What are the differences between crypto holding and trading? You can either trade your crypto coins to make profits in a quick time or hold them in anticipation for the price of the coins to rise so that you can make a lot of money when you sell them in the future.
Whichever option you choose to go with, you should be well informed about the differences between the two so that you know exactly what you are doing or getting involved with. If you are clueless about it, this article is the right one for you.
If you get down to the basics of the crypto market and are able to differentiate between a bull market and a bear market, it is likely that you will know exactly what the target that you want to achieve is.
This means whether you want to buy more crypto coins by trading or to hold them to maximize your profit potential. Check out Differences Between Crypto Market Cap and Volume.
Typically, knowing a few other points like the difference between holding and trading will also help you to know that buying and holding all your crypto coins is not the only choice.
The main objective of this article is not to prove those people wrong who say holding crypto coins generally is the right strategy for the inexperienced investor, but to differentiate between crypto holding and trading so that you are not misled.
In fact, crypto coin trading is quite important because it will teach a beginner a lot of skills to possess and utilize them in order to ensure success in both forms whether it is short term or long term investments.
7 Differences Between Crypto Holding and Trading
If you consider trading your crypto coins you will be involved in fast-paced daily trades.
On the other end of the scale, if you choose to hold your crypto coins you will not be able to trade them for a certain period of time.
Usually, this time period should be quite long to make a handsome profit eventually.
Though holding is the best strategy to follow by the novice, almost all crypto investors will surely profit from refining both a shorter-term trading strategy and a long-term HODL strategy.
Here are the differences between these two approaches for you to know so that you can be confident with your move and are better off while averaging to a position and holding crypto coins instead of trading and vice versa.
You will also know about the advantages and pitfalls associated with these two tactics.
Holding is a very easy strategy to follow which is why it is considered to be just right for the ones who have just stepped into the crypto world.
However, it is true for the somewhat nuanced version of holding because it is easy to average in or out of positions. There will be a few serious logistical problems if you want to go over the top and hold through each all-time high.
In contrast, crypto trading is quite hard right from the word go. This is because it has more pitfalls that you have to watch out for and avoid.
However, this strategy will condition you so that you can trade confidently in the future which you eventually will need to do to see profits over a short period of time.
2. Risk Factor
Though both, trading and holding of crypto coins involve risks, it is more in the case of trading. There are several reasons for it but one of the two most significant reasons is that the price of the coin may change in a very short time and drastically.
The other reason is that corrections are very common incidents in a crypto market which forces the traders to buy and sell their assets more frequently.
There is also a chance for the traders to overexpose them quickly without using any proper risk management strategy, especially if they are new since these strategies take a long time to learn. This eventually forces the traders out of the game soon.
In comparison, there are no such risks involved in holding crypto coins unless you make it yourself by panic selling when the price hits a low and thereby losing your chance to make big profits in the long run, especially in a bear market.
If you consider the benefits of the two, when it comes to holding your crypto coins, the most significant benefit is that you seldom have to do a lot in this process.
You will simply have to buy the coins at a low price, put them in your wallet and check your folio off and on. Patience is the key aspect here and there is little chance to mess things up.
As for trading, the perks seem to be far too less mainly due to the reason that the prices of the crypto coins are extremely volatile. This means that crypto trading will offer you a lot of opportunities to see big profits, and also losses.
Just for the sake of comparison, a 2% profit in forex trading is a once-in-a-blue-moon event, a good score in the stock market, and a frequent occurrence in crypto trading, but so are the losses.
Therefore, all you have to do is know how exactly you can make the best out of the gains and it will be easy for you to outpace a crypto holder quickly under any given market condition.
On the other hand, if you consider the pitfalls of the two, one of the most significant ones for holding crypto coins is the tendency among the new investors to get into the market when the prices of the coins are quite high.
This is due to the excitement of the bull market that drives them towards it. If you buy the top, you will surely have a long and hard road ahead which will be psychologically much more difficult if you are without much experience especially.
This is because this road of HODL will offer you several opportunities to sell low. You will also need to have the guts to watch your on-paper wealth diminish by 25% to 90%.
There are also pitfalls to avoid at the time when you take profits as a holder with no experience considering the bear market conditions and corrections.
If you are holding your crypto coins on the way up or down and then up, you may not know when you should be selling to make profits and lose on the opportunity.
If it crashes big time, you may hold to zero. Therefore, following the ‘just HODL’ principle blindly is what you should avoid. At least, have a clear plan as to what you should do in a bear market, such as accumulating more crypto coins when the price is very low, for example.
As for crypto trading, the most significant pitfall is to lose all your money if, on a good day, you as a trader take profit high out of a coin to avoid going down, or, on a bad day, you take profits too early or do not re-enter into a position before the coin goes back up.
In order to avoid that, you should have a clear understanding of the basics of the coins as well as the technicalities involved, the moods and nature of the cryptocurrency market, and employ proper and adequate risk management tactics accordingly.
You must also know the support and resistance levels, R:R as well as OCO orders and channels. This knowledge will prevent you from buying high or selling low on a very bad day or even buy high and then get liquidated on the margin simply because of not using stops.
Portfolio erosion is another pitfall in crypto trading, especially when it is done by the beginners. Typically, they will tend to trade with those coins that are not doing well into those coins that normally are.
This results in trends reverse. Finally, there is another pitfall that is significant in crypto trading. Since you will be conditioned to trade your crypto coins and not to hold on to them, you may miss out on an easy opportunity to make money when the market is very bullish.
One of the most significant differences between crypto trading and holding is in terms of taxes. The tax implications are another significant benefit of holding on to your crypto coins.
As a rule, you do not need to pay any taxes on your holding unless cash out. Moreover, the tax reporting process is also very simple in this case.
However, the tax rules may not be the same in every country and therefore you should check out with the one in your country and then make a decision.
In comparison, while trading cryptocurrencies you are liable to pay taxes on every trade you make. Therefore, you will have to tally up your profits and losses on each trade, which can be a real nightmare for one who does not know about tax reporting.
The tax implications on crypto trading are not only a headache but it will also eat up a significant portion of your profits.
It is needless to say that the process to hold your crypto coins and to trade them is quite different. Ideally, the right process to hold your coins is to average into a position. This should be done correctly by calculating the time which can be days, weeks, months, or even years.
You will need to choose the right time based on the price of the coin. Usually, you should buy and hold your coins when the price is comparatively lower than the recent lows and highs as well.
This way your strategy will not be mistimed. Then, you should consider taking some of the coins, especially when you think that there are some really big profits to make, to average back later.
This needs a lot of patience, control over your emotions, and some technical analysis. The best approach is to hold the crypto coins that you bought at a low price through a bull or a stagnant market and average out before or when the market trends turn bearish in the long term in order to make profits. This will help you to average back in lower.
On the other hand, in order to trade with your crypto coins, the process is to first put aside all your emotions and impulse. Once again, patience is the key here as well. You will actually have to act like a holder by averaging into positions.
However, the difference of crypto trading from holding is that you will then need to average out of those positions when the price of the coin tends to follow a downward trajectory or once you have profits.
If you see that the market is extremely bullish, you should stay away from trading your coins too much and too frequently unless you are sure about what you are doing.
Most importantly, find and follow a specific and productive trading style and strategy that works the best for you and for the specific conditions, and do not forget to use proper risk management techniques.
7. Few Other Differences
Holding crypto coins is a more passive investment strategy. It is fit for the long-term market. Usually, those investors who have a lot of trust in the long term value and potential of Bitcoin prefer holding over crypto trading.
Crypto trading, on the other hand, needs a lot more active involvement from you such as constant monitoring of the price charts and is typically a good option for those people who want to make profits in a short period of time.
In the case of holding, you will only have to make a few simple trades in order to take your position. This means that it will not cost you a lot in terms of transaction fees since your frequency of trading will be much lesser than a typical crypto trader.
Crypto trading, on the other hand, will involve trading fees for each trade made and therefore you will not be able to save on your money as you would have in holding on to your coins.
In the case of holding, the price volatility of a coin and liquidity does not matter much because most of the holders are long term investors and therefore are likely to let it stay in their wallets for weeks and years through the ups and downs in the market.
In comparison, liquidity and price volatility are the two important parameters based on which the crypto traders want to make the most profit out of the price fluctuations.
The crypto traders, especially the day traders, rely mostly on technical analysis over fundamental analysis. They prefer using the price charts of the coins and different market signals and indicators to know about the market movements in the short term.
On the other hand, the crypto holders usually rely on fundamental analysis rather than technical analysis because they look for the long term benefits.
Therefore, the crypto holders are more interested in knowing more about the general background of the particular company whose coins they want to hold as well as the press releases, news and other sources of information.
Finally, the crypto holders usually deal with larger and more established crypto coins such as Bitcoin, XRP, and Ethereum.
These coins are less risky and have a much more stable price and therefore experiences less volatility allowing the investors to hold their position for a long, long time, even for decades in a few cases. In comparison, the crypto traders usually deal with smaller coins with more fluctuating and volatile prices.
Which is More Beneficial – Crypto Holding and Trading?
When you trade with your crypto coins, you will have a significant advantage.
It is that you will be able to make the most out of the price movements and get exciting returns and get high returns.
However, it may lead to losses as well if you do not trade cautiously and knowledgeably. This is because the crypto market is renowned for its volatility.
Therefore, one of the most important things in crypto trading is to make the right decisions and choices that will lead to profits within the time frame you want to complete the trade.
You will need to choose one of the three popular crypto trading strategies and ensure that you execute your plan properly so that you are successful in the end.
The type of trading strategy to choose will solely depend on your personal experience in it as well as your current situation.
You should typically choose the one that suits you and your situation the best. This eventually means that you will need to navigate the crypto market extensively.
Hodling, on the other hand, is a tactic that usually people believe to work well with BTC, and that too depending on the prevailing market conditions.
You must also be very careful in following this tactic because the market can be heavily manipulated. Sometimes the prices can be fake, engineered, or even wash traded.
Therefore, if you follow the rationale for holding crypto coins and rest assured because it has always worked before, you might be in for a real surprise in this case as well. There are two specific reasons to say so. These are:
- One, the crypto market, as of now, is certainly not like what it was before. This means that you cannot rely on the past behavior of a coin for this tactic really. You may be lucky, but not every time.
- Two, following the holding tactic will guarantee you that you do see some profits but that will be less than 10% eventually. Most of the time, it is just about 1 or 2% more than your greatest paper wealth.
This means that holding can be the best strategy to follow if you only believe that the state governments of the nation as well as the central banks will go quietly into the night and give up their control of the crypto world to the anarchists without putting up any fight!
However, most of the experts think that people should ideally hold on to their crypto coins, no matter whatever amount or type of it they have.
This is especially applicable for the beginners, they think. This is because day trading of crypto coins is only good for you if, and it is a big IF as well, you know how exactly to trade to make profits successfully in a day.
Otherwise, it is good to build up your existing number of coins, they say. This is not a very hard thing to do because you can take the benefit of the order book to build up your hoard.
Few other crypto users may suggest that you follow both these strategies, that is trade and hold your crypto coins.
They say that you can sell at least a few coins at a profit and then wait for the price to fall.
You can then use the money you got from the sale to buy more coins than you sold to build up your wealth.
According to these particular experts, buying and holding crypto coins can be frustrating for those specific investors who do not have a lot of money to lock as well as a lot of time to wait in anticipation that the profits will unfold.
However, you will need to follow this technique smartly and knowledgeably in order to make the best out of trading and investing both.
However, there is a catch here. If you are in favor of holding and day trading your crypto coins both at the same time, make it a point that you do let alone the ledger coins.
And, you should always use your trading account for trading and not mix it together. Most importantly, never borrow from one another to trade.
The best way to go for a trade is to start off with small trades amounting to just 1% of your total portfolio and gradually increase your stakes. Also, you will need to know a few other things such as:
- Not making more than a few trades in a week
- Using stops and
- Learning more about and using Technical Analysis
Technical analysis is important because it will help you to have a fair idea about the long-term trends while making an entry or exiting from your positions. This you can do simply either by averaging or support and resistance.
Therefore, which option you will choose from trading and holding is typically a question that you should ask yourself. You should consider different factors and parameters before you make your final decision. These parameters are:
- Your risk taking appetite
- The availability of funds
- The time horizon and
- Your dependency on your investment
Remember, in this particular situation, the ‘one size fits all’ approach does not work at all.
Once you decide and choose to go with trading your crypto coins, just make sure that you research a lot and take some time to look at all of the various products as well as the trading options available for crypto trading.
Even then, it can be said that going all in at the top and then holding on to zero can be the worst possible strategy for any new crypto investor.
However, holding can be the best strategy for the beginners and it is quite true and much better ideally to fall back on the holding period. In addition to that, you would also need to follow a strategy that is a bit more nuanced.
This will ensure that you know about the reality of things which is that most users get into the bull market late and therefore holding on to your coins will simply mean being exposed to the pressure and selling over time rather than trading in the bear market and get the profit that you could have made.
This will mean that you will be nicely ready to get into the next bull market.
Therefore, it can be concluded that crypto trading is not a feasible option for those who do not have a lot of experience.
Holding your crypto coins is a much more conservative and cautious approach which will ensure that you know more about crypto investing and trading.
It typically involves averaging slowly and gradually increasing your positions and making the best out of them.
Ideally, in this way, you will be able to limit a lot, if not all, of possibilities that may prove to be wrong in the long run.
Crypto trading and holding are two different strategies that should be chosen with caution and knowledge. One such knowledge is to know the difference between the two, which you are aware of by now.