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With the constant growth in the cryptocurrency market, there is a demand to find new ways to protect assets, reducing the risks involved in these negotiations. Here we will address some strategies that can help reduce these risks and some ideas on how you can protect your cryptocurrencies.
What risks can arise when trading cryptocurrencies?
Cryptocurrency investments are classified as high-risk investments, so it is of paramount importance to know these risks, in order to minimize them.
Here we list the top four risks when trading cryptocurrencies:
1 – Lack of Regulation
Cryptocurrencies have decentralization as one of their main characteristics, that is, there is no body or government that regulates these assets, so banks and governments are still looking for ways to protect investors and traders during negotiations.
The decentralized nature of cryptocurrencies was one of the factors that most attracted investors, but it is necessary to keep an eye out for this not a factor capable of creating legal or tax problems.
2 – Susceptibility to Hackers
The number of cryptocurrencies that are stolen from digital wallets is increasing every year. You have to be very careful as it is rarely possible to find ways to recover the assets.
3 – Trust in Technology
Cryptocurrencies are completely digital assets, that is, without the technological resources they are useless, different investments in gold or real estate, in which you gain ownership over something that can be exchanged.
4 – Market Volatility
Cryptocurrencies are volatile assets, their values can vary in both short-term and long-term trading.
Despite all the risks listed here, it is possible to create strategies and use tools that help in risk management. In this way the risk can be reduced, although it still exists it will be within known standards.
How to protect your cryptocurrencies in short term?
To protect your cryptocurrencies, it is necessary to create trading strategies in which the gain is able to compensate for the losses, using changes in value in your favor.
There are several ways to develop these strategies, here are the three most popular methods:
1 – Short-selling
Short-selling consists of selling assets when there is a prospect of falling in the future, so you can buy them again for a lower price than the sale, profiting from the difference.
2 – Hedging cryptocurrencies with CFDs
Another way to protect your cryptocurrencies is through CFD trading. Using derivatives as products, you do not need to own the underlying cryptocurrency to open a position. In this way, you can speculate on the asset price without the worry of opening an exchange account or digital wallet.
3 – Hedging cryptocurrencies with futures
Futures are a kind of financial contract, in which two parties agree to trade a certain asset at a predefined price on a specific date in the future. This method is seen as a legitimate way for market participants to lock in market prices, thus protecting their assets.
How to start protecting your cryptocurrencies in long term?
If your goal is to protect your assets, here are three key steps to start this journey:
1 – Conduct Research: To protect your assets, it is essential to understand the market in which it is inserted, only in this way will it be possible to identify possible risks and minimize them.
2 – Learn to Trade: As important as understanding the market is understanding your profile as an investor, what your goals and objectives are, so you can carry out negotiations focused on your goals, avoiding unnecessary risks.
3 – Practice Your Strategies: After defining the best strategy to improve your risk management, it is essential to practice it, only then can you be sure that you are using the best strategy.