Among the many ways, people try to make profits in cryptocurrency, trading and investing are the most sought after options.
Each method comes with its own set of strategies, risks, and rewards, but the end goal of both the traders and the investors is the same: to research the market and the crypto interest rates to buy into crypto and make a profit in the financial market.
How exactly each method chases this goal, however, is different.
Both investors and traders must implement a proper risk management strategy or contingency plan to exit the market if it moves unfavourably. It would be recommended for you only to invest money that you are willing to lose.
Let’s take a look into the significant differences between crypto trading and investing to help you decide which one is the better option for you.
What is Crypto Investment?
Investing in cryptocurrencies is a method of profiting from cryptocurrencies by purchasing and holding crypto assets in the belief that their value will rise in the future. Cryptocurrency investing, often referred to as HODLing — a typo of “holding” that has since caught on — is buying and holding assets over longer time horizons, frequently regardless of short-term price and market swings.
Investors, in general, prefer to generate a return over a longer time, such as years or even decades. In addition, investors’ expected returns on each investment are often higher since they have a larger scope.
What is Crypto Trading?
The ultimate aim of crypto trading, like any other traditional trading venture, is to earn a potential profit or gain further market exposure by buying a stock at a lower price and then selling it at a higher price.
So, in general, the idea of trading is to buy low and sell high, and the same is true for crypto trading; however, the volatility of the market makes it difficult for the typical trader, so knowing market tips and trading techniques is what will make the difference.
Differences of Crypto Trading and Investing
Let’s look more closely at the distinctions between investing and trading.
1. Investment Time Frame
Investors are typically long-term thinkers who are indifferent to short-term price swings. In other words, an investor will rely on a coin’s long-term potential while investing after it, with the purpose of selling it (and profiting) in a few years.
Traders, on the other hand, have a short-term outlook with a focus on price swings. Traders are interested in the cryptocurrency market’s hourly and daily price swings, buying and selling coins with the goal of making short-term profits.
2. Trade Frequency
This is the rate at which trades are executed. The frequency of trades is closely related to the investment period; the longer the time scope for an investment, the less frequency of trades there will be.
Investors typically have a low trade frequency, indicating that they will hang on to a coin without selling until their long-term goal is reached, which can take several years.
Traders, on the other hand, as the name would suggest, trade more frequently. They might conduct numerous trades because they are constantly looking for ways to profit from market opportunities. Though trading has a larger chance of producing more income, it is a highly risky venture that requires active and regular monitoring of market conditions.
3. Type of Analysis
There are generally two types: fundamental and technical.
Fundamental analysis is used by cryptocurrency investors since they are betting on a coin’s long-term viability. The fundamental analysis basically examines a coin’s long-term potential by determining the asset’s intrinsic value or worth.
The goal of cryptocurrency traders is to determine price direction and market positioning. As a result, they frequently employ technical analysis, which is forecasting future prices using past price data, price indications, and charting tools.
4. Risk Aversion
Cryptocurrencies are inherently volatile and thus risky.
In general, crypto investors may have a lower risk tolerance because they are more content to leave their investment alone. The concept is that the ups and downs of a coin’s price eventually level out but continue to rise.
Traders, on the other hand, thrive on the risk because trading might include taking numerous risks by taking advantage of the significant volatility of short-term crypto prices.
5. Required Capital to Start
Trading cryptocurrency, unlike investing, requires you to pay more transaction fees due to the higher trade frequency. Traders may also have to worry about capital gains tax, which is charged for selling an asset for a profit. Short-term capital gains tax rates are often higher than long-term capital gains tax rates, which HODLers are subject to.
The amount of capital required for trading and investing is determined only by the size of the investment. You can begin trading or investing in cryptocurrency with nearly any amount.
Final Thoughts
In the bitcoin market, there are significant distinctions between investing and trading. Understanding these differences is crucial in deciding which group you fall into. In addition, the cryptocurrency market is still in its early stages and is constantly evolving.
Both investors and traders must implement a proper risk management strategy or contingency plan to exit the market if it moves unfavourably. It would be recommended for you only to invest money that you are willing to lose.
(Disclaimer: This content is a partnered post. This material is provided as news and general information. It should not be construed as an endorsement of any investment service. The opinions expressed are the personal views and experience of the author, and no recommendation is made.)