6 Ways To Manage Risks When Trading Crypto

Like any other investment, trading crypto is risky. Risk and the cryptocurrency investment game are inseparable. Not only do crypto traders have to look out for the most profitable investment options, but they must also likewise prepare to manage the unavoidable risk.

Here are six ways to manage risks when trading crypto:  

• Understand Risk-Reward Ratio

Having established that risks can be unavoidable in crypto trading, and after researching existing coins, you should determine the risk-reward ratio of your investment. A risk-reward ratio compares possible investment risks to potential profit returns.  

If you’re new to crypto trading, you must adopt a long-term perspective rather than seeking quick-reward options. Setting a six-month or one-year investment timeframe can help lower your risk exposure. You can also maintain a safe risk-reward ratio by copy trading. 

Using a crypto copy trading platform and apps allow you to mitigate risks. You can copy open crypto positions of experts to trade and earn returns. Therefore, it’s a more straightforward strategy for new crypto investors as it involves less time and research.

• Conduct Adequate Research 

At the start of your crypto investment journey, one of your topmost priorities is to conduct enough research on the coins in the market. You should research essential factors such as the coin’s market capitalization, daily trade volume, expected price projections, and level of usefulness in real-world transactions. 

Also, it’s necessary to recognize coins that have short-term value and little real-world value. And with this information, you can tell the coins worth investing in and those you should avoid.  

Here’s an extra tip: it pays to focus on top coins during your research because they have stable growth values and well-developed progressions.

• Embrace Diversification  

The crypto market is highly volatile, and having all your investments in one portfolio could mean keeping all your eggs in one basket. Rather than doing so, you should diversify your portfolio. Diversification makes you safer by protecting your investments from the harsh effects of market volatility.  

One of the ways to diversify is by using bots. And there are many arbitrage bots you can leverage to invest in traditional and privacy-based coins. It will mean investing in properly established and rising coins. This way, you can gain stability when the market begins to waver. 

• Identify The Best Entry And Exit Strategies 

One of the good things about crypto trading is that investors can enter the market differently. It’s now left for you to decide the most appropriate means of entry. You can be tempted to enter the market when there’s an unimaginable increase in prices. But that may not be the best entry point.  

Usually, you may best begin trading when there’s a pullback in prices because the market always comes down after an incredible rush. As you think of your entry strategy, also think of your exit. It is because you most likely find yourself in an edgy position if not having an exit plan.  

Part of forming your exit strategy is deciding the selling price of your assets and when you may consider reinvesting in other asset classes. With a formidable entry and exit strategy, you can manage risks better.  

• Guard Against Counterparty Risk 

Counterparty risks are one of the risks that come along with crypto trading. Crypto transactions are often irreversible. Exposing your private keys during an exchange is a disastrous move. These actions create chances for hacks that could lead to financial loss. The possibilities of counterparty risks cannot be eliminated.  

However, you can guard against them by taking measures such as not trading with more than 20-30% of your portfolio, diversifying your coins amongst several exchanges, and not leaving your coins on exchange when you are not actively trading.   

• Avoid Hype 

Two of crypto traders’ worst enemies are the fear of missing out and that of loss. These fears often make traders greedy or cause them to sell their assets due to panic. Buying assets because you don’t want to miss out on the trend and panic selling can easily cause your investments to drain. It can help if you learn to manage your emotions while trading. And don’t be carried away by hype. Be objective in your trading approach. Objectivity is a trader’s winning edge in the middle of a hype.

Conclusion 

The crypto market is thriving, so trading will continue to be a risky investment game. However, you can sharpen your risk management skills as an investor with the tips recommended in this article. The better you can handle crypto market risk, the better your chances of earning significant returns on your investments.