Decentralized finance, or DeFi, are financial apps that use smart contracts on the blockchain to bypass financial intermediaries. Users can lend, borrow, provide liquidity, trade cryptocurrencies, and earn triple-digit interest rates in this peer-to-peer system.
DeFi is the best way to earn passive income in crypto, with several ways to do it.
DeFi isn’t one app but an entire suite of apps with smart contract capability across many blockchains. Smart contracts are computer code, allowing users to avoid financial intermediaries.
DeFi applications include decentralized exchanges (DEXs), stablecoins, lending apps, “wrapped” tokens, and automated market makers (AMMs).
Decentralized exchanges are peer-to-peer marketplaces where traders make transactions directly with each other, not handing over crypto to a financial middleman. Smart contracts execute this through computer code.
Stablecoins are cryptocurrencies whose price is backed by a real-world asset to stabilize their price. These coins are commonly pegged to the value of 1 US Dollar. Stablecoins are typically controlled by a company or consortium of companies, like Circle with USDC.
Lending apps function like regular lending with users depositing assets to earn interest or borrow assets. Aave, an open-source and non-custodial protocol running on Ethereum, is an example of this.
Ways to Earn Money with DeFi: Aave Lending App
What is Trading?
Trading is a short-term and volatile process that involves frequent transactions based on the trends in the market. It is relatively short compared to long-term transactions such as mutual funds or bonds. Common examples of trading are stocks, commodities, currencies [Forex], or other financial instruments. The advantage of trading over investing is more profit. Suppose the long-term investors earn 10-15% of the profit annually; a trader can earn the same 10-15% monthly depending upon the choices and decisions of the trader. But that is not all; trading is dynamic and volatile; it is a high-risk money-making process where the market trends directly affect the trading and can incur both heavy profits and losses.
The basic fundamental of trading is to buy when the price is low and sell when the price is high, but there are several other strategies such as reverse trading and short-selling, which only seasoned traders use to make high profits in the short term. Such strategies are risky and not recommended for beginners.
Investing vs. Trading – The Major Differences
There are several differences between trading and investing, but the most popular differences are the investment approach and the time involved.
- Investment Approach between Investing and TradingThe critical difference between investing and trading is the type of approach involved in both methods. In investing, the investor uses the fundamental analysis of the company, and in trading, it involves technical analysis.
Fundamental analysis involves the company’s financial analysis, previous financial records of the company, analysis of the industry on which the company is based, and the overall performance of the industry based on the macroeconomic situations in the country and the results.
Technical analysis is everyday financial trends such as the company’s performance in numbers based on the uptrends and downtrends in the market every day. It requires the traders to study the company closely and every day as it makes financial decisions and reflects in the charts and numbers in the stock market. This data helps the traders to make significant predictions of the changes and involves studying trends in volume, price, and moving averages.
Traders need to act dynamically and buy or sell based on the current trends while investors study the company closely, invest in it and hold it for a longer period to earn profit with lesser risk.
- Time-Based and Risk-Based differences between Investing and TradingThere is a difference in time involved in both the market-based money investments. Investing involves studying the company closely and holding it for a longer period with the expectation that it will return profits in the long haul; this type of investment involves lesser risk and may incur not huge profits but are relatively safe to the market trends. A classic example of “investing” is mutual funds and involves lesser risk and lesser profit. Other examples are bonds or baskets of stocks for long holding positions. The time frame can range years together and is less dynamic. The trend in the market that lasts for a shorter period does not make any difference to the investors.
Trading studies the companies closely with everyday trends to predict the future change on which they could earn better profits. This is a short-term investment and can involve buying and selling within a single day, weeks, or months based on the market situations. It is a high risk-reward ratio as the market is volatile, and one wrong decision can incur huge losses. A classic example of trading is the basis of the stock market, where the trader buys a certain number of stocks when the prices are low and sells them when the prices are high to generate huge profits. This time approach not only allows the traders to make quick transactions but also earn more compared to the long-term investors.
Final Tips for Beginners
Now we have covered some very important steps that you may take as a trader to increase your chances of surviving the game!
To round off the guide we’ll share some final tips that we know will help a lot as you’re starting out!
1. Always keep a trading journal
While keeping a trading journal might not sound like the most exciting idea, you should trust us when we say that it will help take your trading to new heights!
By keeping a journal with your mistakes, a log of your emotional state, and what went well, you can come back and analyze yourself and your trading results. Soon you’ll definitely start to notice patterns and aspects of your trading that need to be worked on.
In fact, for ourselves, the trading journal has been an indispensable tool in the continuous struggle of always improving and growing as a trader!
Not convinced yet? Then you may want to read about the ten benefits of keeping a trading journal.
2. Be Careful who you trust
The trading world is littered with false vendors that sell the dream, without even knowing how to trade themselves. Especially youtube and Rumble is full of fake traders that promise riches to the masses if you just follow their specific advice. A lot of beginners tend to fall for these types of trading scams.
To trust a trading vendor, you, first of all, want to make sure that they trade their own money. Showing trades in hindsight can be done by anybody, and doesn’t prove anything.
A good thing to look out for is if they’re offering a holy grail. That is, the one single trading strategy that will bring an end to all losses, and let you trade happily ever thereafter.
If anybody makes such a claim, you can be 100% confident that they’re either a scam or use unethical methods to sell you their training material. Trading is hard and no trading strategy will last forever. That’s the simple truth that no trader, regardless of proficiency, can escape.
3. Take a course
Learning trading by yourself as a beginner can be a daunting task. And judging by the statistics, most people, unfortunately, are going to fail.
By taking a proper trading course, you’ll be on the right track right from the beginning, learning from people who already are where you want to be.
Of course, you should always do your due diligence before spending any money on a course. As we just mentioned the trading business is littered with people who want nothing but your money and offer nothing in return.
Here at The Robust Trader, we offer a variety of courses on everything from swing trading to advanced algo trading courses. Be sure to check them out!