Crypto Trading Vs Crypto Investing: Here Is What Investors Need To Keep In Mind

Crypto is a volatile asset, so you can invest or trade depending on your risk profile and goals.

Investing is a long-term goal — whether in stocks, mutual funds, gold, or cryptocurrencies.

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Crypto investing and crypto trading are two distinct approaches to managing a portfolio of assets. While both aim to maximise returns, they are different in terms of their execution. Trading involves frequent buying and selling of assets to take advantage of price fluctuations. On the other hand, investing typically involves buying assets and holding them for the long term. 

What is Crypto Trading? 

Cryptocurrency trading is similar to trading other financial assets. It involves predicting price movements and making decisions based on speculation. Trading is all about timing the market and predicting the best entry and exit points. Most traders use various trading strategies such as day trading, swing trading, scalping, and momentum trading. However, it is important to note that trading cryptocurrencies carry inherent risks. 

What is Crypto Investing? 

Investing is a long-term goal — whether in stocks, mutual funds, gold, or cryptocurrencies. Most people look forward to investing in cryptocurrencies because they believe they will increase in value over time. It is a strategy that allows you to buy and hold your investment until the value is appreciated. 

Crypto Investing vs Crypto Trading 

There are certain key parameters that set apart crypto investing from trading. These parameters are:

Timeframe 

Cryptocurrency trading involves making short-term decisions to capitalise on market fluctuations while investing involves making long-term decisions to maximize returns. 
 
Trading can be profitable but carries more risk due to the need for precise market timing. On the other hand, investing in cryptocurrency can average out volatility and reduce overall risk.

Risk 

Trading can be risky as it depends on the trader’s willingness to take risks. You may lose or gain at times. But investing is something where investors are not focused on the daily price movements as they aim for long-term returns. So, investing is less risky. 

Frequency 

Investors hold on to their assets without selling for a long time without selling them, but on the other hand, traders engage in frequent buy and sell processes. 
 
Investors are more of ‘HODLers’ who hold onto their assets. In contrast, traders look for opportunities to make quick gains and bulk it up when the market is down. Since traders buy and sell frequently, it also involves higher costs because of their frequency of trades. 

Profit 

The profits that traders gain are lucrative and are from speculation and volatility. At the same time, an investor receives profits when their investment appreciates due to compounding. 
 
One of the most important things here is that traders can either profit from a bear or a bull market while investors have to wait for a long term to book profit. 

Capital 

To gain profits, traders need to trade in large volumes, which involves a lot of capital. In comparison, an investor can invest in small amounts consistently and frequently. 
 
Traders are subjected to capital gains tax, which must be paid on each asset sold for short-term booking. However, since investors make fewer transactions, they are subjected to lesser changes than traders.   

Crypto is a volatile asset, so you can invest or trade depending on your risk profile and goals. It is unclear which strategy is better and may depend on the specific situation and individual preferences. It is also worth noting that both investing and trading can be applied to assets such as stocks and cryptocurrencies.

(The author is the CEO and co-founder of Mudrex, a global crypto investing company.)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.