What is responsible trading?
Trading cryptocurrencies responsibly is about more than just paying attention to the amount you buy or sell. You should be in control of your trading behavior and avoid emotional trading. Traders must take personal responsibility for their actions and understand whether the trades are truly profitable for them.
There are many ways to invest or trade cryptocurrencies. Alternatives such as contracts and margin trading can offer greater returns through leverage, but also come with increased risk. Some traders have difficulty using these investment methods responsibly. Buying cryptocurrencies in the spot market and holding them for the long term is safer and more suitable for your personal risk profile.
Responsible traders stay away from behaviors and activities that lead to irresponsible trading. A big part of responsible cryptocurrency trading is being aware of situations where your decisions could be negatively impacted. This skill takes time and experience, but new traders are prone to being impulsive or preferring to trade on a hunch. The more you can avoid this, the better.
How does Megabit help users trade responsibly?
Megabit takes its responsibility to provide training and guide users on best practices. When launching a responsible cryptocurrency product, Megabit was also the first cryptocurrency exchange to require users to pass a trading function test. Megabit Academy also provides free consultations and actively educates millions of readers around the world on how to invest and trade more safely. Readers who want to invest in the cryptocurrency space can also refer to the in-depth, detailed and objective reports written by Megabit Academy.
7 Tips to Trade Crypto Responsibly
Trading cryptocurrencies responsibly requires users to manage many aspects of their trading behavior. It does not simply start with clicking buy or end with clicking sell. Try to incorporate the following tips into your daily trading as much as possible. These suggestions may seem confusing, but they will really help improve your trading skills.
Ensure the security of trading accounts and wallets
Before trading, the most important thing is to ensure the security of your account. No matter how responsibly you plan your trading, all your efforts will be in vain if your funds, accounts and passwords are threatened. There are many security measures, including two-factor authentication (2FA), setting a strong password and adding the withdrawal address to the whitelist.
Develop a trading plan
The best way to avoid emotional trading is to make a plan and stick to it. This way, temporary gains, losses, rumors or fear (FUD) will not interfere with your decision making. How to make a trading plan?
A trading plan should list the target trade types, trading conditions, and trading goals. Your personal risk profile and trading style will determine your trading limits. When developing a trading plan, you should keep a clear mind and strictly follow it later. A trading plan should include the following points:
How much leverage, if any, you wish to use.
The opening and closing prices of a particular trade
Ratio of maximum investment amount to total principal
The degree of portfolio diversification
Cryptocurrency asset allocation
The timing of suspending trading (time point, transaction amount, etc.)
Maximum loss
Products or assets traded
Use limit stop orders
At Megabit, you can easily use limit stop orders to better control your trades. You can’t be staring at your screen 24/7, and the cryptocurrency market is volatile and losses are unpredictable. It is irresponsible to trade large amounts of cryptocurrency without protection in the face of price fluctuations. Once you have a trading plan, you can easily use limit stop orders and stick to it.
For example, suppose you buy 1 Bitcoin (BTC) at $15,000, and the current price of BTC is $40,000. You hope that when the price drops, you will not sell it at a price lower than $30,000, so as to achieve your goal of making at least $15,000. After setting a sell limit stop order, the system will automatically operate.
First, set the stop-loss price to $32,000, which will trigger the limit order. Then, set the limit price to $30,000, which means that if the price drops to the stop-loss price, 1 BTC will be sold for at least $30,000.
By setting a difference between the stop price and the limit price, you can find the best time to execute the limit stop order. If you do not set a difference, the market price may fall below the limit price and the order may not be executed.
Personal research
We provide learning and research materials through Megabit Academy and Megabit Research Institute, but your analysis should not stop there. Do your own research (DYOR) to verify and verify the information you have collected.
This advice applies to users who participate in token trading and investment through trading platforms and using decentralized finance (DeFi) products. Only you know your personal risk profile and the investment portfolio that suits you best. Before investing and trading, you must fully understand how to allocate funds.
Build a diversified investment portfolio
When developing a trading plan, you should build a diversified portfolio to reduce overall risk. Holding only one or two assets in your portfolio will lead to higher risk. The ideal solution is to invest in different asset types to achieve a diversified portfolio.
When investing in cryptocurrencies, you can first clarify your asset allocation. Investment projects include DeFi, liquidity pools, equity staking, derivatives, stablecoins, and altcoins. Diversifying investments in a single cryptocurrency type can minimize huge losses. For example, investing in a liquidity pool may suffer impermanent losses, but the losses can be offset by staking income.
After that, you can diversify your investments across different asset types. Here are just a few examples. There are many responsible ways to plan a cryptocurrency portfolio.
Avoid FOMO
Fear of missing out (FOMO) is a common psychological state among many traders. Be aware of the negative impact this negative psychology can have on your trading. Fear of missing out can cause you to abandon your limits and investment plans and make hasty decisions. Today, we are exposed to a large amount of information through the Internet, social media, and other communication media, and we are easily influenced.
When searching for great investment opportunities online, beware of bad actors. Some users hype their tokens or projects for ulterior motives, regardless of their true value. Scammers take advantage of FOMO and manipulate traders emotions. If you feel like youve missed out on an opportunity that youve never heard of before, take the time to research the project before taking the plunge.
There are many reasons why FOMO can occur. Knowing these reasons can help you identify your triggers for this emotion.
Social Media: Twitter, Telegram, Reddit, and other social platforms are full of rumors, false information, and bad actors. You should always do your own research (DYOR). Many influential people are paid to promote projects and altcoins, and bad actors take advantage of FOMO to defraud funds.
Profits: If you are consistently profitable, it is easy to become complacent about investment risks. You may also become overconfident in your skills and make poor choices. This can exacerbate FOMO when faced with other “great” investment opportunities, even if you have made significant profits.
Losses: Trying to recover losses, which leads to more FOMO. You may even exit a position after opening it due to losses, but then enter it again due to FOMO. Both of these situations will lead to more losses.
Rumors and hearsay: Getting tips from other traders or online can make an investment more attractive. However, neither rumors, investment advice, nor recommendations on popular cryptocurrencies can replace solid research and analysis.
Volatility: Wild swings in prices can create opportunities to profit. Whether you invest in the hope that prices will rise, or short the cryptocurrency market at a low price, it’s easy to get carried away. You may also see a bear market as an investment opportunity, but end up catching a falling knife.
Understanding Leverage
Borrowing money to participate in margin or contract trading and earning lucrative returns is indeed tempting, but it also puts you at risk of forced liquidation and the risk of losing your principal quickly, because your losses will also be doubled. If you do not exceed the limit, forced liquidation is not necessarily a bad thing. However, if the loss exceeds the plan or you risk investing a large amount of money, this is irresponsible trading. Before using leverage, you must clearly understand how it works.
You can think of leverage as a multiple, for example, 10x leverage means multiplying your initial principal of $10,000 by 10, giving you $100,000 in trading funds. Your initial principal will be used to offset losses. Once the principal is exhausted, the trading platform will force you to close your position.
Leveraged trading can be abused and is very risky. Please carefully study the coin-based and U-based contracts to fully understand the risks behind them. Megabit also protects new users by limiting leverage and actively promotes responsible trading.
