QUESTION:
What is Dollar-Cost Averaging (DCA)?
ANSWER:
Dollar Cost Averaging (DCA) is a strategy that involves regularly investing a fixed amount of money into a currency at predetermined intervals.
The main purpose of DCA is to lower the average purchase price of an investment position over time and minimize the impact of market volatility. In simpler terms, instead of making a lump sum investment all at once, DCA spreads out the investment over multiple smaller transactions.
By doing so, it allows investors to buy more of a currency when prices are low and fewer when prices are high. This strategy is based on the idea that it's difficult to accurately predict the best time to enter the market, and it's nearly impossible to consistently time the market's ups and downs.
Therefore, by investing regularly regardless of short-term market fluctuations, DCA aims to smooth out the impact of market volatility and potentially achieve a favorable average entry price. 3Commas has provided an informative article that delves deeper into this subject matter.