Risk Hedging Price Fluctuating Bitcoins
Bitcoin Prices Fluctuate 40% a Day
Since Bitcoin launched in 2009, the price has constantly gone up. Investors capable of holding the coin mid-to-long term survive, but those who are sensitive to the fluctuating price try cutting latent loss and end up losing.
Bitcoins fluctuate greatly, and there have been times that the price decreased 40% in one day. Whether you are just beginning or a pro in investing, there is no way to follow these fluctuations by day trade. Make no mistake, Bitcoin is a high-risk high-return investment target.
Big Price Fluctuations Due to News and Regulations
January 5th, 2017, prices fell from 152232yen to 86000yen (-43.5%).
The fall is said to be caused by, the tightening of regulations by the Chinese monetary authorities, encouraging the Chinese investors to redeem their CNY.
March 11th, 2017, prices fell from 152232yen to 98570yen (-35.3%).
While many awaited the world first Bitcoin ETF(Exchange Traded Funds), the SEC rejected the Winklevoss Twins application, resulting in the price to crash.
Such as the above, large fluctuations in price occur a number of times every year. You could say this is a unique trait Cryptocurrencies have. Due to limit down and limit up, prices in the stock market never fluctuate more than 20%, and historically speaking, the FX has never had a 40% crash, such as 100yen to 60yen.
The Cryptocurrency market is still at an experimenting level in all, price fluctuation, regulations, implementation. This also suggests there is a chance of investors winning, and losing big.
Bitcoin Risk Management
In the long-run, Bitcoin has a definite rising trend. If concentrated on day trade, instead of reading the flow as a whole, you will definitely result in a loss. When investing, it is common to sell when prices go down, and buy when prices go up, however, after a rise is a definite decrease. Buying as so will result in losses and you will soon have to leave the market.
It seems that in the near future, there will be cryptocurrencies that get eliminated or currencies in which prices fluctuate violently based on news. Know the dangers of investing in a single currency, as if the currency does get eliminated, you are out of luck.
Carefully judging which currency has a future, and distributing your investment over several currencies reduce the risks of going bankrupt. This distribution also helps in cases of cyber attacks.
Opening Accounts in Multiple Cryptocurrency Markets
There have been cases all around the world, in which the Cryptocurrency Exchange gets hacked, leading to a leak of coins, or the exchange itself going bankrupt leading investors unable to draw out their money.
There have been reports that North Korea is moving at a national level, however strengthening the cyber system only leads to North Korea breaking through once again. The system goes nowhere.
In short, it is possible to order “automatically sell once the price drops below this number", meaning you are able to trade within your acceptable range.
Suppose 1BTC=1million yen
and stop-loss order at 1BTC=900thousand yen.
*Keep in mind in cases that many people sell, and not many buy, it is possible that your currency will be sold under 900thousand yen.
To set a stop-loss rule is one of the first steps of trading.
Setting this rule (such as buy when price declines by 10%) makes it possible to control the risks.
The 3 points mentioned above should increase the possibility of greatly cutting down your losses.
Written by Sakai Kazu