How to Make Money with Dollar Cost Averaging on Binance
Dollar cost averaging (DCA) is an investment strategy native to traditional investment vehicles such as stocks. The advent of blockchain technology has led to the integration of traditional investment strategies in crypto trading. Like in the stock markets, Dollar cost averaging implies investing a fixed amount of money in a given investment vehicle such as crypto at regular intervals.
The crypto market is highly volatile and characterized by wild market swings. For instance, Bitcoin underwent positive price rallies early this year, reaching an all-time high and surpassing $60,000. Soon after the peaking of Bitcoin, a downward market correction began, lowering the Bitcoin to about $30,000 in just a few weeks.
Dollar cost averaging Bitcoin would help minimize the potential losses experienced due to the lumpsum investment on the Bitcoin while at the $60,000 mark. Investing small chunks of the money through dollar cost averaging Bitcoin at predetermined and regular intervals will eliminate losses in cases of bad timing of the entry point.
Key Features of Dollar Cost Averaging
The following features characterize dollar cost averaging as a crypto investment tool:
- Fixed Investment Amount
Dollar cost averaging crypto involves investing a fixed amount of money like USD in fixed installments at regular intervals. For instance, instead of investing in only one Bitcoin Unit for $40,000, the investor buys $1000 worth of Bitcoin over forty weeks.
- Regular Investment Intervals
Dollar cost averaging crypto also entails buying the desired cryptocurrency at predetermined and regular intervals. The interval could be daily, weekly, bi-weekly, monthly, quarterly, and so forth, depending on the investors’ goal. Automated dollar cost averaging on Binance US supports daily, weekly, bi-weekly, and monthly recurring crypto buys.
Is Dollar Cost Averaging Strategy Safe to Use?
Crypto dollar cost averaging is an investment strategy suited to investors who wish to reap from crypto investment in the long term. Crypto dollar cost averaging seeks to lower the average cost of the total amount of digital assets purchased.
The example below illustrates how crypto dollar cost averaging minimizes the risk of investment.
Investor X wishes to buy $40,000 worth of Bitcoin on the Binance platform at once but does not know the point to make an entry to this trade. Assume three potential entry points as tabulated:
|Date (Potential Entry Points)||Bitcoin’s Value ($)||Bitcoin Units Purchased|
Now, investor Y wishes to purchase $40,000 worth of Bitcoins using the dollar cost averaging strategy. Investor Y decides to buy the Bitcoin in four equal monthly installments of $10,000 as tabulated below:
|Date||Bitcoin’s Value ($)||The worth of Bitcoin Purchased ($)||Bitcoin Units Purchased|
In the former case, investor Y would have purchased a total of 2.75 BTC. In the case of lumpsum buying, the investor would have bought 1 BTC on 15th February. Thus, the DCA strategy helps in leveraging investment return in the case of wild market swings.
What are the Fees for Dollar Cost Averaging?
Dollar cost averaging attracts 0.5 percent transaction fees on the Binance.US platform.
When an investor manually spot-trades crypto at regular intervals, the transaction attracts a 0.1 percent maker and taker fees.
How to Dollar Cost Average on Binance
Investors may manually spot-trade crypto on Binance on strict adherence to the set regular intervals and investment amount. However, a much easier way to dollar cost average is to use the “recurring crypto buys” feature on the Binance.US app.
Recurring crypto buys automates the process of dollar cost averaging. Investors get to choose fixed daily, weekly, bi-weekly or monthly schedules in this automated process of buying crypto on the Binance.US app.
The recurring crypto buys feature supports about twenty cryptocurrencies, including Ethereum, Bitcoin, and BNB.
There are two approaches to using the recurring crypto buys feature on Binance. An investor may use the Binance.US app or the web to activate the feature.
- On Binance.US App
- Register/Login to the app.
- Click the “Buy Crypto” button.
- Select the cryptocurrency of your choice.
- Type the crypto amount to purchase.
- Click the circular arrows to display the available buying options.
- Select the recurring option.
- Set your preferred frequency of the auto purchase.
- Choose payment method.
- Click the preview button to review the information entered in the proceeding steps above.
- Click the purchase button to activate the feature.
- On the Web
- Register/Login to the app.
- Navigate the “Buy Crypto” tab and Click “Recurring Buy.”
- Select your preferred frequency.
- Select the cryptocurrency to purchase.
- Choose payment method (ACH, USD balance, or debit).
A 10-day hold on the crypto applies following the purchase of cryptocurrency via ACH. A 3-day hold applies in case of a crypto purchase via debit.
- Review the information.
- Click the pop-up “confirm purchase” to finish the order.
In both approaches, confirming the purchase will place the investor’s first order immediately. Subsequent future purchases also initiate as per the selected frequency.
Dollar cost averaging on Binance aims to minimize risks associated with the wild market swings experienced in crypto trading. DCA achieves this goal by spreading the risk associated with the high volatility of crypto trading through crypto purchases at fixed amounts over regular intervals.
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