Risk Management And Cryptocurrency Investing: Is It Possible? – The Dubrovnik Times

One of the things that makes trading cryptocurrencies unique compared to other financial instruments, is that you are not just trading an ‘asset’ in the conventional sense. Rather, what you are investing in is technology.

Indeed, cryptocurrencies are not just digital stores of wealth that can be used to make transactions, they are also an entire digital ecosystem that have an almost limitless number of potential uses.

Whilst this is arguably what makes cryptocurrencies so unique and interesting to invest in, it is also one of the major sources of the risk attached to investing in them. And it is perhaps for this reason that those with an interest in crypto tend to pay very close attention to the OKX Cryptocurrency prices on a daily basis.

Despite having a reputation for being a somewhat risky investment – particularly when compared to other more traditional investments, such as equities, commodities, or bonds – there are nevertheless some things you can do to manage your risk when investing in cryptocurrencies.

Whilst some of these are general risk management tips that you should always pay attention to and implement where possible, others are more specific to the cryptocurrency sector.

Cryptocurrency Risks

Before we explore some of the techniques, strategies, and considerations to manage your risk, we should first briefly set out what the sources of cryptocurrency risks are. There are various sources of risk associated with cryptocurrencies, although the following are arguably the most important to keep in mind:

• Legality and Regulation: There is still considerable uncertainty regarding how it is best to regulate crypto assets. This is heightened because governments across the world – with a few exceptions – have been relatively slow to regulate them. Finding trustworthy crypto assets to invest in can be tricky, due to this clear lack of regulatory authorities to approach if something does goes wrong.
• Security Risks: Bitcoin exchanges have been subjected to a number of high profile hacks in recent years, many of which are due to illegal network access or through 2-factor-authentication hacks. Many cryptocurrency investors still lack the proper security training to keep themselves safe online. This is a particular issue, given that many people store their crypto assets on online exchanges, rather than in ‘cold-storage’.
• Trading Risks: There are a number of risks associated with trading cryptos, most of which come down to the sheer volatility of the market prices. Cryptocurrencies can often be subject to quite large fluctuations in daily price trends, which makes risk mitigation strategies difficult to implement. There can also be liquidity risks when so-called ‘whale’ traders dump large volumes of cryptocurrencies on the market with little warning.

Cryptocurrency Trading And Investing Risk Strategies

With these risks in mind, let’s take a look at some of the risk management strategies you can adopt to help mitigate them:

• Don’t Over-leverage Yourself: Trading on leverage is understandably a very tempting prospect. Whilst we recognise the temptation of amplifying your potential trading gains using leverage, we also recognise that you should only ever use leverage modestly. Over-leveraging your positions – – can open you up to a considerable risk of losses if the market turns against you. And remember, the risk with leverage trading is that while your gains are amplified, your losses are too!
• Only Ever Trade With What You Can Afford To Lose: A good general rule to have in place – particularly when you are trading an experimental investment, such as crypto – is to only ever invest what you can afford to lose. While this will obviously impact the amount of profit you can make, it will also ensure that you will never be hit too hard by any losses!
• Use Multiple Time Frames: Whilst historical price analysis is an inevitable part of developing and implementing a trading strategy, you should always be careful to never exclusively focus on the narrower view. Being too narrow in what time-frames you look at might cause you to overlook or miss out on larger historical trends that are worth noting.
• Remember Your Stop-loss Orders: A risk mitigation tip that can be applied to any asset, is to always make sure that you use stop-loss orders. These can be used to protect you from further price-falls if the market turns against your position. Always place stop-loss orders in advance to avoid unnecessary losses. These will be particularly useful in circumstances where you aren’t paying close attention to the news and might miss an opportunity to close your trades!

Source: https://www.thedubrovniktimes.com/lifestyle/feature/item/13800-risk-management-and-cryptocurrency-investing-is-it-possible