What is Diversification?

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What is Diversification?

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Consider the following scenario: you decide to invest in the cryptocurrency market. You find Token X quite promising and invest all your funds in its market. A few days later, some negative news cause the price of Token X to drop sharply, leaving you with a considerable loss.

In your next attempt, you try to buy multiple crypto assets to mitigate the chance of a similar loss. But this time, the whole crypto market crashes, causing your crypto portfolio to drop greatly in value.

So, what’s the solution?

What is Diversification

It is the part of a wise man to keep himself today for tomorrow, and not to venture all his eggs in one basket

Don Quixote

Diversification has its roots in a bit of advice, dating back to the 17th century: Don’t put all your eggs in one basket! Simply put, you distribute your funds across various financial instruments and markets to reduce your risk exposure to just one single asset or market.

Let’s go back to the previous scenario: to have a diversified portfolio and manage your risks properly, you invest in multiple assets across various markets like commodities, cryptocurrencies, and stocks.

For example, let’s say you create your portfolio as below:

  • Crypto: 30%
  • Stock: 40%
  • Commodity: 30%

With this portfolio, in case of a crypto market crash, your potential loss would be limited to 30% of your total investment only.

Diversification and Cryptocurrencies

Risk management techniques, like diversification, are increasingly important in the crypto market as the price movements tend to be sharper than that of traditional markets.

Additionally, crypto assets offer an unprecedented opportunity to people who have never had a chance to enjoy any investment or trading activity which highlights the importance of risk management even more.

As cryptocurrencies grew in popularity, many traditional traders allocated a portion of their portfolios to crypto assets. In this way, they could get exposure to the profitability of cryptocurrencies while keeping the risk of loss at bay.

However, things may be more complicated for inexperienced crypto traders and investors as they have little to no experience in traditional markets.

Considering the volatile nature of cryptocurrencies, it’s crucial for investors and traders to avoid investing all their funds just in the crypto market and start exploring other financial markets as well.

To achieve this, crypto investors and traders have to overcome a wide gap between cryptocurrency and traditional financial markets. As a result, portfolio management becomes even harder and more time-consuming, forcing many traders to limit their investments to just crypto assets.

DIFX Exchange: Diversify Your Portfolio Now!

By bringing together cryptocurrency and traditional markets, DIFX Exchange provides a single platform for all your investment portfolios. DIFX Spot Echange and DIFX MT5 are the two elements that make this possible.

From well-known crypto assets to metaverse tokens, DIFX Spot Exchange offers you diverse options to choose from. More importantly, DIFX evaluates every coin before listing them on the exchange to mitigate the risks as much as possible.

To complete the platform, DIFX MT5 brings you traditional financial markets so that you’ll be able to enjoy Forex, commodities, stocks, and indices trading as well. In this way, you can easily set up your investment goals and objectives and manage your risk exposure more efficiently.

With DIFX Exchange, you don’t need to settle for just one financial market anymore and will be able to pick your desired assets from a long list of financial instruments.