The most important advice any financial guru can give you is to know your risks. Risk management is your best friend in the Crypto-verse and beyond. Fact is, no one lasts too long in the financial world without risk assessment.
This blog post is a must read for beginners as protecting your capital is your top priority… and if you don’t think so, we recommend you to never approach the extremely volatile world of cryptocurrencies.
Let’s look into the potential reefs of the Crypto-sphere and learn from the mistakes of others before us!
In the crypto-context, risk management is a combination of ideas to control the risks related to financial operations with digital currencies. These ideas build up your risk management strategy.
Risk management helps you protect your capital, which is far more important than your profits because everything you accumulate over time can be easily lost in just a few bad trades. Protecting your capital must be your number one concern.
Never risk more than 1%-2% of your account balance per one trade. Why this number? If you manage to keep your risk strategy within the recommended 1%-2%, you will almost certainly guarantee long-term financial sustainability.
The greatest weakness of crypto enthusiasts is greed. Everyone wants big gains fast. You might get lucky risking your capital, even the capital you cannot afford to lose, and win big a few times. Sadly, fortune can be a witch… unless you have a superpower of always winning.
Risking 1%-2% at a time means that even if you lose several times in a row, you’ll still be left with at least some part of your initial balance.
If you’re planning to invest in crypto long-term, think about when you will enter and exit the market. For example, how much of your capital you will invest, how often, and which conditions need to be met for you to exit a trade.
For example, some investors hold their positions until they are insured against losses, others invest to hold for future gains.
The most common mistake of beginners is to trade or invest more money than they can afford to lose… which brings us back to the golden rule of risk management (see above). Remember that it is better to miss out on most of the potential gains than to lose most of your payroll.
Beginners also tend to enter and exit at the wrong time. Say, you see the price rising, thinking it will continue to rise, throw a considerable part of your capital in, and the price falls just as quickly. No surprise there. The moral of the story is not to trust the emerging trends blindly.
What’s the worst thing you can do? Gambling, of course. With no risk analysis, beginner enthusiasts hope to get lucky by throwing their capital at crypto, oftentimes, at the right time, but they forget that luck tends to run out, which it does. Don’t be a gambler!
Make sure that your capital has a long-term potential, and remember that patience is a virtue. Don’t try to win big fast, but better profit little by little, one step at a time. Never risk more than 1%-2% of your account balance per trade. This should get you far.
Did You Know?
With CoinMetro, you can practice risk-free with virtual money as much as you like before going live. Earlier this month, we launched Trade View Open Beta, which means that you can now test Simplex, Intermediate, and Trade View Open Betas! Give each exchange a try and make sure to let us know what you think. We’re in the final stage before the big launch and will appreciate any feedback! Get in touch with our amazing customer support team directly or try the live chat feature on our website.
The CoinMetro Team