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If returns on crypto’s only thing thats on your mind, this clearly says you are under mining all probabilities of risk associated with it. To have an appetite to take risks, you must always define your risk by being clear how much of your capital you are ready to loose during a certain given time – this is to indicate if something can go higher, it can drop down as well without any protection to your capital. There should be a reward which stands in your favour while you take a risk.
Well, it looks most new entrants into financial world appears to have increased their appetite to take risks after being inspired by entertaining actors on movies or by motivated business heads who are seemingly popular in endorsing thier views about financial instruments. These are periodical propositions that are part of every society & one has to carefully validate from an individuality stand point to gain a real return that benefits you. Below are few pointers which i have highlighted by consciously making sure i don’t use my technical jargons & for making it easy to be understood by all.
- Returns are bi-products of volatility:
– Entry & exit points for an instrument is always a key, for a prospective buyer to see an opportunity to buy & for prospective seller to exit his position. Normally when market goes down you buy, when it goes higher you sell. Adequate buyers and sellers needs to be there at every point to exit trades and this is called as liquidity. This where a regulated market plays an important role, as it boosts confidence for more people to participate when they are sure their money is secure & is in their control. And this where Cypto’s at this moment score browny points by not being under the purview of governing principles & thus have less control over the markets.
- Alternatives to Crypto’s in regulated markets with similar volatility:
– There are many regulated instruments in the financial markets which are extremely volatile & thus offers better return on speculative investments. Futures & Options trades are some familiar examples to quote where the volatility is in excess of 50% & even higher on highly liquid trades on a given day, which gives good opportunity to enter & exit trades. Especially in option trades your loss is limited & your profit on the upside is unlimited. Your appetite to take risks pays off well in regulated markets compared to unregulated where your capital is completely unprotected.
- Crypto’s vs local stock markets:
– It’s extremely important to asses possible risk factors which can potentially influence for somebody to speculate just like you to either buy or sell an instrument. Immediate risks for Crypto’s market at this moment is – volatility of local currency, potential risks in storing the digital encryption keys of your investments, regulatory risks posed by developed countries & most importantly ’Singularised key person risk’ posed by influential business entity such as Tesla & its business head Elon Musk. On the contrary every country has locally governed stock markets with varied financial instruments which are clearly categorised based on risk. So you have an option to choose the product based on your risk appetite & thereby control your profits or losses just based on your decisiveness of your speculations.
Well, this is neither an attempt to encourage or discourage you from taking risks the emphasize is to purely make you understand analyse risks which are under your control & identify financial products accordingly. People need to make decisions based on individuals exposure to financial markets, tax perspectives & have fair understanding on need for surplus cash flows to honour your individual commitments. End of the day, you will need to know how to protect your capital by diversifying your investment decision based on your individualistic need. And by experience one could certainly say – ‘Individuals Age’ & ‘Individuals Circumstantial Commitments’ are detrimental factors to clearly know where they stand & take risks accordingly.
Disclaimer:- All financial instruments are subject to market risks. Analysis presented above is purely for educational purpose & does not qualify as an advice on individualistic financial decisions.Please read & understand all related financial documents carefully before investing.
– Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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