What Is DCA (Dollar-Cost Averaging)?
Also known as: Dollar Cost Averaging, Cost Averaging, Recurring Buy
In short
DCA (dollar-cost averaging) is an investment method based on buying a fixed amount of a given asset at regular intervals regardless of price; the aim is to reduce the timing risk of a lump-sum purchase and smooth out the average cost.
In DCA, an investor buys, for example, 1,000 Turkish lira (TRY) worth of Bitcoin on the first day of every month. When the price is low, the same amount buys more units, and when it is high, fewer units. Mathematically, with this method the average cost per unit is equal to or lower than the simple average of the prices on the purchase days. The word dollar in its name comes from traditional finance; the method can be applied with any currency.
Because of the crypto market's high volatility, DCA is common among those who want to follow a disciplined buying plan instead of trying to predict the market's bottom or top. Many crypto exchanges offer recurring buy features that make automatic purchases at a set amount and interval.
DCA does not guarantee profit. In an asset whose price falls for a long time, regular buying can lead to growing losses; in a continuously rising market, it can result in a higher average cost than a lump-sum purchase. With small and frequent purchases, trading fees can noticeably increase the total cost.
Last updated: · This content is for information purposes only and is not investment advice.