Categories: Investing

3 Guidelines For Trading In Blockchain

Historically, the stock market has been the single greatest source of long-term wealth creation.
Continues after Advertisement





Investing in the stock market has always been a good idea because stocks generate an impressive annualized return even after you factor in inflation. In fact, many good investors have more than doubled their investments over the span of a decade. Still, while the stock market is a great way to build your wealth in 2018, something even more impressive appears to be catching the attention of investors now—digital currencies. The reason for this fresh wave of enthusiasm in an investment asset is because cryptocurrencies are an ingenious idea. Virtual currency uses encryption to make money and to verify a financial transaction. What makes this form of currency different from any other form of currency in the history of civilization is that it is based on blockchain technology, an incorruptible public digital ledger. This technology obviates the need to rely on a centralized banking system. Imagine a spreadsheet that is duplicated and updated regularly over tens of thousands of computers in a computer network and you will have an intuitive grasp of how blockchain works. What's more, not only are investors seeing massive gains over a short period of time, but the technology is getting even better. While Bitcoin, which was invented in 2009, was impressive because it introduced the idea of blockchain technology, it was surpassed by Etherium, which opened up a whole new world of functionality. Now with ICO (initial coin offering) of the XYO network scheduled for March 20th, 2018, this will extend blockwork technology from the Internet to the real world through a Proof of Location network. Here are three guidelines to help you get started as an investor with this new digital currency technology:

1. Tap Into The Wisdom Of Insecurity.

Like any investment in an unregulated market, cryptocoins are highly speculative. If you are not diligent in learning everything you can before jumping in, you could easily lose your entire investment. It is far wiser to be under-confident than overconfident. Understand how the blockchain–the distributed ledger system that is the backbone for all digital currencies–works before making any investments. It's easy to get a little too excited by this fast-growing investment and throw caution to the wind. As a result of the collective thrill of becoming early adopters, many people fail to be rational with their investments. They experience the same heady rush that investors in the Dutch Golden Age experienced when tulip bulbs became a highly valued asset. Be aware that it does take some time to learn how the technology works, and it might be beneficial for you to do more than reading up on it and seek out a mentor. While it is a good idea to find trusted media resources, it's great to be able to ask someone with profound knowledge about the subject, questions that will help you understand the nuances of safe investing strategies.

2. Start Small And Experiment

Only invest a small amount of your capital and never invest money that you can't afford to lose. While you might be right in predicting the pattern of a price change, your timing could be wrong. So, don't chase prices and just be aware of when your token has reached the right price. Then, when it has reached the perfect price, avoid buying your assets all at once. Instead, buy in stages. Buy a little, wait and watch, then buy some more.

3. Diversification Is Still Sound Advice

Since a certain type of cryptocurrency that you have been watching will produce impressive gains, it's easy to become over-motivated by a steady trickle of media stories about millionaires and invest all your money in one asset. Bitcoin, for example, has produced many bona fide millionaires and will no doubt produce many more. However, besides investing in a variety of cryptocurrencies like Litecoin, Bitcoin, Ripple, and Ether, you should also consider reducing your risk by continuing to invest in traditional assets like stocks and bonds. In conclusion, if you are thinking of trading in the blockchain, you should proceed with caution, starting with these three guidelines. Just as you would with anything else you might invest in, you need to know what the blockchain is, how it works, and how it benefits businesses. The more you understand, the better your chances of success.

This post was last modified on March 14, 2018, 12:24 pm

Contributor

We love having others contribute here at Smart On Money. Would you like to write for us as well? Please email us with your post idea!

Recent Posts

Using Free Resources To Keep Tabs On Your Credit Score

To stay on top of your finances, it's important to track your credit score. Here are several ways you can…

3 weeks ago

Dave Ramsey’s 7 Baby Steps: Step 1 – $1000 To Start A Baby Emergency Fund

Dave Ramsey's 7 Baby Steps is a great plan for getting out of debt. Today I want to talk about…

1 month ago

Dave Ramsey’s 7 Baby Steps To Getting Out Of Debt

Dave Ramsey's 7 Baby Steps is a great plan for getting out of debt. Today we'll briefly run down all…

1 month ago

Personal Finance Basics: Pay Cash For Everything You Buy

My wife and I are going on 3 years debt free except our mortgage, and I have to tell you…

3 months ago

Things You Should Know Before Trading in the Stock Market

Many individuals want to get better with their finances and use the New Year as a starting point for setting…

7 months ago

Credit Sesame Will Give You A Free Credit Score (And Help You Find Better Loan Options)

Credit Sesame is a great free site that offers a free credit score, credit monitoring, fraud alerts and more. Here's…

11 months ago