The cryptocurrency market is no doubt a highly volatile one. The volatility of this market makes it highly risky. Cryptocurrency traders and investors will suffer a great deal of loss if the risk is not managed. Risk is the probability of not getting the desired outcome from an investment or venture which translates to making losses.
Although the cryptocurrency market is a highly profitable one, it could be a fruitless venture with little or no profit to show for it, if investors or traders are without effective means or strategy to control and minimize risks that come with the negative effect of the market’s volatility. The volatility of the market also makes it possible to get massive returns on a little investment. The market can earn one a lifetime fortune, and likewise misfortune, the difference is how well risk is managed.
Risks associated with Cryptocurrency Trading
– Price Change Risk: The price of cryptocurrencies is not stable, and this is because of the high volatility of the market.
– Liquidity Risk: Liquidity is an asset’s ability to be converted into cash on request. The problem of liquidity is one of several factors leading to abrupt changes in the Bitcoin price. Improved liquidity can thus contribute to reducing Bitcoin’s risk.
There are several strategies one can leverage to get you over risks associated with trading cryptocurrency.
- Using trading bots: High ranking and effective trading bots like the British bitcoin profit offers the best news trading approach by scanning billions of Twitter posts to identify volatility driving news. This makes it the best tool to speculate on Bitcoin. This is a good tool to capitalize on volatility.
- Stop Loss + Take Profit: Stop losses save you from trading in unyielding deals. It closes an open position when a price decreases to a specific barrier. Take Profit on the other hand lets you get out of a trade before the market turns against you. Use crypto terminals like Superorder to set Trailing Stop Losses and Take profits.
- Only put money into investments that you can afford to lose: When starting out as a trader, it’s customary for new traders to make significant initial deposits with the goal of reaping larger returns later on. Increasing your investment quantities can result in greater earnings, but increasing your investment amounts might also raise your risk of losing your investment money. Beginners must make every effort to be as safe as possible while learning the foundations of trading, which is why they should start with lesser quantities of money and progressively raise their investment over time as they gain more experience.
- Start with small Investment: Regardless of whether or whether you have sufficient cash flow to work with, it is never a wise idea to devote every dime from the start. Instead, you must familiarize yourself with the market’s elements as well as the way the trading platform operates in order to ensure that you are obtaining the most benefit for your money. That is why you must continuously start with a little quantity of cash and, as you gain earnings, gradually raise your working capital as your business grows. This will result in the natural development of your cryptocurrency profits without the need to take any significant risks.
- Withdraw your Profit: After every profitable trade, make sure to make a profit and deposit it into your account. This will assist you in distinguishing between your invested capital and the profit you have made so far.
Before investing or trading cryptocurrency at all, risk management should be your major consideration, since your aim of making that decision is to raise or get money from the market. The consequences of not managing crypto trading risks can be disastrous owing to the volatile character of the cryptocurrency market.
Disclaimer: The Cryptocurrency market is considered highly speculative, risky, and largely unregulated. Anyone mulling investing in it, should be aware there's a risk of losing their entire investment. The views/opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.
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