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When entering the cryptocurrency market, a trader must be aware of the existing risks and know how to manage them. Beginners make a big mistake when they do not devote enough time to learning risk management. It is this system that allows you to significantly reduce the number of risks, protect the deposit and trade profitably, leaving a plus.
What is risk management and how does it help a trader?Risk management is the ability to limit your losses when trading cryptocurrency. The game on the stock exchange is often built on the emotions of traders, so risk management is used to exclude emotionally made decisions and build an effective strategy. Risk management is one of the main skills that a successful trader must master. The stability of income and the protection of the investment portfolio largely depend on this.
Risk management is based on several rules:
- Limit the risks of the transaction. The most experienced trader can afford to lose up to 2% on an unsuccessful trade.
- Limit capital risks. The total risk of all transactions should not exceed 30% of the deposit.
- Determine the profitability of the transaction. In order to compensate for potential losses and become profitable, the ratio between income and risks should be 3:1.
Types of risks
The risk management system includes several types of potential risks that a trader should be aware of. Weighted risk management and strict adherence to the chosen strategy will help, if not avoid all possible risks, then reduce their number and not lose the deposit.
The first type is market. Such a risk is associated with the volatility of cryptocurrency assets. The market is unstable, the rate can rise or fall significantly during the day, so you should consider this possibility in advance in order to limit possible losses.
The second type is credit. A trader must remember that there is always the possibility of a cryptocurrency issuer going bankrupt or defaulting on a transaction.
The third type is liquidity risk. Due to the volatility of the cryptocurrency exchange rate, you may not always be able to convert the entire amount of a digital asset into real currency at a favorable rate.
The fourth type is operational. Despite the involvement of top experts, popular exchanges and crypto trading platforms suffer from technical failures from time to time, so a trader may be unable to complete a trade or withdraw an asset.
How to manage risks
Manage risk to trade crypto effectively and earn. How to do it:
- Set the maximum allowable risks for different periods of time. You should separately set the maximum possible risk for you per trade, day, week, month, and also for the entire deposit for the total period of being on the market. The higher the percentage of the deposit you put on risks, the higher the probability of possible losses.
- Diversify your investment portfolio. Choose promising cryptocurrencies and fill your portfolio with different assets so that in case of failure with one of them, you can compensate with profit from transactions with other coins.
- Start small. In the first months of trading, while you understand the field and gain experience, choose the safest trades. Let the income from them be low, but the risks of losing capital are lower. Having mastered the crypto market, you can choose more risky transactions, but you should always carefully calculate the risks and stop in time.
- Use stop loss. This is an automatic closing of the transaction when the price of the asset starts to fall sharply. Such a software tool will allow you to prevent the loss of money in time and eliminate the emotional factor when making a decision to close a position.
You can learn how to manage risk and trade cryptocurrencies safely at Crypto Crew. Our course was created for everyone who wants to make money on crypto with minimal risks and is ready to learn. We know how to secure capital, act decisively but competently on the stock exchange, avoiding common mistakes and not falling for manipulations. Get trained, join our community and start your journey in the crypto industry with confidence!