HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Investing vs trading cryptocurrency: What's right for you?


People often mistake investing and trading for the same thing. However, they are very different and each has its own characteristics when it comes to crypto. While traders can both invest and trade in crypto, the type of strategy will be the core focus for what method serves you better to enter into the crypto markets. In this guide, traders will learn about the differences between investing vs trading crypto and discover which is better suited for certain types of investors.

What is investing?

Investing refers to buying an asset or security with the aim of profiting from an increase in its value over the medium to long term. In the crypto markets, long-term investors are also referred to as HODLers, which comes from a famous misspelling of the word “holding” that went viral.

Investors enter the market looking for crypto assets with strong fundamentals that they believe will appreciate in value over time. They are prepared to hold on to their tokens regardless of the different cycles of bull and bear seasons in the market.

The rationale behind cryptocurrency investing is similar to the strategy of value investing employed by renowned investor Warren Buffet. The approach involves searching for underpriced assets trading at a discount to their intrinsic value.

For example, an investor could observe that a coin is trading at a low price and believes its price will rise in the future based on fundamentals. Therefore, they make a purchase and hold onto the coin regardless of the current market sentiment as they think the price will increase in the future.

What is trading?

Trading involves speculating on the price movements of an asset or security to make short-term profits, often within the same day. Traders are usually not too concerned with the fundamentals of an asset as the aim is to make multiple trades within a short time frame to try and earn a profit (which can sometimes lead to losses instead).

Traders follow market-moving news and look at technical indicators to make trading decisions. The high volatility of the crypto market positions it as one of the most exciting markets for traders, enabling them to either profit or suffer a loss from sharp short-term price movements.

The plus side of trading is that traders can make profits regardless of a bull or bear market, referred to as shorting or going long on the market. Going long refers to entering the market at a lower price, hoping to sell at a higher price. Conversely, shorting is entering the market at a higher price and profiting from a price decline. Traders can enter the market through different methods including spot trading, futures trading, perpetual swaps, and crypto CFDs.

For example, a trader can enter the market by purchasing a Bitcoin CFD from a broker like Axi. If they believe the price of Bitcoin (BTC) will rise, they will open a long position. However, if they believe otherwise, they can open a short position. The trader then makes a profit or loss based on the outcome of their predictions after closing the position.

Based on the strategy employed, traders can be day traders, swing traders, scalpers, momentum traders, or arbitrage traders, to name a few.

What are the main differences between investing vs trading crypto?

Considering how both investing and trading are used interchangeably, one may think that they both imply the same process. However, investing in cryptocurrencies differs from trading them. Investing is a longer-term approach to cryptocurrencies as it involves understanding the fundamentals of a coin, opening an account with a crypto exchange to purchase the coin, and holding it in a secure cryptocurrency wallet. Therefore, investors must have the technical know-how in transferring and storing cryptocurrencies as they get into the market with the motive of holding coins for months or years until their objectives are satisfied.

Trading is a short-term approach that focuses on the daily price movements of cryptocurrencies. Traders are more concerned about volatility to enable them to speculate on the price of a coin within small time frames. Unlike investors, traders are primarily focused on conducting technical analysis and market timing.

Is it better to hold or trade crypto?

The profitability of holding or trading cryptocurrencies is dependent on a trader's goal, strategy and skillset. Moreover, both approaches have their pros and cons that market participants need to consider critically before subscribing to them. Investing doesn't involve as much risk as trading, but some may argue that the reward may not be as high. At least not if the trader is a very successful one.

Experienced traders can make several per cent return on investment (ROI) on most days in a week, while investors will see an increase in the value of their overall portfolio over the same week (if the market goes up).

Conversely, a trader can make money when the market goes down if they are skilled enough to time the market correctly. Trading also comes with the option to use leverage, allowing traders to magnify profits with little capital. However, leverage can also lead to larger losses if the market moves against the trader, increasing the risk.

Having said that, long-term crypto holding gives investors access to certain privileges that earn them additional rewards. For example, they can gain access to airdrops and use their tokens for staking or yield farming.

Traders and investors need to consider these factors along with their different risk management strategies before deciding on the method that best suits them.

What are the advantages of investing?

Before starting an investment journey into the crypto market, understand the advantages and disadvantages of investing.

What are the disadvantages of investing?

What are the advantages of trading?

If the appeal of trading is more suited, first discover the advantages and disadvantages of trading below.

What are the disadvantages of trading?

What are some alternatives to holding or trading crypto?

While “HODLing” and trading are the most popular methods people employ to gain exposure to the crypto markets, there are other profitable alternatives. The two most common include mining and liquidity mining.

Mining

Crypto mining is the process of securing a cryptocurrency network by using computing power to solve complex cryptographic problems and, in turn, getting rewards in newly minted tokens and transaction fees. Mining is a competitive process that sees only the first miner to solve the cryptographic puzzle and receive the mining reward.

Instead of holding or trading cryptocurrencies, miners invest money in computing hardware that produces a ton load of computing power, enabling them to earn mining rewards faster. After receiving mining rewards, miners can sell them in exchange for cash via a cryptocurrency exchange.

In addition, miners often pool their computing resources together to enable them to earn rewards faster. The reward is distributed fairly among the miners based on the share of computing power contributed.

Liquidity mining

Liquidity mining involves providing liquidity to facilitate the functionality of DeFi protocols, and in turn, receiving transaction fees and additional tokens as rewards.

Liquidity providers receive liquidity provider tokens (LP tokens), indicating the share of liquidity they contributed to a DeFi liquidity pool. These LP tokens can also be used to provide liquidity or staking on other crypto projects within a particular blockchain network, hence, allowing investors to earn multiple rewards at the same time.

FAQ

Is crypto a good long-term investment? Cryptocurrencies have rewarded many long-term investors with good returns. For example, bitcoin is considered the asset of the decade as it has outperformed almost every other asset class in the world since its launch.

However, the crypto market is still in its infancy compared to other markets. While some have profited from cryptocurrencies by investing long-term, others have lost money with the same approach. The answer to this question is dependent on a trader's risk appetite and the type of assets that match their investment purposes.

Which is the preferred Bitcoin investment method? The preferred bitcoin investment method differs from person to person. Generally, the process, rewards, and risks associated with the different methods influence people’s decisions.

Having said that, buying a small amount of bitcoin on a regular basis (known as Bitcoin dollar-cost averaging) has become very popular among Bitcoiners lately.

#source


RELATED

The Dynamics of Commodity Trading: An In-depth Look

From the very clothes on your back to the coffee you sipped this morning, commodities influence our daily lives. This vast market encompasses a wide variety of goods...

Top 5 undervalued stocks CFDs right now

During the pandemic, we saw some of the most vigorous equities growth since the 1920s. A great number of companies had their valuation treble, quadruple or increase...

Short Selling vs. Puts: An In-depth Analysis of Market-Contrarian Strategies

Navigating the intricate landscape of the stock market can be overwhelming for newcomers. Amidst a sea of financial jargon, you may have come across terms like "short selling" and "puts" without a clear understanding...

Features of Successful Oil Trading at Forex

Oil is a commodity asset of high volatility. This is a key energy carrier with stable and high demand. Also, oil can be safely called one of the most...

Margin and leverage. What exactly is margin trading?

Margin trading refers to trading with leverage, therefore opening up the possibility of a higher ROI. Leverage is a key forex trading term and is explained in the next section...

Five Bitcoin Day Trading Setups to Help You Make Money

Bitcoin trading has become big business in recent years as people have realised that the new and emerging market place is one that has the potential...

NFP trading: understanding the effects of the Nonfarm Payroll

Professional traders often consider economic announcements as a reliable indicator of coming price action, and one of the biggest reports that capture traders' attention is the NFP...

Leveraged ETFs: Worth It or Not?

Leveraged Exchange-Traded Funds or leveraged ETFs aren't new to individuals or institutional investors. In fact, they're becoming one of the most popular types...

New York Stock Exchange (NYSE): Defined & Explained

The New York Stock Exchange (NYSE) appeared 231 years ago, immediately changed the US market, and became the largest marketplace for buying and selling assets in the world...

Applying VSA in Forex Trading: Everything You Need to Know

Tick volumes are one of the simplest options for VSA analysis Most forex traders are familiar with technical and fundamental analysis. There are several ways to use these two methods...

Trading on the news: Pros and Cons

Most often, the most significant changes in the Forex market occur after the financial, economic and political news and the reaction of the market to them...

What Is A Crypto Airdrop And How Does It Work?

You might have heard about crypto token airdrops as a popular way to get free cryptocurrency with little to no effort involved. In most cases, the offer of something free...

Different ways of investing in gold in these modern times

Gold is a bright, yellow, malleable and ductile metal found in nature. It is usually found in rock veins, gold nuggets, grains, electrum or alluvial gold...

Unlocking Opportunities in Global Commodity Markets with FXTM’s Advanced CFD Trading

Step into the world of global commodities trading with FXTM, where we offer a gateway to diverse investment opportunities through advanced CFD trading. Experience the flexibility and potential of trading...

Key Tips for Trading in a Fluctuating Market

Have you ever observed nature? Many things, such as the trajectory of a bee, may seem random. At the same time, they are not - there is nothing random in nature...

Fundamental Forex Factors

When it comes to forecasting forex rates, the science of fundamental analysis involves taking into account a variety of relevant economic and political factors for one currency relative to the other currency in each currency pair considered...

Automated Crypto Trading: The Ultimate Guide

Cryptocurrency trading first started in the beginning of the 2010s and has been actively growing in popularity ever since. Currently, the crypto market has thousands...

Earnings Season & Its Significance for the Stock Market

Earnings season for the first quarter of 2022 is upon us. Here’s what you need to know and what to expect from the markets during this period. Earnings season refers to the period...

How to trade stocks

If you are unfamiliar with the stock market, then this trader's guide will assist you in understanding this market and how you can easily trade stocks...

Can ChatGPT trade better than humans?

AI machine learning models are a hot topic right now, and ChatGPT is the name on everyone’s lips. Some believe AI will inevitably lead to millions of job losses...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.