Test Your Understanding of Crypto Trading and Investing

Spiderman or Superman? Basketball or Football? Coachella or EDC? There is no right answer to such questions. It all depends on what each one of us prefers. The same goes for the age-old question of trading vs investing. 

Both are very different and both have a role to play. It just depends on what a person wants to do with their money. And, by the way, you can watch Superman and Spiderman, you can play football and basketball, and you can trade and invest at the same time as well! Before we further dig into the debate of trading vs investing, let us first understand both of them. Let us also understand trading and investing in the cryptocurrency space.

What is Investing?

Investing is a long-term and gradual process of building wealth. It involves buying and holding onto an asset and letting time work its magic. This magic is called compounding and Einstein called it the eighth wonder of the world. It takes a specific kind of temperament to become a successful investor. Patience and conviction are important psychological factors in investing. 

An investor needs to be patient for years and even decades to see a meaningful rise in price. Famous investors often say that the process of investing is like watching paint dry. It can be uneventful and boring for long periods. An investor also needs a fair amount of conviction that he/she is on the right track even when the market goes through phases like a financial crisis or a pandemic. 

Long-term wealth creation from investing is the reward for being patient and “riding out” the ups and downs of financial markets.

Crypto Investors = HODLers

Cryptocurrency investors are those that purchase and hold crypto assets in their wallets in the belief (sometimes hope) that the price of those assets will rise significantly over time. Cryptocurrency investors are also called HODLers (HODL is a crypto-slang for buy and hold). 

They tend to have significantly high conviction on the underlying concept of a cryptocurrency because that is what allows them to hold onto such assets even during extreme volatility – a phenomenon that is common across crypto assets.

What is Trading?

Trading is the process of buying and selling assets frequently to generate a superior return. How superior depends on the goal of trading. But usually, the goal is to earn a return more than buy-and-hold investing. 

Trading involves speculation and can be rules-based or discretionary. A rules-based approach usually involves some kind of quantitative analysis with a backtest that shows positive results. The goal is to dedicatedly follow the system even if there is a loss. Often, such systems are programmed into algorithms (algo trading). A discretionary approach is more of a gut-and-feel type of activity.

One key difference between trading and investing is going short. While a trader can always profit by buying low and selling high in a short period, a trader can also sell first and then buy later to profit from a fall in prices. 

With investing, a rise in the price is what drives returns. But in trading, profits can be made in both directions. There are different styles of trading depending on the time frame of a trade. Some examples include intra-day trading, positional trading, swing trading, etc.

Crypto Trading

Crypto trading is the process of speculating on the price movements of crypto assets. Crypto markets tend to be highly volatile and traders employ a range of strategies to profit from such volatility. 

Crypto trading may also involve the use of derivatives (futures and options) to take on leverage in an attempt to enhance returns. However, the use of derivatives comes with its own set of risks. Therefore, concepts like risk management are very important in crypto trading. 

Short-term price movements in volatile assets like cryptocurrencies can be very unpredictable and therefore traders need to have systems in place to manage such volatility. If they can do so successfully, then the returns from trading can be significantly higher than the overall market returns.

So, What’s The Difference Between Trading and Investing?

The key difference between trading crypto assets vs investing in crypto assets is the time horizon. Crypto investors have a longer-term view. Because of that, their analysis is also very different from that of a trader. 

Crypto investors tend to follow a more fundamental approach in which they analyze the underlying concept of a crypto asset, and its long-term potential, and try to estimate its intrinsic value.

A crypto trader, on the other hand, is mainly concerned with the price of a crypto asset. The trader uses technical analysis and indicators and studies the price movements to take trades. In some cases, the trader may not know the team behind the crypto asset or the underlying concept of the crypto asset. All the trader cares about is the price because the principle is that the price incorporates all the information about the asset.

Both crypto trading and crypto investing have their places. One is not better than the other. The goal of both approaches is to ultimately make money and generate a return superior to that of the overall market. It all depends on what a person’s temperament is and what he/she is more comfortable with. Some individuals are skilled at investing while others are better traders. Some large institutions like to maintain a position in an alternate asset class outside of stocks and bonds. Some institutions have mandates to generate income from trading.

How Can Cerus Markets Help You Succeed?

Whether you are a trader or an investor (or both), there is something that Cerus Markets can offer you. 

Traders can take advantage of our advanced charting tools, technical indicators, and access to over 100 crypto instruments, with the option to go short or go long.

Investors can take advantage of the convenience that our mobile and web-compatible platform offers along with a secure 2-factor authentication system. We encourage you to sign up and open an account if you believe that you are ready to invest or trade in cryptocurrencies. We currently have a 100% welcome bonus offer for new sign-ups.

Get your 100% bonus in 3 simple steps:

Open an account in as little as 2 minutes
Deposit at least US$50
Start trading the global markets
The amount of your bonus is based on the amount of your first deposit. Terms and Conditions apply.