Cryptocurrency trading and investing are two distinct concepts. While both involve the same type of asset, they are different from each other in several ways. The main difference between trading and investing is that the former involves buying and selling digital currencies to profit from short-term price fluctuations. In contrast, the latter involves buying or holding cryptocurrencies for long periods to earn regular dividends on one’s investment.
What is Crypto Trading
Crypto trading is the act of purchasing cryptocurrencies and then selling them for a profit. Crypto traders can trade on the spot market, which refers to the current value of a cryptocurrency at any given time, or they can trade in futures contracts, which allow people to buy/sell digital assets at a predetermined price on a future date.
What is Crypto Investing
Investing in crypto is a long-term strategy. If you’re looking to make a quick buck, investing is not for you. Investing requires patience and an ability to withstand fluctuations in price, including the Bitcoin price.
Differences Between Cryptocurrency Investing and Trading
Investment Time Frame and Period
Investing is for the long term, and trading is for the short term.
The time frame of investing in crypto can be anywhere from months to years. On the other hand, when trading crypto, you’re looking at weeks or even days before you need to sell off your assets.
Investing involves buying an asset to hold onto it until its value has increased significantly over time–and then selling it at that point for profit. Based on market movements and price changes, trading involves buying and selling assets within minutes or hours (or even seconds).
Type of Analysis
Traders also tend not to care as much about fundamental analysis when making trades compared with investors who want more information before deciding whether or not they should invest in something like Bitcoin Cash (BCH) or trading pairs such as ONE USDT.
Traders often look at technical indicators like moving averages or RSI levels instead of fundamentals like supply/demand factors or usage statistics. These signals help them predict future price movements based on past performance.
Risk Profile
While most traders want to make quick gains, investors are willing to take on a long-term view. Traders can lose their money quickly, while investors can lose their money slowly–but over time, the risk for both parties remains high.
Investors tend to be more risk-averse than traders; they’re willing to take on more risk to achieve higher investment returns. As such, if you’re considering investing in cryptocurrencies instead of just trading them. Think carefully about whether or not you’re ready for this kind of commitment before putting any money down.
Trade Frequency
Trading and investing are very different things, but they’re necessary to build a healthy cryptocurrency portfolio.
Investing is more hands-off and requires less time than trading, but you’ll need the patience to work out. Trading requires more risk tolerance, hands-on work, and capital investment.
Profit
Investing in cryptocurrency is a long-term game. You buy a coin, hold it and hope its value will increase over time. Traders trade cryptocurrencies every day. If you are like most investors or traders and asking how can I buy bitcoin (BTC) or any other asset to start making quick gains by buying low and selling high, looking for a reliable crypto exchange is the first step.
Investing in crypto is much riskier than trading because you have no control over when the price will rise or fall–it’s all based on market sentiment at any given moment in time. The upside is that if you invest wisely, you could see thousands of percent returns over several years.
Costs and Capital Required
When you’re trading, you’re buying and selling assets regularly. If you want to trade in crypto, you must have enough capital for the fees associated with each trade. The fees for each transaction vary depending on which exchange platform or broker you use, but they can be substantial–especially when compared with those associated with investing (HODLing).
Profit Diversity
Investors make money from the price of the asset appreciating. Traders make money from price volatility. If you buy an asset at $1 and it goes up to $2, your investment has appreciated by 50% (here, we’re assuming there was no transaction fee). If you sell your assets at $2 and buy them back at $1 later, your profit would be 100%.
Investors can only make money through the appreciation of their assets, while traders can also make profits via volatility in the market; this means they could have profited even though there was no actual change in the underlying value of their investments – just because they bought low and sold high (or vice versa).
Which is better? Invest or Trade?
Investing is better than trading.
Investing requires less time and effort. You can invest in a wide range of assets with just a few clicks, whereas trading requires constant monitoring and technical analysis (TA).
You also need less capital to invest than when trading crypto. The minimum investment amount for most exchanges is USD 100, which means that any trader who doesn’t have at least $100 will have to wait until they earn enough through their trades before they can use their funds again on another trade. Or they will need to withdraw them altogether from the exchange by selling all their coins back into fiat money like US dollars or European euros.
On top of this initial barrier to entry, many exchanges require additional documentation, such as proof-of-residence documents, before allowing users to access their accounts–a process can take anywhere between several days up until weeks depending on how busy things are at individual exchanges, during signup periods.
Final Thoughts
Investing has significantly lower risk than trading crypto because it’s much easier for investors to manage risks and mitigate them through diversification strategies, such as buying stocks instead of bonds or gold instead of precious metals.
