Leveraging capital is an extremely important issue in the cryptocurrency market. With this in mind, many investors ask the question of how to turn a small amount of capital into a huge treasure trove of assets. Many new people enter the market with a FOMO mentality, they always want to make a lot of money in a short time. And the question is how to do that?
Before we learn about how to utilize capital, let's learn a little about ways to use capital, in other words, ways to make money in this market.
I. Popular forms of investment in the cryptocurrency market
1, Buy and hold:
The simplest way that newbies can participate in the Bitcoin market is to buy and hold. By choosing a potential coin, then going to exchanges like Binance, Houbi,... to buy and hold. With this method, you just need to use VND to buy USDT or other stable coins and then use USDT to buy other coins. With this P2P trading feature, you can use VND to buy some coins such as: USDT, DAI, BUSD, BTC, ETH, BNB.
From these coins you can trade and exchange for other coins. And here I recommend that you buy USDT first, to avoid market fluctuations causing your assets to be cut into pieces. USDT or stable coins will be your asset shelter.
2, Derivatives transactions (Perpetual Futures, Margin):
Margin or Perpetual Futures Contract is a form of leverage in financial transactions. Roughly understood, we will borrow an amount of money from the exchange to buy a certain type of asset or currency and will earn a profit from its price difference.
For example, we have a capital of $1000, and the current BTC price is $10,000. We use x10 leverage, which means the capital we have now is 10,000 and we will be able to buy 1 bitcoin. When bitcoin increased to $15,000/Bitcoin. That means we profit 5000$. Compared to the initial capital of $1,000, the profit is now 500%. (not deducting transaction fees). But if you use x10 leverage, and the price goes 10% in the opposite direction of your prediction, this means you lose 100% of your capital.
With this form, you can make bigger profits, but its risks are also greater. And this is not an easy form of investment, it requires you to have enough experience and technical analysis knowledge so you can fight the old wolf on Wall Street. I do not encourage newbies to participate in this form.
3, Invest in new projects in the cryptocurrency market:
With this form of investment, you don't have to go to exchanges to buy coins anymore. Instead, you will buy Tokens opened for sale by projects. (Tokens are electronic currencies opened for sale by the project and not yet listed on the exchange).
With this form of investment in the #uptrend, season, the profit margin it brings is extremely terrible. If you can participate in public sale, the story of x5 - x10 accounts is normal. . In particular, there are projects that are x hundreds of times, classics like FLOW x400,...
Those are 3 popular forms of investment in the cryptocurrency market, in addition there are some other forms such as: Farming, Staking,...
And I won't go deeper because our main topic is capital allocation.
II. Capital allocation
Capital allocation is no longer debatable about its importance. 70% of winning in the market comes from 3 factors: Capital management, trading psychology management and risk management. These 3 factors are ranked together because they have an extremely close connection with each other. .
Take a small example, if you have $1,000 in hand, you use all $1,000 to enter the order. But the risk of your account is divided in 2, this will put you under great pressure on whether to hold the coin or not. The pressure will be even greater if this investment amount affects your life out there. In many cases, because we cannot bear to divide 2 or 3 accounts, it leads to cutting losses at the wrong time. And after cutting losses, the price increases again.
But also in this case, you only use 1/10 of the capital, or $100, to enter a trading order. At this point, your trading psychology will be much more comfortable, because even if that order loses everything, you still have $900 to start again. This helps you to be more resilient in times when the market shakes off the weak. And "hard" loss tolerance should only be applied to buy and hold forms in an Uptrend market. Loss buffering is not correct for margin and downtrend trading. In this case, you must have a reasonable stop loss point through your trading strategy.
=> The lesson learned is that we should not use a large amount of capital to enter an order, you should only use a small amount of money and if you lose it, your life can still be lived normally. And you should divide your capital into many small parts, so that if in a risky situation you lose, you can completely use the remaining money to continue fighting. “If you have money, you still have opportunity.”
Of the three investment forms above, I do not encourage you to all-print all your money into any one form. You should divide your capital into 2, so you can buy both your coins and project tokens. As for the form of using leverage, I do not encourage you to participate because it is too risky for newbies.
Why do we have to divide capital?
Basically, experts cannot accurately determine the growth percentage as well as the investment risk. Investing in a new project can completely lose everything if that project is a scam. If you cut the capital into small pieces, each project you buy is the same, meaning each project has the same amount of money. Even if the risk comes in 2-3 projects, the profitable projects can completely offset those losses and earn more profit.
Similar to buying coins and holding, in a rising wave of the market, there will be coins that increase first and there will be coins that increase later. There will be coins that increase with a margin of 10%, but there will also be coins that increase by up to 100%. And to guess correctly is almost impossible. The way we can do that is to allocate capital evenly to the coins we want to buy.
Just a little bit about capital allocation skills, in the next article I will continue to guide on capital allocation combined with other skills. And after this series of articles, I hope you will be able to create a reasonable investment strategy for yourself.
Source: Theblock101.com
