- Risk management is a vital element for a trader to make successful transactions in any market. Regardless of the size of the capital you trade or invest in, losses will be inevitable, especially in highly volatile markets like cryptocurrency. Learning how to manage risk is essential to minimize losses. It is also necessary to master risk management to achieve the maximum gain. After all, the more you are willing to risk, the greater the potential return.
Risk management is a vital element for a trader to make successful transactions in any market. Regardless of the size of the capital you trade or invest in, losses will be inevitable, especially in highly volatile markets like cryptocurrency. Learning how to manage risk is essential to minimize losses. It is also necessary to master risk management to achieve the maximum gain. After all, the more you are willing to risk, the greater the potential return.
Risk management to prevent losses in crypto money
Even experienced traders with an impressive track record of reading the market can lose everything in one or two bad trades if they don’t use appropriate risk management or follow their emotions. The temptation to “hit the jackpot” or chase market sentiment can be very strong and cause traders to be confused or overconfident.
In order to avoid large losses and trade calmly, at least very basic trading tools and forms of risk management should be used. These consist of trading rules such as market orders, limit orders, and stop-loss orders that allow traders to limit their losses by triggering an action when certain conditions are met.
When using such mechanisms, traders can step away from the screen a little bit and trade confidently knowing that they can limit their losses or take an acceptable level of profit. The limits of this depend on the investor’s risk appetite and the amount of capital they would like to lose in a given trade.
Another way to manage risk is, of course, the golden rule of keeping a diversified portfolio spread over a variety of assets. This allows you to expose more assets while protecting losses, and ensures that a single bad investment doesn’t destroy all of your capital.
Risk management to maximize your earnings
Last year we saw astronomical growth in the crypto space with incredible gains from most of the major cryptocurrencies. Decentralized finance ignited the passion for yield farming. It also provided an attractive passive income through crypto assets and provided a borrowing and lending ecosystem away from traditional financing. Investors began to turn to the crypto space in droves against the backdrop of a challenging global economy due to the global pandemic and almost negative returns in cash savings.
We’ve seen huge support from institutional investors and big names like MicroStrategy, Guggenheim, PayPal and Square, lending legitimacy and fueling the flames of “corporate FOMO”. Bitcoin (BTC) has risen like a rocket this year and has more than doubled its previous all-time high thanks to this action of institutions. MicroStrategy alone has given a huge boost to the rise, buying more than 70,000 BTC last year.
As the adoption of institutional investors increases, so does the need for more advanced methods of risk management that go beyond basic market orders and allow professional and institutional traders to apply highly flexible and creative strategies that spread their risks across all assets and increase potential rewards.
Until now, such enterprise-level products related to risk management have been out of the scope of cryptocurrency exchanges. However, if we are to meet the needs of such an investor, the infrastructure needed by institutions should be provided, including serious exchanges, the ability to cross collateral their positions and manage their risks more effectively.
Advanced risk management for ultimate trading flexibility
With features such as unified account management (aka Portfolio Margin) traders can manage all their accounts, trades and crypto assets from a single interface. But more importantly, it can consolidate all its assets by using all of its purchasing powers. Besides, they can trade with any instrument.
For example, suppose a trader wants to enter an ETH / USD futures trade. With a unified account, they can do this efficiently without having to buy Ethereum (ETH) and using any of the available crypto collateral. This is much more convenient for traders and also reduces fees associated with buying altcoins with Tether (USDT) or BTC. It also allows them to take a much greater risk and position to increase their earnings and significantly increase their margin efficiency.
Risk management is probably the most important part of investing. If the crypto space is to continue to grow and attract and retain institutional traders, we need advanced risk management tools that can maximize earnings for investors and drive crypto market capital to the trillions of dollars to which it rightfully belongs.