Therefore, trading can be risky
Have you heard the term “trading” before? There are definitely good chances that you have it. It is a concept that belongs in a number of situations, such as the game Pokemon Go where you can trade pokemon and cryptocurrency where you can trade cryptocurrency .
In this article, however, we will focus on the latter, ie trading cryptocurrency. Theoretically, this is something anyone can do, but it requires that the person gets thoroughly acquainted with it first.
If you know a little about trading in general from before, then it can be easy to think that trading is easy and that it is something you have control over. Precisely for this reason, it is important to emphasize the importance of getting to know it before you start, because trading cryptocurrency can be something completely different from what you are used to in general.
It is also the case that cryptocurrency trading can be quite a risky affair, which underlines the importance of reading up on it before embarking on it. Below we will look at what trading is in connection with cryptocurrency, as well as what it is that makes it so risky.
What is trading?
Trading is not the only term one hears in connection with cryptocurrency. Another term that is very relevant here is investment. It is often said that someone invests in cryptocurrency. This means that you buy cryptocurrency, and the intention is that you will experience a long-term return.
Cryptocurrency trading is a bit on the same street. It is also about someone buying cryptocurrency, but there is a very important difference between these two methods, and that is that trading is not about a long-term gain. On the contrary!
Trading is simply about buying cryptocurrency with a short-term purpose. If you want to achieve success with trading, then this is a process that takes time. This simply means that you have to take your time for the process itself. However, this is not something you need to consider in connection with investing in cryptocurrency.
But trading is also a good deal more complicated than investing in cryptocurrency. When you invest, you invest a certain amount, but in connection with trading you have to get acquainted with different types of methods, there are several ways you can trade:
- Buying and selling cryptocurrencies using a cryptocurrency exchange.
- An investment made with money you have borrowed ( also called CFD ).
A video for those who do not know much about trading yet:
Trading can be risky
In this article, however, we will focus a little on trading in general. Trading cryptocurrency can generally be quite risky. It simply means that you take a risk by engaging in this activity.
Below we will take a closer look at some of the points that make trading often described as a risky activity.
Cryptocurrency is associated with high volatility
There is a lot that can be said about cryptocurrency, but we do not exaggerate by saying that it is especially a detail that is always highlighted. This detail is as follows: Cryptocurrency is associated with high volatility.
The term “high volatility” indicates that the exchange rate of cryptocurrencies is living its own life. One day, the value of a specific cryptocurrency may increase significantly, but then the value may fall just as fast. This can happen on the same night as the increase or the day after. There is simply no conclusion here.
It is not to be underestimated that it is the high volatility that is most of the reason why both trading and cryptocurrency are generally described as risky.
In connection with cryptocurrency, there is no guarantee that you will end up making a profit, and it is very important to keep this in mind at all times. In order not to end up in a very unfortunate situation, one has to make good decisions when it comes to most things.
Cryptocurrency is decentralized
Another thing that makes cryptocurrencies stand out from our traditional payment methods is that cryptocurrencies are decentralized. This means that there are no financial actors such as a bank in power.
In practice, this means that such third parties, as the bank normally is, are instead completely redundant in connection with cryptocurrency. But the fact that cryptocurrency is decentralized also means that these currencies are not regulated in the same way as Norwegian kroner , US dollars and other types of currencies .
It is a fact that this leads to a number of issues, but we will come back to that in another article that we can dedicate completely to this topic.
It is possible for hackers to hack the system
In connection with technology, it is inevitable that technical errors may occur. This is often very annoying, especially if you are told that it is not possible, but as of today there are no systems that are completely bulletproof.
Therefore, it is entirely possible for hackers to hack into the systems that cryptocurrencies use, and it is very unfortunate if that happens.
Even in 2022, there is no way to prevent hacking. However, there is one thing you can do for yourself, and that is to remove your inventory from hackable systems. Use cold wallets that are not connected to the internet instead.
Hard forks may occur that will affect the cryptocurrency
The concept of cryptocurrency is also no stranger to the emergence of forks . There are both soft forks and hard forks, but both refer to changes made to the current systems.
A hard fork can be associated with volatility to a significant degree and it can lead to all trading being suspended. This can happen if, for example, the player does not perceive the prices they receive from the market as reliable. And it goes without saying that it is very unfortunate for those who trade cryptocurrencies.