When we decide to invest in cryptocurrency, we try to buy it as cheaply as possible. Dollar Cost Averaging (DCA) But once we add digital assets to our investment portfolio, we believe with all our hearts that the cryptocurrency skyrocket in value Quite often, this dilemma leads investors to wait for the market to fall, and instead, they miss out on a bargain opportunity on the eve of a new rise. A And after all by and large and it is not necessary to invent anything.
The Binance platform offers its clients a real-life investment practice called dollar value averaging ( DCA ).
History of occurrence
American economist Benjamin Graham, in his book best crypto to buy now, described dollar cost averaging as a type of ” formula investing “. Its essence is that “a person invests the same amount of dollars in common stock every month or every quarter. Thus, he is likely to receive a satisfactory total price for all his assets.”
Graham liked the average cost approach. This method was backed up by Lucille Tomlinson’s years of research and concluded: “No one has yet discovered any other investment formula that can be used with such confidence in ultimate success, no matter what may happen to stock prices, as Averaging value in dollars.
Applications of the DCA strategy
Calculating the ideal time to buy a crypto asset is very difficult. You can choose the right direction, but make a mistake with the timing, and as a result, lose a significant part of the potential profit. Not to mention that with such an investment strategy, you waste a lot of time and nerves. The DCA strategy mitigates the consequences of technical analysis errors.
By investing in small portions, you are likely to get more profit than if you invested the entire amount in one payment. The main thing is to correctly determine the price range, which is much easier than calculating the ideal entry point for the auction.
Of course, one should take into account the current state of affairs in the market. During a prolonged bearish trend, you need to spread your investment over a longer period of time than during a short-term downtrend. And in certain cases, you should wait for confirmation of the market reversal only then enter the auction.
The DCA strategy does not release the trader from the obligation to think before making a decision. It only mitigates the risks of investing in cryptocurrency.
How to use DCA on Binance?
If you do not yet have an account on this platform, then you need to create one. Go to https://www.binance.com/en, click ” Register ” and create an account with the power of an email or phone number. To do this, you need to fill out the registration form, accept the terms of service and confirm your email address (mobile number) using the six-digit code sent from the exchange.
Then you need to go through KYC. You will need a webcam or a smartphone running the Binance app, as document photos and selfies should only be taken in real-time. You also need to pass a dynamic face check. More detailed information on how to register and complete identity verification on Binance is in a separate review on our website.
Well, if you already have a Binance account, all you have to do is set up the recurring purchase option. You can do this on both the website and the app.
- Log in to your account.
- Click ” Buy Cryptocurrency ” in the top left corner of the main page.
- Select ” Credit/Debit Card ” from the drop-down menu.
- Specify the currency in which you will invest and the fiat asset for payment.
- Activate the option ” Regular purchase ” in the bottom line of the form, and set the frequency of repeat business.
You can set the date and time for a recurring purchase. Don’t forget to save your settings and proceed to choose a payment method.
- Click “Change Map”.
- Choose “Pay with a new card”.
- Enter its number, issue date and CVV.
Each user can save up to five Visa / MC cards, and link to each of them a plan for the recurring purchase of a particular cryptocurrency. Once everything is set up, order details will become available. The transaction must be confirmed within a minute, and then the price will be different. To see the cost change, click ” Update “. After the order is confirmed, the first purchase will be completed. Fiat money will be debited from the card, and the cryptocurrency will go to your exchange deposit.
The next trade will take place at the scheduled time. If there is not enough money on the card, the order will be transferred to the next date. Purchases will be repeated until you delete or change the plan. The Exchange may terminate regular transactions at any time by notifying you.
Recurring purchases are only available when paying by credit card, and only for individuals. To make any changes, you must delete the purchase plan in the Manage the Recurring Details tab of your account and place a new order. You can get acquainted with the terms of service on the support service page: https://www.binance.com/support/ Autoinvestment
who wants to use the additional auto-investment option on Binance must:
- Top up your deposit with BUSD or USDT stablecoin.
- Open the Binance Earn section and go to the Auto Invest tab .
- Choose the coin in which he will invest.
- Set the validity period of the auto-invest option (from 3 months to 3 years) and click the ” Create Plan ” button
A window will appear on the display in which you will need to determine the frequency of purchase (once a day, once a week, once a month). Then you need to specify the amount that you will invest each time (minimum 10 BUSD) and the time of the transaction. You can activate the use of a balance of deposits with a floating term. Then, with an insufficient balance of funds in the spot wallet, assets for auto-investment will be redeemed from deposits. After that, it remains to click the ” Confirm ” button and the automated investment plan will be created.
In this section, you will need to regularly replenish the spot wallet with BUSD or USDT assets, the rest will be done by the system itself.
Dollar-cost averaging calculator
You can calculate the effectiveness of your chosen DCA strategy when buying Bitcoin cryptocurrency on the website Fill out the DCA Settings form and the system will draw a graph and display the estimated percentage of profit.
The Bitcoin Investment Calculator will help you explore the various DCA options to see how your portfolio will perform. This can help you determine the best investment strategies.
Advantages and disadvantages
The DCA strategy looks quite attractive, but of course it has its drawbacks. Let’s look at the strengths and weaknesses of this investment method. Let’s start with the positives.
- DCA reduces the risk of buying at the current high.
- You do not need to invest huge funds from the first day.
- You have time to study the crypto market better. Everyone who has held bitcoin for more than 3 years profits from their original purchase.
- DCA save your nerves. The most underestimated aspect of every investment strategy is its damage to your mental health.
Now let’s move on to the disadvantages of this strategy.
- DCA makes it nearly impossible to buy cryptocurrencies at the low. Guessing the moment when the course will reach the bottom is possible only in manual mode.
- DCA does not offer instant profit. It takes time to get the desired result.
- Potentially lower readings in a strong bull market. If the rate takes off soon, then it is better to invest all the money at once, in a week the crypt will cost much more.
The first and last points are quite serious disadvantages of the DCA strategy. But, keep in mind, it is very difficult to calculate the current minimum cost and predict a sharp rise in the rate, and it is almost impossible for beginners. If you take these arguments too seriously, you can catch the syndrome of lost profits.
DCA helps you manage your own emotions, and avoid regrets, inaction, and reactive selling of investments at market lows. Use this strategy or not, and decide for yourself.