Risks and safety when trading cryptocurrencies

Trading cryptocurrencies is a potentially profitable activity, but it also has certain risks and therefore you need to carefully approach the safety rules. Let’s take a closer look at these aspects and talk about the importance of risk management and typical mistakes that novice traders make.

What risks can you encounter

1. Market volatility: Cryptocurrencies are known for their high volatility. Prices can fluctuate by significant amounts in a short period of time, which creates the opportunity to make money, but also the risk of loss.
2. Regulatory Risks: Governments and regulators around the world view cryptocurrencies differently, and new laws or regulations could significantly impact the market.
3. Fund security: hacker attacks on cryptocurrency exchanges and wallets are still a threat. Traders should be especially careful to protect their private keys and choose reliable trading platforms.

There are three risk management models:

1. Fixed capital percentage model. This model involves risking a certain percentage of the trader’s total capital per trade. The percentage usually ranges from 1% to 3%, depending on the risk appetite of the trader. For example, if a trader has $10,000 in capital and decides to risk 2% on a trade, the maximum risk per trade would be $200. This method helps to avoid significant losses, even if several trades in a row turn out to be unprofitable.
2. Fixed amount model. Here the trader determines a fixed amount of money that he is willing to risk on each trade. Regardless of the amount of capital, the trader will use the same amount for all trades. This method makes risk management easier, especially for new traders, because they can easily monitor and understand the potential losses on each trade.
3. The Kelly Model is a more complex method that determines the optimal bet size based on the trader’s previous history of profitability and loss. The Kelly Formula takes into account both the probability of winning and the ratio of winning to losing to maximize the trader’s capital growth over the long term. While this method can be effective for optimizing profits, it can also be risky and requires precise mathematical calculations.

Risk management in crypto trading

Risk management is the process of identifying, analyzing and accepting or mitigating uncertainty in investment decisions; managing the likelihood of losses in such a way as to maximize profit potential and minimize possible losses. For example, setting limits on the size of trading operations, the use of stop losses and take profits, and portfolio diversification.

Mistakes of novice traders

1. Overconfidence: New traders often get emotional and make too risky bets after a few successful trades.
2. Lack of Research: Making trading decisions based on someone else’s opinions or analytics without doing your own research is a common mistake.
3. Ignoring risk management: By not setting stop losses or risking too much capital on a single trade, traders increase the risk of significant losses.
4. Lack of a clear plan: Trading without a clearly defined strategy and goals can lead to chaotic decisions.

Successful traders place as much emphasis on managing risk and securing their investments as they do on finding trading opportunities. By avoiding common mistakes and practicing effective risk management, traders can improve their chances of success. But successful trading needs to be learned, or better yet, to find a suitable school for this.

CRYPTOLOGY trading courses are a place where people learn to trade cryptocurrency. It was created 3 years ago by a group of 26 traders. Here you can learn everything about trading, from the basics to advanced things. The school has courses of varying difficulty, and students can practice for more than 40 hours.

More than 5,000 students have already been trained at Cryptology and many of them are now successfully engaged in trading. The school helps people not only study, but also find friends with similar interests. Here they teach that it is important not only to know the theory, but also to apply it in practice.