Topic: How Can A Trader in this Business Protect Themselves Against Volatility Risk? - page 2. (Read 309 times)

Yes. Planning is a must and set reasonable targets. Don't too greedy to gain bigger profits, it possibly ends with severe losses. Then, a trader also should know the characteristics and trends in crypto market. Once it is a rising phase, we must know when to trade our assets. I mean don't wait too long till the prices decline again, we will miss the best time. And don't forget to set stop loss once we think it won't take advantage to hold longer.

Not only this time because volatility happens every time. It is the nature of crypto coins/tokens prices. That's why we call high risks to trade in crypto. But if we have worked as a crypto trader for years, we must know when it will tend to rise and when to decline. We just need to take advantage of these two basic phases (rising and decline). I admit that trading crypto is a bit tricky.

Planning. Planning, preparations, stop loss, those kind of things. That's why trading can be quite difficult at times, especially with crypto right now, since its volatility isn't really to be underestimated. If Trader A was on a constant watch about the market price of BTC to USD, he would've been able to notice the change and make changes right? There's also the option of using bots to manage your portfolio, meaning to cancel trades once a certain threshold has been met or something like that.

This is an issue with crypto in general at the moment. Because of the speculation and the lack of mass adoption we still have a lot of upside potential. I’d imagine we’re at least 5 years maybe even ten years away from stability. However, exposing 100% equity in market is too risky and it is going to alter your daily life due to the fear of losing money. Market is always volatile, most important fact about keeping your nerves is invest small percentage of your savings in market with a good ratio portfolio with different coins like Bitcoin, ETH, Litecoin and more stable coins like Doge.

Hi Bitcoin Talk,

I’m trying to understand the mechanics of how a small “OTC?” trader makes income through cash trades on LocalBitcoins, HodlHodl, LocalCoinSwap etc.

I want to start making these trades myself. Can anybody give some comments or notes if my understanding is correct?

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Exercise: The goal of Trader A is to increase his holdings of BTC and USD, while minimising losses.

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Let’s assume the current exchange rate is 1 BTC = $10,000 USD

Let’s say Trader A currently has a balance of 1 BTC and $10,000 USD.

On HodlHodl, Trader A sets his:

SELL price of BTC for 10% OVER the spot rate, so he is selling 1 BTC for $11,000 USD

and

BUY price of BTC for 10% UNDER the spot rate, so he is buying 1 BTC for $9000 USD

Now, here’s where i’m confused…

How does Trader A protect himself against volatility in the price of BTC?

Let’s say he meets someone who he sells 0.5 BTC to, for $5500 in Cash, USD

So he currently has 0.5 BTC and $15500 USD in his possession.

Now, between trades, the price of BTC raises by 25%. Now, 1 BTC = 12500

Trader A still has 0.5 BTC and $15500 USD in his possession.

Now, he meets someone to buy 0.5 BTC from them at $5625

Now his portfolio consists of 1 BTC and 15500-5625= $9875.

Trader A has a smaller portfolio than he began with.

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I spoke to an individual making money through trades with a 5% spread on LocalBitcoins. He explained that he has so much volume going through him (almost 50/50 buyers and sellers) that he does not worry about volatility risk because of the spread + volume. I am afraid he may be ‘caught out’ by one of BTC’s sudden price appreciations. Am I missing something vital here?

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How can a trader in this business protect themselves against volatility risk?

Is the solution to have a Cash & BTC balance on an exchange, which they use to quickly realise their spread, once a sale in real life is executed to protect against volatility risk (with the expense of exchange fees and slippage)?

Any comments, questions or discussions are welcome. Or if this has already been covered in a thread, could anyone point me towards the adequate reading material?

My goal is to accumulate as many BTC as possible for my HODL stash.

Thanks.