and Ethereum would not be worthless in the future.
Investor who wants risky asset in their portfolio for diversification.
If I invest, how much should I invest?
Bitcoin and Ethereum is at the pre-mature phase of development. There will be price fluctuations. Hence, you should only invest 5% to 10% of your overall portfolio value in Bitcoin or Ethereum.
Example: “I plan to use $100 HKD in trading.
$10 HKD goes into Bitcoin and Ethereum (10%)
$20 HKD goes into Bonds (20%)
$40 HKD goes into Equities (40%)
$40 HKD goes into Equities (40%)
Remaining stays as liquid cash. (30%)
In this portfolio, I have invested a MAXIMUM of Bitcoin and Ethereum in my portfolio.
If you find this helpful, please share your thoughts in the comment section. Writing these articles motivates me to become better every day and share more about personal finance while learning along the way.
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