When trading on VHCEx, it is extremely important for one to acknowledge that diversifying the portfolio is necessary. For those of you who don't remember, diversifying the portfolio means NOT keeping all your money in one coin, but rather keeping it in shares invested in different coins. Depending on your attitude towards risk, the number and volume of shares may vary, but the underlying principle remains the same - never keep all the committed money (fiat) diluted in one type of assets. This rule, naturally, applies to traditional trading as well.
However, this time we're going to take a look at another important principle to adhere to - the rebalancing of the portfolio at times. Rebalancing refers to the practice of reconstitution of the original structure of the investment portfolio.
Here's an example:
An investor has invested some funds for 10 years. He evaluated his risk approach strategy as medium. He has divided his investment portfolio evenly among two Bitcoin and Ethereum. After a year, Bitcoin has decreased in value, while Ethereum has gained momentum, resulting in a situation where Ethereum's share became 60% of the portfolio, while that of Bitcoin has dropped to 40%. This leads to a situation where the portfolio is becoming riskier, and this is not acceptable.
In the present situation, the investor decides to rebalance his portfolio in such a way that BTC and ETH shares become 50/50 once again. In order to do that, he needs to sell some of ETH and accumulate some of BTC.
There are two main types of rebalancing.
By time. An investor checks the ratio within his portfolio once a given period of time. For example, once a quarter or once a year. If the ratio changes (it almost always does), he rebalances this portfolio.
By threshold. An investor sets the limits within which the portfolio's ratio may fluctuate. Let's say, it's 10%, then, once a given coin's share rises by 11% from the desired share, it's time to rebalance the shares.