Common terms of “day trading” and “holding” are often present when it comes to cryptocurrency trading. Many swear by the former way to trade, while others are more in line with the latter option.
To understand which one is the better option for you, let’s go ahead and take a closer look at each of these particular concepts.
What is Day Trading?
Day trading is an often used term in both cryptocurrency and conventional markets.
In this option, traders buy and sell assets at a rapid pace during market hours based on small to medium price changes. The goal here is not to make off with big profits, but to realize maximum short term gains through the constant fluctuations in price.
What is Holding?
Holding, or “hodling” as it is known in the world of cryptocurrency, is the idea where you hold your assets for a longer period of time.
You don’t pay attention to the short term price fluctuations, you keep your bitcoin and expect significant increases in value over the long term.
So Which One is Actually Better for a Trader?
To summarize, day trading provides you with the following benefits:
- There’s no long term research required. You just select a few assets to buy and then sell them off rapidly on a regular basis.
- You don’t need a large investment to start day trading.
- Your value is not locked in for a longer period.
But it also has the following disadvantages:
- You have to pay in terms of transaction and tax costs.
- You need to make room for losses for hasty decisions.
- You can be stuck with a digital asset in case things go south and no one wants to buy it.
Holding carries the following benefits:
- You save in terms of transaction and short term tax costs (you may still need to pay taxes annually or when you sell the investment).
- Your investment may provide more benefits in terms of long term profits.
- You don’t have to invest a set amount of daily hours to this practice and affect your daily life.
And it carries the following negatives:
- Your value is held for a longer period of time.
- You have to invest a considerable amount of money and time for research at the start of the transaction to make sure you are investing enough and with the right cryptocurrency.
- Losses may end up being bigger than you expected.
In a nutshell, none of these methods are perfect. But depending on your attitude to risk, your time horizon and funds, and your overall dependency on your investment, one of them could be your perfect.
There is no one size fits all approach to trading, look at your personal needs, your specific situation and make decisions from there.