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Five Essential Risk Management Strategies You Need to Know

Whether you are a beginner or expert trader, it is necessary to use risk management techniques. It would not be a good strategy staying  in the crypto market without clear-cut plans for risk management.

Risk management is more than just scrutinising cryptocurrencies before investing in them. Sometimes it involves having a complete tool set of strategies and software to help you, as a crypto trader, reduce your losses while trading. 

In this article, we will be sharing with you the meaning of risk management and different strategies that can be applied to reduce the number of losses while trading. 

What is Crypto Risk Management?

In simple terms, crypto risk management is when a trader does everything possible to minimise the number of losses they incur from their investments. In other words, risk management involves scrutinising, finding, and analysing cryptocurrencies before investing in them. 

Crypto Risk Management. Source: SIX Network

When a crypto trader analyses and finds financial risks, they now employ certain risk management strategies to ensure they are not severely affected by their risk exposure. Another important step during risk management is assessing risk exposure and building certain strategies to manage it. 

The risk management strategies below are used depending on the conditions in the crypto market. Some are actively used in the crypto market, while others are passively used before or after trading. 

Five Essential Risk Management Strategies

Below are some of the risk management strategies that, when implemented, help reduce losses in the crypto market. 

Invest what you can afford to lose

The crypto market is a wild ride, and anything can easily happen because of how volatile the market is.  The first rule and risk management strategy that any beginner should have in mind before investing is to only invest what they can afford to lose. The losses in the crypto market can hit so hard that they can actually affect your mental health. 

So, amateur and professional traders should always invest what they can afford to lose without much problem. This will help you plan better before investing and, simultaneously, help you recover from losses more quickly than usual. This is why only those with loads of experience and near-perfect approaches should use leveraging. 

Diversify your crypto portfolio 

Diversifying a crypto portfolio is a great risk management strategy. In fact, even those who were the early pioneers of cryptocurrencies have been applying this strategy over the years. When crypto investors diversify their portfolios, it does not mean they won’t suffer losses while trading. It only means that their portfolio will not be affected heavily during a bearish market. 

Source: Ataix

Many people assume that diversifying a crypto portfolio means investing in different cryptocurrencies. While this might be true, diversifying a crypto portfolio also means pushing out funds for other profitable crypto activities such as lending and liquidity provision. 

For instance, if you have about $10,000 to invest in the crypto market, you can buy Bitcoin with $5,000 and then buy two other cryptocurrencies with $2,000 each. Then the remaining $1,000 can be used for lending and providing liquidity. 

Create an Exit strategy

While often overlooked, having an exit strategy can even prevent significant loss from happening when certain metrics are detected. Before a crypto trader places a trade, it is important to spend some time planning how and when to leave the market.

This is because the crypto market is designed so that a bullish trend can easily turn into a bearish trend. As a result, many traders get carried away during a bullish trend and don’t know when or how to exit the crypto market. However, with an exit plan available, you will escape greed and major losses. 

Stop Loss Order

Stop-loss orders are an essential risk management strategy that the best crypto exchanges, such as BingX, have already integrated. When a stop-loss order is turned on, a trade immediately stops whenever the cryptocurrency hits a certain price. The stop-loss order works in two ways: it can stop trading automatically when it hits a certain price and sell off assets when it makes a profit to a certain extent. 

Source: The Financial Express

The stop-loss order is an essential risk management strategy, as a trader does not necessarily need to be around 24/7 for trades to execute. 

Use the 1% Rule 

The 1% Rule is very simple to follow when fully understood by a crypto trader. The rule simply means that a crypto trader should not risk more than 1% of their total investment while trading in the market. 

Especially for traders who can easily be carried away by a bullish trend in the crypto market, the 1% Rule should be followed strictly to avoid being controlled by greed. This means that if one has about $10,000 to spend on the market, they should not risk more than $100 while trading or making investments. 

Applying this rule to every trade will be crucial so you can minimise losses during market volatility. 

Use BingX Risk Management Features

The crypto market is volatile, and a trade can go from making huge profits to losing all the capital invested. To prevent things such as this from happening, risk management strategies need to be deployed while making investments in the crypto market. 

In addition to their strategies, a robust crypto trading exchange like BingX is also key to success, as it has all the automation to help signal you about losses, expert copy trades, and even trade for you to avoid human errors.


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