A Trader’s Guide to Managing Risk in Trading Cryptocurrency

It’s quite common that more than 80% of traders lose their money in trading crypto. But proper risk management can help you move to the top 20% making you a standout in the crowd.

Crypto risk management typically involves analysis and mitigation of potential risks as far as trading in an asset is concerned. A tactical plan can help you have a proper investment strategy balancing risks sensibly. How do you do it? The following tips can help.

First things first, decide on the base currency

A base currency can either be a fiat such as USD, GBP, or any widely accepted crypto-like USDT, BTC, ETH, etc.

There are more than 5000 circulating cryptocurrencies, and not every exchange supports every crypto. Trade has to juggle between a number of exchanges to trade in the asset they want.

At the same time, not all exchanges allow you to trade in fiat. Some would allow you to go straight in with fiat, while some would ask you to trade with crypto as a base currency. Hence, it becomes mighty important for a trader to identify which base currency s/he would use.

If the trader wants to use crypto as a base currency, its value may be affected by market volatility. Therefore, deciding which base currency to use for the trade will help you realize the maximum profits.

Know how much money to invest

Identify how much money you should put at risk before going in. Here’s how you should do it:

Defining the trade

Let us presume you want to purchase LINK, which is now trading at USD 30. You expect it to rise to USD 35 in the near future. But then, you have also decided on the fact that if it slips down to USD 20, you will exit the trade.

Acknowledging the amount of money you are putting at risk

Assuming you have a total budget of USD 10,000, you should not take more than 1% risk on every single trade. That means no trade of yours should have a risk of more than $100.

Knowing when to exit

Say, you have entered the LINK trade at USD 30. If it goes down to USD 20, you have already decided on exiting the trade. Similarly, you should also have a plan to exit on the up. If your goal is to make a profit at $35, exit when it reaches $35. Avoid being greedy unless you are HODLING for the long term.

Use the limit order feature to book your profits

A limit order feature is used to buy or sell crypto when its value falls or rises above a previously defined price (one that is set by the trader).

As soon as the market value of crypto falls below or rises above the previously defined price, the order is executed.

This can help you minimize your losses effectively in the volatile crypto market especially because it is impossible for you to track the market 24x7. The system would do the job for you based on the amount you put in.

Finally, always remember to do your own research before investing. And do not go with the flow and make the FOMO mistake. Good luck!

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Note: This article is meant for informational purposes and should not be considered financial advice. Please do your own research before investing.