Crypto Volatility: Worst Nightmare or Best Friend?
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Cryptocurrency volatility is a very common talking point among enthusiasts and skeptics alike. Many enthusiasts see this as an opportunity to buy low and sell high. On the other hand, skeptics—especially those coming from a background in traditional finance—often consider this crypto’s biggest weakness, as it can be considered too risky for retail investors. But if you’re in crypto, you already know a thing or two about risk. Here, we’ll talk about how you can turn volatility to your advantage, no matter which way the market is swinging.
Bear Market and Short Positions
Is the market red? This may seem like a nightmare and make you wonder how you can possibly profit from this. However, it doesn’t have to be very hard. Short selling is an advanced trading strategy that relies on an asset’s depreciation, or price fall, to make a profit. Traders often use this as speculation, while investors may use it as a hedge against the downside risk of an asset—in other words, making sure that no matter which way the price swings, they’re coming out on top.
To short sell, if you believe an asset will decrease in value, you will borrow the asset and sell it to those interested in buying it at the market price—ie, the amount it costs right now. Before you have to return the borrowed asset, you hope its price will fall so you can repurchase it at a lower cost, keeping the change to yourself. On the other hand, if the price climbs, you will have to buy it for a higher price than you sold it for and bear the difference yourself, so the potential for loss is quite high.
Bull Market and Long Positions
A long position is what most of us think of when we hear about making profits by trading assets. This is one of the most conventional investment practices in the market. You simply purchase an asset and hold it with no intention or obligation of selling. This is different from long futures contracts, which have an expiration date, upon which you are forced to buy the asset. However, long futures contracts also guarantee that you will receive the asset for the agreed upon price, and if it has risen since you opened the contract (as your long position implies), you are profiting from the difference. On the other hand, there are also long options contracts, where you are not obliged to buy the asset, but have the option to do so; this minimizes your risk in case the asset’s value still drops in the meantime.
Put simply, a long position is what crypto traders often call HODLing. If you believe your holdings will grow, there is no reason to sell them at any point in time—until you’re ready to do so.
Where Can I Do This?
For cryptocurrency traders who want to dip their toes into advanced trading strategies like these, derivatives trading platform PrimeXBT is one of the best places to do so. By trading with these strategies, you can actually make more money from more volatility—something that would otherwise be a huge source of concern for you. However, you must also keep in mind that the bigger the potential profit, the bigger the potential loss as well. We always stress that you should never invest more than you’re willing to lose.
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