What risks to take into account when trading crypto

What risks to take into account when trading crypto

Contents of this article:

Investing and trading cryptocurrencies are risks. All players in this market have to take risks, since the cryptocurrency market is the youngest of all financial markets, and asset prices can rapidly increase or decrease literally within a few days, and sometimes hours. To earn successfully and not lose investments, experienced investors and traders know how to manage risks. We will talk about the risks when investing in cryptocurrency and ways to reduce possible losses.

Does investing in cryptocurrencies involve risks?

The first thing a novice trader should understand is that investing in cryptocurrency is always associated with risk . Therefore, it is worth determining for yourself the amount that you are ready to lose if you fail. It should be an amount, the loss of which will not affect your standard of living.

The risks of investing in cryptocurrency lie in a change in the asset’s rate, which is often irrational. The price of a cryptocurrency is formed by supply and demand. The investor must be prepared for the fact that the cryptocurrency exchange rate may decrease significantly, and he will lose most of the invested funds.

What is risk management for a trader?

Reduce the risks of investing in cryptocurrencies it is possible by diversifying the investment portfolio, as well as by carefully choosing the assets themselves for investments. If you do not just invest, but trade crypto on the exchange, the risks are much greater, and it is more difficult to manage them.

Before choosing a trading strategy and trading style , it is worth thinking about risk management. This is a strategy that allows you to determine in advance the amount of possible risks and control them. The classic risk management plan of a trader includes several types of risks: per position, trading day, week, month and general risk. The amount of risk depends on the capital itself, the larger the deposit, the smaller the percentage of loss should be. For example, the amount of risk per trade should not exceed 2% of the capital. And the maximum allowable risk for the entire period of trading should be kept at the level of 20-25%. By adhering to this strategy, even with an unsuccessful trading week, you will save 75-80% of your capital and continue to earn on the exchange without serious losses by correcting mistakes in your trading strategy.

Rookie mistakes

Risks when investing in cryptocurrency there is always, it is impossible to protect yourself from them 100%. To save capital and earn successfully, you need to manage risks and avoid mistakes.

Common rookie mistakes:

  • investment of all available funds in one coin;

  • emotional actions, the desire to recoup after closing several failed deals;

  • unreasonably high risks per position;

  • inability to close an unfavorable position in time;

  • loss neglect .

Risk management: basic rules

The risks in the cryptocurrency market are practically no different from the risks in other financial markets, except that the volatility of the crypto market is the highest, and the asset price may sharply fall or rise sharply. To reduce the risks of investing in cryptocurrency , a beginner should invest gradually. Even if you are ready to spend a large amount right now to buy crypto, it is better to invest a little every month, gradually studying the market and assets, observing the course dynamics.

Due to the volatility of the market, a trader investing in cryptocurrency risks losing part of the funds if the selected asset becomes cheaper. Diversification helps reduce risks and compensate for losses. It is worth investing in several different coins. The portfolio of a successful investor consists of tokens with different liquidity.

Before opening a position, a trader must consider whether the expected profit is worth the possible risk. The optimal ratio of profit and risk is 3:1. Risking a lot for the sake of making dubious profits is a common mistake that contributes to the drain of the deposit.

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