What is Crypto Trading? Here are the Definitions and Risks

Crypto Trading Definitions And Risks
Crypto Trading Definitions And Risks

You may already be familiar with the term “crypto trading,” which has become popular among traders in recent years.

Crypto trading, in essence, has a similar definition to stock trading, but the object of the transaction is in the form of cryptocurrency.

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Cryptocurrency emerged due to the presence of blockchain and digital currency markets among the public. In fact, there are several well-known types of cryptocurrencies that can be worth tens of millions to hundreds of millions of rupiahs.

Definition of Crypto Trading

So, what exactly is crypto trading? According to the Commodity Futures Trading Regulatory Agency (Bappebti) of the Ministry of Trade, crypto assets are commodities that can be traded on futures exchanges.

Although the Indonesian central bank prohibits the use of crypto assets as currency or payment instruments, crypto assets are generally used as investment tools and can be traded.

These crypto assets are often referred to as crypto coins or crypto money in crypto trading, which can usually be traded around the clock, 24 hours a day, 7 days a week.

However, there are many things to consider before starting crypto trading, as this activity carries a very high risk.

In this case, crypto trading is the act of buying and selling digital currency assets available in the cryptocurrency market, with the aim of generating profits.

Cryptocurrency itself is now considered an asset for trading due to its highly fluctuating value.

Crypto Trading Risks

As previously mentioned, crypto trading carries a significant amount of risk, so caution should be exercised before participating in this activity.

To avoid significant losses in crypto trading, you need to be aware of the risks and weaknesses of this trading, including:

Risk of infinite decline in value

In crypto trading, the values of the currencies can rise to hundreds of percent without any limit. This is certainly attractive for those who want to make a profit from crypto trading. However, behind all this there is also an unlimited risk of value reduction when trading crypto.

In this case, you as a trader or investor who has made a profit from crypto trading may incur a loss with a very large value due to the fluctuating crypto assets. This is clearly different from investments in the capital market, such as mutual funds or stocks.

On the Indonesia Stock Exchange, the maximum limit for stock declines is usually around 7 percent in one day and the system will usually immediately activate the auto rejection system.

If the decline occurs over several days, the stock exchange authority will apply a temporary halt in trading or suspension so that the trader or investor’s losses can be limited.

No fundamentals to analyze

You need to know that cryptocurrencies are not like rupiah, dollars, or others. Although it is known as coins or money, cryptocurrencies in crypto trading are not currencies with fundamental bases like a country’s economic conditions, interest rates, and other macroeconomic data.

Cryptocurrencies in crypto trading cannot also be analyzed in terms of their fundamentals, like public companies’ stocks which typically have income, profits, business operations, and dividends.

On the other hand, mutual funds can be seen from the portfolio listed in the fund fact sheet. Therefore, it will be very difficult for you to predict and analyze the fair value or valuation of cryptocurrencies and the like when trading crypto.

Not protected by an authoritative body

As crypto assets have emerged, thanks to the blockchain technology that enables all transaction data to be automatically recorded, it has created a new world of trading opportunities.

Given that the activity is governed by the blockchain system, there is no central authority that makes clear regulations or restricts trade.

In other words, there is no protection for traders or investors when it comes to crypto assets. This is in stark contrast to mutual funds or stocks, which are overseen by the Financial Services Authority.

If your stock moves in an unusual manner or the company violates regulations, the FSA will issue a warning. Fund managers who don’t comply will be punished by the FSA.

On the other hand, the Ministry of Trade’s Commodity Futures Trading Regulatory Agency currently only monitors crypto sellers and the crypto assets that can be traded in Indonesia.

That’s some of the risks associated with trading crypto that you need to be aware of. Given that there have been many victims with huge losses as a result of engaging in this activity without sufficient knowledge, you should be extra careful when trading.

Aside from trading, there are actually many types of investments you can make, including mutual funds. However, what’s the difference between trading and investing? Check out the full explanation below.

Difference between Trading and Investment

When it comes to understanding the difference between trading and investing, it’s important to first know the objective of each activity.

The objective of investing is to generate profits over a relatively long period of time by purchasing and holding assets. On the other hand, the goal of trading is to generate profits through buying and selling shares.

If there are fluctuations or ups and downs in the daily market, this typically won’t affect investors because they usually have a long-term investment objective. On the other hand, traders tend to benefit from daily market fluctuations by buying and selling the shares they own.

Additionally, you can also see the difference between investing and trading in terms of added benefits. Investors who invest typically enjoy various benefits such as dividends, bonuses, stock splits, and so on. Meanwhile, traders who trade hold shares for a short period of time and do not enjoy benefits like investors.

The difference between trading and investing can also be seen in terms of time frame. Investing is typically done over a long period of time, while trading is usually done over a short period of time.

That’s why, an investor’s strategy usually creates wealth through dividends and compound interest, while traders rely on market timing, so they need to be astute in finding the right time to trade stocks.

Nevertheless, both trading and investing do have their respective risks. What’s important is that you need to be more careful to reduce or even prevent any potential risks that may occur.

To make it easier for you to invest with a risk that is generally lower than trading in crypto, you can take advantage of mutual funds.

There are several types of mutual funds that you can choose from, ranging from money market mutual funds, fixed income mutual funds, mixed mutual funds, and stock mutual funds.

You don’t need to worry because there are several advantages of investing in mutual funds, such as a variety of offerings, easy to learn for beginners, relatively affordable initial capital, relatively lower risk, professionally managed, and transparent.

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