Volatile Markets (Investment)
If you’ve ever heard of the stock market, you’ve come across the term “volatility.” You’ve probably even heard a certain market is described as “volatile.” In fact, the cryptocurrency market is considered to be one of the most volatile markets today.
But, what is this volatility?
Well, volatility is simply used to describe the current status of a market. A volatile market is one where the fluctuations in price are drastic and unpredictable. Now, volatility is something that affects every market. However, each market varies in how volatile it is. In other words, some are more volatile than others.
A more technical definition would describe volatility as a statistical measure of the market’s tendency to fall or rise sharply within a short amount of time. It is often measured by calculating the standard deviation of an investment’s returns. Standard deviation is a statistical concept that tells us the exact level of deviation or variation that we can expect.
In general, when a market is too volatile, investors are asked to avoid investing in it. However, if returns are what you are looking for, you need to invest in volatile markets. You see, volatility causes prices to move and the chances of a good return are often dependent on such movements.
Volatility and risk are related. The more volatile a market, the greater the risk involved in investing in such a market. The greater your risk, the greater the returns.
So, essentially, volatility is good for hardcore investors. But, at the same time, there is a limit. Your prospective return must justify the volatility. Even if the return is in line with the volatility, it is still better not to take a risk if it doesn’t feel right.
Now, the big question now is – how should you invest in the cryptocurrency market, which is one of the most volatile markets today.
When it comes to investment in general, be it cryptocurrencies or actual shares/stocks, it is always a good idea to diversify. In other words, invest in more than just one kind of cryptocurrency. Investment is probably one of the few areas where it’s good to have your fingers in every pie.
In fact, don’t just invest in cryptocurrencies. Make sure your money is being spread across a varied asset portfolio.
Research ICOs Prior to Investing
ICOs (Initial Coin Offerings) is the standard strategy through which new cryptocurrencies seek funding. However, over the years, they have become a tool for scamming vulnerable investors. So, be warned.
There are a few that are regulated by the FCA, but most aren’t. So, be very skeptical when studying ICOs. Ideally, ICOs are for experienced investors, who have a thorough understanding of how it all works.
Be Thorough and Very Careful
As time passes, the cryptocurrency market will reduce in volatility, thanks to stricter regulations, more investors, and the evolution in digital payments technology. Having said that, it is always a good idea to study the risks before investing in the crypto market.
MD: Strategies to help you invest in a volatile cryptocurrency market.