Cryptocurrency trading is an explosive mixture of huge profits and equally high market volatility. Cryptocurrency rates tend to soar rapidly, but the opposite is also true: rates can fall down in a blink of an eye. Little wonder that working in this market requires a great deal of skills, knowledge and trading tools – and perhaps, a little bit of luck, too.
When it comes to crypto trading tools, having some effective risk mitigation strategies in place is an absolute must. Here’s a good breakdown of the key things to know.
Risk management strategies in crypto trading
1. Learn how crypto exchanges work
As a rule, cryptocurrency trading takes place on crypto exchanges. Some traders work with brokers, but more often than not traders are keen to manage without intermediaries.
The number of crypto exchanges globally is enormous, and their number is constantly growing. Meanwhile, the right choice of a trading platform is one of the key aspects of risk management when trading digital money. So what can be done to minimize the risks associated with exchanges? Try this:
- explore the functionality of the exchange. Sign up to it to see what safety standards it provides. Two-factor authentication, white IP lists, password change feature and phone number integration are all must-have features, otherwise the security of your assets can be easily compromised;
- read reviews by other traders. This is by far the best source of the first-hand information about the exchange you can get. Refusal to withdraw funds, blocking user accounts – any of such cases are discussed in great detail on the forums;
- monitor the news all the time. Collapse of the cryptocurrency exchange or denying access to the site is not something news agencies will leave unnoticed.
2. Explore cryptocurrency
Once you have decided on the exchange, the time has come for the most important part – choosing your preferred investment vehicle. In this case, this is a particular cryptocurrency you wish to trade.
Unlike fiat currencies, which are mainly used for payments, savings and investment, the functionality of crypto projects is much wider. Every crypto investor must have a clear understanding of the real-life value of the cryptocurrency they are about to invest in, because the cost of a cryptocurrency is determined by its utility.
Before investing in a cryptocurrency, examine its ecosystem and answer the questions:
- does it deliver real-life benefits?
- when will the goal of the project be achieved according to the roadmap?
- is it realistic to achieve all the goals set by developers?
- are the qualifications and experience of the team sufficient for this project?
3. Examine the liquidity of the cryptocurrency
A trader who works with cryptocurrencies understands that the wealth of bitcoin billionaires that the media are raving about is basically an illusion. Should they suddenly decide to sell all their crypto assets, the market will panic. At best, the exchange rate will seriously decline, and at worst, it will drop to zero.
In order to avoid losses caused by low liquidity of cryptocurrencies, trade only popular tokens, particularly if you’re just starting out. CoinMarketCap is a great resource with all the stats you will need to make a decision.
4. Diversify your portfolio
Portfolio diversification is a risk mitigation strategy widely applied for any assets. In the crypto market, one would need to invest in at least 10 to 15 cryptocurrencies in order to protect themselves from volatility and crashes of individual projects.
Experienced traders often diversify their assets according to the following ratio: Bitcoin – 40%, Ethereum – 20%, altcoins – 20%, fiat – 20%.
Coinology: trading intel you need to actually make money in crypto trading
When it comes to such a complex and unpredictable trading market as cryptocurrency, having access to some advanced technology is truly indispensable. Coinology is definitely an option to consider if you’re looking for ways to mitigate risks and boost your trading income. The resource specializes in providing accurate crypto trading signals to its users.
Coinology is a team of professionals with an extensive background in crypto trading, having worked with 100+ exchanges and 150+ coins. The service uses advanced analytics and trading algorithms to come up with its trading signals. These are delivered instantly to users across a variety of instant messaging apps. The number of transactions has now exceeded 500,000.
According to Coinology, its service proves to be a powerful risk mitigation instrument: 90% of its trading signals turn out to be profitable, so the risk is minimal. Each transaction delivers 5 to 11% profit. The service sets up its users with a step-by-step guide to getting started.
Traders can also use knowledge and insights acquired with the help of Coinology to hone in their trading skills and grow to become successful traders themselves.