Crypto investment risks that novices must read, how to avoid lightning?

How to reduce risks when trading cryptocurrencies?

Written by: Andrey Sergeenkov

edit: koki in cloak

On May 31, South Korea’s Financial Supervisory Service (FSS) has opened a crypto asset-related investment fraud reporting center to detect investment fraud related to virtual assets.

Nowadays, scams about cryptocurrencies are also emerging in an endless stream, such as phishing, Ponzi schemes, social media cryptocurrency gift scams, etc., and major regulatory agencies are also working hard to find countermeasures.

Today, the intelligence department will introduce to you how Xiaobai can reduce risks when conducting cryptocurrency transactions.

1. The funds invested should be within the range that you can afford

Any investment is the same, don't let your investment exceed the scope of what you can afford, how many people have invested their entire family and ended up losing everything. While cryptocurrencies have made some early investors millionaires, it has also caused many novice investors to fall into financial ruin.

Cryptocurrency assets may depreciate rapidly due to constant policy changes, and cryptocurrency trading platforms may also be hacked or cease operations, so you must think carefully before investing your life savings in cryptocurrencies.

2. Store encrypted assets in a cold wallet for safekeeping

There is a famous saying in the field of cryptocurrency: "Without the private key, the currency is not yours."

Keeping funds in a centralized exchange may bring many risks, such as the website crash, internal governance issues, hacking attacks, etc. For example, last year, FTX privately misappropriated customer funds to invest, and then suffered huge losses, which eventually stopped withdrawals and filed for bankruptcy.

In other words, the exchange holds your private key to control your assets, and with a cold wallet, you have complete control over your assets. In addition, the storage device of the cold wallet is not connected to the Internet, which greatly reduces the risk of hackers and The ability for cybercriminals to access your funds, now more popular cold wallets, such as: Ledger, Trezor, etc.

3. Hedge your cryptocurrency investments

Hedging is a risk management method in traditional financial markets, by buying or selling a certain asset to help reduce the loss of existing positions.

Hedging allows you to protect your investments against adverse market fluctuations, but it also limits your returns to some extent. There are several commonly used hedging schemes: average value investment method, option purchase, futures and so on.

Among them, the "average investment method" is one of the simplest methods of hedging cryptocurrency investments, which refers to gradually buying or selling cryptocurrencies at fixed intervals, rather than investing all funds at one time or selling all positions at one time.

For example, let's say you have $1,000 to invest in Bitcoin. You can divide your investment into $250 per week, gradually buying over the course of a month. While you can lose some potential gains if the price of Bitcoin rises significantly after your initial purchase, you can also avoid potential losses if the price crashes.

4. Diversified investment

Never put all your eggs in one basket, whether in cryptocurrencies or other investments.

For example, in the previous Terra crash, the price of the algorithmic stablecoin terraUSD (UST) was supposed to be pegged to the U.S. dollar, but it fell to 35 cents, and its related cryptocurrency LUNA plummeted from $80 to a few cents. At first, investors saw When it comes to profits, all the money is poured into it and waited to make a fortune in blood, but in the end, all the money lost will be lost.

So you can reduce losses by diversifying your investments. Different project currencies have different uses, and you can diversify your investments according to their uses.

For example, Bitcoin is touted as a good way to store value, while Ethereum is a decentralized application platform, and secondly, the purpose of stablecoins is to stabilize prices.

5. Avoid excessive leverage

Leverage is used to increase the order size and give you the option to go long or short. Some cryptocurrency exchanges may offer up to 100x leverage, and while that sounds great, a 1% adverse move could wipe out your entire investment.

During the period of forced liquidation, you may lose all of your principal. It is safer to choose appropriate leverage, which can not only increase your profit margin, but also provide a buffer so that you can have enough coping capacity when the market fluctuates. .

In short, whether you are a cryptocurrency investor or a novice, the risks you face are the same. Risk management is the key to investment success. Perhaps for the big guys, they are better at identifying risks and finding ways to deal with them. Don't be discouraged Xiaobai, experience is accumulated slowly, pay more attention to the intelligence department, read more relevant knowledge, and become a big boss is just around the corner.