Despite their differences, cryptocurrency trading and investment go hand in hand. Both the crypto dealings’ primary goal is to boost the value of their investments. A trader can invest, and an investor to trade. But the difference comes in their strategies.
Basically, investors purchase cryptocurrencies and anticipate the price will increase as time goes on, whereas the traders make benefits out of the market volatility by just keeping their coins for a very short period.
However, it is very important to know the difference, if you are interested in these dealings. Before knowing the difference between crypto trading and crypto investing, it is important to know about both terms, right? Come let’s explore one by one.
Crypto trading
The participants in the crypto trading (known as traders) buy and sell digital currencies directly with other traders or via crypto exchanges. The traders buy low and sell high to focus profit from the short-term changes in market and price trends.
Traders employ short-term crypto trading strategies, including day trading, swing trading, and scalping. These strategies can take advantage of fluctuations in market and price trends.
Major crypto trading strategies
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1. Day trading
Traders make trades over a day intending to sell their crypto before the end of the day.
2. Swing trading
Implementing this strategy means taking advantage of cryptocurrencies’ rapid price fluctuations. This type of trade usually lasts from one day to several weeks. Technical analysis is employed to identify trading opportunities within this short period.
3. Position trading
This trading is similar to swing trading. This strategy involves studying long-term patterns and trends. Traders hold long or short positions for extended periods.
4. Scalping
This is a short-term trading strategy that makes trades within a short time frame, usually within minutes or even within seconds.
Crypto Investing
Crypto investing involves the method where the investors buy and sell digital assets for a longer period usually for months or years with an anticipation of growing the investments over time. Here investors are not concerned about short-term market fluctuations in price as their goal is to generate long-term profits.
Crypto investing strategies
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1. Holding
This strategy involves buying and holding crypto assets for a longer period with an expectation that cryptocurrency prices will eventually increase.
2. Initial Coin Offering (ICO)
This is a fundraising method employed by crypto startups to raise funds. With the implementation of this strategy, investors can buy new cryptocurrencies or digital assets at very low prices in exchange for established cryptos. This strategy is profitable, even though investors should be aware of the possible risks.
3. Value Investing
This strategy involves identifying cryptos with huge potential and solid fundamentals that are undervalued. Investors buy low and expect the value will increase.
4. Growth Investing
Investors invest in crypto whose value is expected to increase rapidly in the future.
5. Dollar-cost averaging (DCA)
Investors employing this strategy buy crypto in small fixed amounts over time rather than invest everything all at once. DCA can lower the negative effect of market volatility on their portfolios.
The key difference between crypto trading and crypto investing
| Trading | Investing | |
| Time frame | Short-term | Long-term |
| Trade frequency | High-frequency | Low-frequency |
| Risk profile | Risk-taker / High-risk | Conservative / Low-risk |
| Strategies | ArbitrageDay trading Swing trading Position trading scalping | Buy-and-hold / Holding Dollar-cost-averaging Value Investing Growth investing Index fund investing |
Choosing the right one for you depends on personal goals and preferences. A brief note on the key difference between the crypto dealings is depicted in the above table, to get a clearer understanding of the topic read the below given section.
Potential for profit
Gain from the crypto dealings is determined by subtracting the cost of investing from the difference between the selling and buying prices. If the price increases the profit of investors also increases. Profits can also be gained from yield farming, airdrops, and staking, but usually, this won’t be accessible because of its brief holding periods.
Meanwhile, investors can also take advantage of market swings and leverage other people’s bets to boost earnings with a small initial outlay of funds.
Risks involved
Investors are less bothered about the daily price fluctuations they are focused on long-term price increases, which indicates a lower risk tolerance. Whereas these traders are the risk-takers and lot of research on indicators and signals. Also, the traders are provided with an option for margin trading that includes borrowing money to trade, increasing potential rewards and dangers.
Investment duration and period
Crypto trading usually deals with a long-term perspective, with investors concentrating on the potential and the price growth of the selected cryptocurrency. The assets will hold for longer periods sometimes years and they were least concerned about the short-term market fluctuations.
Whereas trading is a short-term strategy that takes advantage of the high volatility associated with digital currencies and this allows traders to bet on price fluctuations across a wide range of periods.
Nature of the analysis
Investors usually practice fundamental analysis which is different from standard stock analysis used to evaluate a digital currency’s long-term worth by considering its underlying technology, possible applications, and adoption rate.
Traders make use of technical analysis, which is a tool used for forecasting future market positions and price patterns. Price volatility can be determined by using technical indicators, historical data, and charging tools.
Exchange rate
Since crypto investing is a long-term strategy, the investors hold onto the assets for a longer period without selling them and also they trade very rarely. They were less concerned and impacted by the transient market volatility.
Whereas the traders more often place bets to capitalize on market fluctuations and maybe earn big profits. To make bets often, the traders should have a constant market observation and the expense relates to the number of trades made.
Conclusion
Before choosing any of the crypto dealings it is important to understand the differences. Crypto trading focuses on short-term strategies whereas crypto investing on long-term strategies to make a profit from market volatility. Choosing one between them depends on your risk tolerance and preferences.
Short-term risk-takers can give priority to crypto trading or if you are seeking long-term growth just go for crypto investing. To make maximum profit in any of the dealings, approach with caution, keen understanding, and excellent strategy.
FAQs
The primary distinction is that whereas cryptocurrency investing concentrates on long-term benefits, cryptocurrency trading prioritizes short-term income.
Risks associated with crypto investing include loss of capital, government regulations, fraud, and hacks.