What is responsible trading?
Trading cryptocurrencies responsibly is much more than simply paying attention to buy and sell amounts. You should control your trading behavior and avoid emotional trading. Traders must take responsibility for their actions and understand whether trading can truly benefit them.
The investment or trading methods for cryptocurrencies are varied. Alternatives like contract and margin trading can bring higher returns through leverage, but the risks also increase. Some traders find it challenging to responsibly use these investment methods. Buying cryptocurrencies on the spot market and holding them for the long term is safer and more suitable for personal risk profiles.
Responsible traders stay away from behaviors and activities that trigger irresponsible trading. Responsible trading in cryptocurrencies largely means being aware of the conditions under which decisions may be negatively influenced. This skill takes time and experience to develop, but novice traders tend to be impulsive or rely on intuition. The more you can avoid this situation, the better it will be.
How does Megabit help users trade responsibly?
Megabit responsibly provides training and guides users to adopt best practices. When launching responsible cryptocurrency products, Megabit was also the first cryptocurrency trading platform to require users to test trading functionalities. Megabit Academy also offers free consultations and actively educates millions of readers worldwide on safer investment and trading practices. Readers interested in investing in cryptocurrencies can also refer to detailed and objective reports written by Megabit Research Institute.
7 tips to trade cryptocurrencies responsibly
Trading cryptocurrencies responsibly requires users to manage many aspects of their trading behavior; it is not merely about clicking 'buy' to start or clicking 'sell' to finish. Try to incorporate the following tips into your daily trading as much as possible. These suggestions may seem overwhelming, but they genuinely help improve 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 develop a trading plan, once your funds, account, and passwords are threatened, all your efforts will be in vain. Security measures vary and include two-factor authentication (2FA), setting strong passwords, and whitelisting withdrawal addresses.
Develop a trading plan
The best way to avoid emotional trading is to develop a plan and stick to it. This way, temporary profits, losses, rumors, or fear (FUD) cannot interfere with your decision-making. How do you develop a trading plan?
A trading plan should outline the types of trades, trading conditions, and trading goals. Personal risk profiles and trading styles will determine trading limits. When developing a trading plan, maintain a clear mind and strictly adhere to it in the future. The trading plan should include the following points:
What level of leverage (if any) do you wish to use?
The opening and closing prices for specific trades
The ratio of the maximum investment amount to total capital
The degree of diversification in the portfolio
Cryptocurrency asset allocation
When to pause trading (timing, trading amount, etc.)
Maximum loss
The products or assets traded
Use limit take-profit and stop-loss orders
With Megabit, you can easily use limit take-profit and stop-loss orders to better control your trades. You cannot monitor the screen around the clock, and cryptocurrency prices fluctuate unpredictably, making losses unpredictable. Trading large amounts of cryptocurrency without protective measures in the face of price volatility is irresponsible. Once you have developed a trading plan, you can easily use limit take-profit and stop-loss orders and strictly adhere to them.
For instance, suppose you buy 1 Bitcoin (BTC) for $15,000, and the current price of BTC is $40,000. You want to ensure that you don't sell for less than $30,000 if the price drops, aiming to achieve at least a $15,000 profit. After setting a limit take-profit and stop-loss order, the system will execute automatically.
First, set the take-profit and stop-loss price at $32,000, which will trigger the limit order. Then, set the limit at $30,000, meaning if it drops to the take-profit and stop-loss price, 1 BTC will sell for at least $30,000.
By setting a margin between the take-profit and stop-loss price and the limit price, you can find the optimal execution time for the limit take-profit and stop-loss order. If no margin is set, the market price may fall below the limit price, and the order may not be executed.
Do your own research
We provide learning and research materials through Megabit Academy and Megabit Research Institute, but your analysis work should not stop there. Do your own research (DYOR), which means verifying and checking the information collected in person.
This advice applies to users participating in token trading and investment through trading platforms and using decentralized finance (DeFi) products. Only you know your personal risk situation and what type of portfolio suits you. Before investing and trading, you must fully understand how to allocate your funds.
Build a diversified portfolio
When developing a trading plan, you should build a diversified portfolio to reduce overall risk. Holding only one or two types of assets in the portfolio will face higher risks; an ideal approach is to invest in different asset types to achieve diversification.
When investing in cryptocurrencies, you can first define your asset allocation. Investment projects include DeFi, liquidity pools, staking, derivatives, stablecoins, and altcoins. Diversifying investments against a single type of cryptocurrency can minimize massive losses. For example, investing in liquidity pools may incur impermanent loss, but staking rewards can offset those losses.
Then, you can achieve diversified investments across different asset types. Here are just a few examples. Through various responsible methods, you can plan a cryptocurrency investment portfolio.
Avoid FOMO
Fear of missing out (FOMO) is a common psychological state for many traders. You must be wary of the negative impact this detrimental mindset can have on trading. Fear of missing out may lead you to abandon limits and investment plans, making hasty decisions. Nowadays, we can access a wealth of information through the internet, social media, and other communication media, making us easily influenced.
When searching online for quality investment opportunities, be wary of unscrupulous individuals with ulterior motives. Some users promote their tokens or projects recklessly, completely disregarding their true value. Scammers will exploit FOMO psychology to manipulate traders' emotions. If you feel like you've missed out on an opportunity that you've never heard of before, take some time to research the project thoroughly before making a risky investment.
There are many reasons that trigger FOMO. Recognizing these reasons helps identify the triggers of this emotion.
Social media: Twitter, Telegram, Reddit, and other platforms are filled with various rumors, misinformation, and unscrupulous individuals. You should always do your own research (DYOR). Platforms often pay to invite influential figures to promote projects and altcoins, and unscrupulous individuals take advantage of FOMO to scam funds.
Profit: If you are continuously profitable, it's easy to become complacent about investment risks. You may also become overly confident in your skills and make poor choices. Even after making considerable profits, this can amplify FOMO when facing other 'significant' investment opportunities.
Losses: Trying to recover losses can intensify FOMO. You might even exit a position due to losses after opening a position, only to re-enter due to FOMO. Both scenarios can exacerbate losses.
Rumors and hearsay: Getting information from other traders or through the internet can enhance the attractiveness of investments. However, whether it’s rumors, investment advice, or popular cryptocurrency recommendations, nothing can replace solid research and analysis.
Volatility: Dramatic price fluctuations can create profit opportunities. Whether hoping for price increases after investing or shorting the cryptocurrency market at low prices, it’s easy to become overwhelmed. You might also see a bear market as an investment opportunity, only to find yourself in a predicament of catching falling knives.
Understand leverage
Borrowing funds to participate in margin or contract trading for substantial profits is indeed tempting, but it also exposes you to risks of forced liquidation and rapid loss of principal since your losses can also double. Forced liquidation may not be a bad thing if you don't exceed the limits. However, if your losses exceed the plan or you invest a substantial amount recklessly, that's irresponsible trading. You must clearly understand how leverage works before using it.
You can think of leverage as a multiplier. For example, 10x leverage means multiplying your initial capital of $10,000 by 10, resulting in $100,000 of trading funds. Your initial capital will be used to offset losses. Once your capital is exhausted, the trading platform will force liquidation.
Leverage trading can be abused and carries significant risk, so be sure to study coin-based contracts and U-based contracts thoroughly to understand the risks involved. Megabit also protects new users by limiting leverage and actively advocates for responsible trading.
