Trading cryptocurrency is a risky business. So how can you hedge cryptocurrency to protect yourself against that risk? While the cryptocurrency market is growing rapidly, and ways to hedge are continually being developed, everything is so new and untested it’s hard to know the best option.


ALSO READ: 5 Unique Ways to Finance Your Home Improvements


Hedging is a risk reduction strategy that typically involves taking an offsetting position on one’s primary asset. Hedging provides insurance, reducing the potential for loss. In the stock market, hedging typically involves trading derivatives, like futures or options. These derivatives make up a secondary market that is in its infancy stages in the crypto world.

While we’ll touch on the cryptocurrency derivatives market a bit, I will present three fairly simple strategies for hedging cryptocurrencies. Although they are not the most advanced ways to hedge, they are easy to access for the everyday crypto trader. Let’s get started.

The Strategies

First, let’s talk about diversification.


INVESTING TIP #27-- HOW TO GET FREE STOCK!

Get Up To $1,000 in Free Stock with Robinhood--the Commission-Free Brokerage!

Open a new account and receive one free stock valued at up to $500! Then, once your account is open, get more free stocks (value from $5 to $500) for each friend, family, person you refer! USE THIS LINK to get started with Robinhood!

Diversification is a common way of mitigating risk in the stock market, but it looks a little bit different in the cryptocurrency market. The stock market extends across a multitude of industries, and therefore it can at times be easier to pick offsetting stocks according to the industries they operate in.

In cryptocurrency, most coins are very volatile and the market generally trends together day to day. The most widely regarded diversification strategy for hedging against too much risk is to build the foundation of your portfolio on the most tenured, reputable coins. Bitcoin, Ethereum, and Ripple generally are the least volatile and can be decent hedges against other riskier coins. Diversification is all about a maintaining healthy mix, so try a few different configurations to see what works best for you.

Second, stay liquid (ie, keep some cash handy) so you are ready.

The second simple tip for hedging cryptocurrencies, is to make an account on an exchange that lets you hold money in fiat currency as well as cryptocurrency. This makes it easy to transfer money in between and not get stuck in a bind if a major crash occurs. This also allows you to quickly take advantage of optimal exchange rates and adjust the proportion of money you have invested. You can also invest in Tether, a cryptocurrency that tracks its value with that of the U.S. dollar, and trade in and out of other coins that way.

Third, use options and/or futures.

Finally, we come to crypto derivatives. Although they involve more capital, more risk, and more advanced trading knowledge, derivatives are the truest forms of hedging. Sites like Bitserve, Hedgy, or Coinapult allow you to hedge cryptocurrencies by buying options or futures contracts. Additionally, the CME group, which controls the largest derivative market in the world, facilitates trading Bitcoin derivatives and will probably add more currencies in the near future.

Wrap Up

Before jumping into derivatives trading, do some research about the inherent risks. Although it can be a very smart way to structure your investments, it takes a lot of know how.

Hopefully, we can all trade with less risk now that we have some hedging strategies under our belt. Keep trading away this month, and stay tuned out for more articles and videos to come!



WALL STREET SURVIVOR'S BEST OF THE BEST LIST

MARCH 23, 2020: URGENT UPDATES TO HELP YOU MAKE MONEY WHEN THE MARKET IS DOWN!

The markets have dropped over 30% since their highs just a few weeks ago because of the Coronavirus, but we are starting to see more signs that this might be a PERFECT BUYING OPPORTUNITY:

#1. HOT Fool Picks in Spite of Crash. Here is why we love the Motley Fool--On Thursday, March 19, 2020 they recommended Zoom Video (Ticker ZM) when it was at $124. Today, March 23 it closed at $160, that's up 29% in 3 days! But that's not all, they also recommended it October 3, 2019 when it was at $77 so that is up 108% since they picked it back in October, in spite of the market crashing 30%. Other recent picks are TSLA, NFLX and TTD which are all UP since they were picked!

#2. Stock Prices Are Down 30%.  This is a good thing! If you are thinking of buying stocks, now's your chance to get quality companies at much more affordable prices. This offers a very attractive entry point, because stocks are ON SALE and you can now buy quality stocks for 30% less than you would have paid for them in February.

#3. More Articles Are Starting To Recommend Buying. As we are nearing the bottom of this drop, we are starting to see more articles like this: BlackRock is suggesting we may be at a "once in a lifetime opportunity", Morgan Stanley says to start buying, and Warren Buffet has a stock pile of cash and rumors are he is starting to buy.

#4. Dollar Cost Averaging Works! Since nobody knows where the bottom will be exactly, smart investors continue to invest a fixed dollar amount in the market each month. This is called Dollar Cost Averaging. That way, when the markets are down you are buying more shares of your favorite stocks at cheaper prices. This helps drive down your average cost and increase your profits when the stock market moves back up.

If you need recommendations for stocks to buy now, keep in mind that the Motley Fool Stock Advisor beat the market by over 30% the last 4 years, and they are currently recommending that NOW IS THE TIME to start buying some of those quality stocks that should make up the foundation of your portfolio. The Motley Fool Stock Advisor service is recommending at least 15 stocks that you should plan on holding for the next 3 to 5 years. So, if you need investing ideas, it is a PERFECT time to consider the best stock newsletter over the last 4 years--The Motley Fool Stock Advisor

Normally it is priced at $199 per year but they are currently offering it for just $99/year if you click this link


P.S. this offer is still backed by their 30-day money back guarantee.
P.S.S. Still skeptical? Read this complete Motley Fool Review.

SHARE
Previous article5 Unique Ways to Finance Your Home Improvements
Next articleShould You Take a Bonus From a Binary Options Broker?

LEAVE A REPLY