The amount of money that you can commit to trading crypto should be determined by what is known as discretionary income, which is what is left after you’ve paid all your regular living expenses and taxes.
If your intention is to grow your discretionary income then the general advice is invest the majority in low risk financial opportunities (pension, index funds, bonds etc) and a small proportion to anything with higher risk – such as trading crypto – which is right near the end of that spectrum.
The proportion is down to you, but a sensible amount might be 5%. You should avoid at all costs trading with money you cannot afford to lose or borrowing on credit cards, loans or by remortgaging.
Whatever the amount of discretionary income you are prepared to risk, it should be with the clear understanding that this is money you are prepared to lose.
Having an idea of the capital you have at your disposal provides a crucial parameter against which you can then set a success objective.
For anyone lucky enough to have six figure sums they want to generate a return on, they have the luxury of using low risk approaches which will make sense with large sums:
- interest bearing crypto banking aka CEFI
- low risk trading strategies using leverage
- stomach high gas fees and gaining high APY from DEFI
The majority of newcomers to crypto trading don’t have the luxury of a large bank to play with, but nevertheless start with high expectations which pushes them further up the risk spectrum.
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