You're reading this article, so it's safe to assume you want to trade cryptocurrencies. Wouldn't you prefer to swim with sharks, wrestle alligators or bait bears or, maybe, something with a bit less risk?
Or, do we?
Let's find out…
Cryptocurrencies are highly volatile and a massive risk for novice traders. But, if you're determined to have a go, we'll do our best to guide you on how to trade crypto with some protective body armour.
Why is Trading Crypto Risky?
Cryptocurrencies are a wild roller coaster ride, with the potential for boom or bust. Volatility with crypto is crazy, with wild, massive swings in the price. Most traders cannot cope with these huge swings and get stopped out, sometimes as soon as they enter a trade.
In 2018, as Bitcoin drew traders' attention and caught the public eye, thousands of crypto scams crawled out of the woodwork, and thousands of new cryptos came and went.
The search for big money was on for crypto companies, hoping to make once in a lifetime colossal profits from hundreds of thousands of punters, er, sorry, traders, buying their coins. Eager, excited, wannabe crypto traders dreamt of finally getting the mansion, yacht and the red Ferrari through the rise of cryptocurrencies.
But they were doomed from the start. Armed with little to no knowledge, many people lost a lot of money. Some people sunk their money into Bitcoin (much too late), and others bought unknown cryptocurrencies for a pittance, anticipating colossal returns down the line.
Now, three years on, many of those coins have long since gone. The ones remaining are mostly floating under fifty cents or no more than $1. Will that change? Maybe, but no one can say.
One of the issues is, there is no regulatory framework for crypto at this time, and investors are concerned about the possibility of future restrictions or even a crypto ban.
Also, tax obligations on crypto are fuzzy at best, which means the professional trader is less inclined to get involved. Because of the tax uncertainty, it's unclear what records to keep and report for tax purposes.
Right now, considerable research is underway to establish some form of a regulatory framework. Switzerland is one of the first countries to begin building such a framework, and the UK and Singapore are exploring Blockchain and crypto regulatory environments. And in the United States, the New York Attorney General's Office has launched a comprehensive study on the exchanges.
Changes in cryptocurrency regulations will inevitably come sometime in the future.
In January 2021, regulatory changes came into force in the United Kingdom, which prohibits speculation on crypto prices via leveraged products such as CFDs.
An alternative to trading crypto is to buy a cryptocurrency. You then hold on to it until it hits a price for a profit. You can purchase cryptocurrency directly on the exchange as there is no leverage on these purchases.
The issue with buying on the exchange is when you come to sell. It can be challenging to exchange crypto for the currency of your country. Effectively, you own the coin, so you need a wallet to store it.
There are many crypto wallet providers, but we suggest depositing your crypto with an established crypto wallet provider. As mentioned earlier, many scams popped up when crypto became more mainstream, and many people got caught out by the scammers.
Look for recommended crypto wallet providers. Check out their history by doing a Google search from users. If you get the tiniest whiff of unhappy clients, search for another provider.
Check for the security of the crypto wallet. Many crypto wallets got hacked once Bitcoin made cryptos so visible to the public. We recommend a crypto wallet that is encrypted and with two-stage authorisation. Then, check that you can convert the coins into dollars or whatever flat currency you need.
Bitcoin as an Example of Crypto Volatility
Do you remember the meteoric rise of Bitcoin? Many lucky people bought Bitcoin for less than $1 and held onto it. When it rose to $20,000, some of those people became millionaires. But many others lost money on Bitcoin.
How, and why?
The rumour flying around at the time was that Bitcoin was going to shoot up to $100k. No one has any idea how this tale came about, but it stimulated FOMO in many thousands of people who had no idea about trading.
People were buying into Bitcoin at $13k, $15k and even at $20k. They had no idea how to manage a trade, most definitely had not looked at a chart or spoken to a genuine expert. They threw their money into Bitcoin anticipating great wealth.
Then what happened?
Bitcoin fell off a cliff. That's what happened.
The price dropped and dropped
Look a the image below
This image is the Bitcoin daily chart from March 2016 up to April 2021
In one year, Bitcoin grew from $479 to $20,202. You may look at that chart and imagine an easy route but look at the dips as the price began rising in January 2016. Some of those dips are $1000 of price movement. These are the price fluctuations where novice traders are panicking and selling their Bitcoin as quickly as possible.
In one year, from December 2017 to December 2018, Bitcoin dropped $17,000.
Now, look at Bitcoin pushing up towards $60,000.
During the writing of this article, Bitcoin rose $1000 in around an hour.
A target of $100,000 doesn't look so ridiculous now.
In mid-2018, one trader on a forum was freaking out. He bought nine Bitcoin at $13,000, and the price was, at the time, falling. Firstly, asking on a forum full of puffed up Bitcoin 'experts' (AKA numpty novices) was not his best move. Almost everyone on the forum was telling him to get out, sell, dump them quickly etc.
Had this man held his nerve and not listened to the numpties, he would have been $64,818 better off.
You can't help some people.
The point is, do not trade crypto until you know how to handle situations like this. The second point is, do not ask self-proclaimed experts for financial advice.
The Bitcoin example signifies why trading crypto is so risky. It's a volatile currency, and it often doesn't play the way we expect. There are few other trading currencies where a trade can be in massive profit one minute and wiped out the next.
As Bitcoin price capsized, it took with it many small crypto companies. There's a few still holding on, like Etherium and Litecoin, which are, right now (April 2021), at their highest ever. Other cryptocurrencies are still around, like ETN, but they haven't made any significant impact on the crypto market and, in many cases, are less than $1 to buy.
We think you might have the idea now about how tough it can be to trade crypto, and with less than $1000, so let's answer your next question.
How do I Trade Crypto Successfully with only $1000 or less?
Much like any form of trading, there are patterns and areas on the charts where a trader can take advantage of historical price.
Here are some suggestions for how to trade crypto successfully with $1000 or less:
Learn How Cryptocurrency Works
Cryptocurrency is a decentralised digital currency network. There is no central server. You are trading through a peer-to-peer system. When you buy or sell a cryptocurrency, the transaction goes to the blockchain (a shared digital ledger that records data). This process is called mining
Open an Account
To trade cryptocurrencies, you don't need a digital wallet or an exchange account. To trade CFDs, all you need is a trading account with a leveraged trading provider
(Please refer to the important note on UK restrictions on CFDs trading)
Create a Trading Plan
You must have a plan before you trade crypto. You are trading a high volatility market, which can quickly wipe your trade out. Your trading plan should include:
1. Choose the cryptocurrencies you want to trade
Choose cryptos that have been around for a few years. Emerging cryptos are too risky and volatile
2. One or two backtested strategies
Like all forms of chart trading, cryptocurrency does have historical patterns of behaviour.
For some emerging cryptos, you are trading in unchartered territory, but if you choose crypto that's been around for a while, you can trace back the historical data to see where price reacts in areas such as support and resistance
3. Risk Management
There is little as important as assessing your risk before taking a crypto trade. You need an exit plan and must ALWAYS have a stop loss.
Risk only 1% of your capital, so if a $1000, you'd risk no more than $10 per trade
4. Some form of analysis
Fundamental analysis is harder to gauge with crypto, but it's possible. You can install a crypto app to your mobile and add your chosen crypto, and select notifications. If the crypto has a website, also subscribe to keep up to date. Get as much information as possible to keep you informed of potential shifts in price arising from the news.
Technical Analysis is a helpful tool for assessing historical data and looking for chart patterns. Many crypto traders use technical analysis, but adding fundamental analysis on top will increase your knowledge of potential probabilities.
5. Wait for high probability setups
You might wait a while before an excellent set up appears, but it cuts out the white noise of mediocre trades that rely on a bit of good luck
6. Set aside trading time
Trade at the same time each day and allow a set number of hours. Trading is tiring, especially if you glue your eyes to the charts for extended periods.
7. Know when to quit
Have a clear plan for when you will walk away from your trading station. It may be three consecutive losses. Or you may decide to end trading when you have lost a monetary or percentage amount of your capital. Never chase losses. It's a guaranteed way for further loss.
A Quick Word on Brokers
A dependable, established broker is a must, especially if you plan to trade crypto.
Choose a regulated broker that offers cryptocurrency trading. Get used to the trading platform. Practice entering and exiting crypto trades and see how you get along.
Never opt-in with an unregulated broker. They do not have a licence, so they can make up their own rules, including refusing you access to your money or, worse, disappearing with your money.
It is costly for a broker to get a licence from a Financial Governing Body in their country. The broker has to jump through many hoops and abide by the licencing rules at all times. It's not worth the risk to trade with an unregulated broker, no matter how many promises they make or however tempting their offers are.
If you have read this article and still feel you want to try trading cryptocurrencies, follow the guidelines. They will keep you safe, or safer at least.
It is possible to trade cryptos with consistent success but know that it will take considerable time and effort on your behalf.
Play the long game and take it slowly. You'll quickly discover the heightened emotions involved in trading cryptocurrencies with real money. We'd undoubtedly suggest working with a demo account for a while until you have a good idea of what you are doing and fully grasp how cryptocurrencies work.
Recap for Trading Crypto with $1000 (or less)
- Trading cryptocurrencies is high risk with the likelihood of losing your money.
- Choose cryptocurrencies that have been established for a few years and avoid emerging crypto
- It is possible to trade cryptocurrencies with $1000 (or less), but you must start small and commit to practice
- Create a solid trading plan
- Have a rock-solid risk management
- Know when to stop trading and never chase losses
- Keep up to date with the news regarding your chosen cryptocurrencies
- Learn technical and fundamental analysis
- Always have a stop loss
Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.
Trading Cryptocurrencies may not be suitable for all investors as it does involve high risk and the possibility of a loss of capital.
eToro – The Best Platform to Buy Cryptos
eToro have proven themselves trustworthy within the Crypto industry over many years – we recommend you try them out.
Virtual currencies are highly volatile. Your capital is at risk.