Aka ‘the art of not losing all your money’

Risk management is a critical element of success for any trader in any market. Regardless of the size of the capital you trade or invest in, losses are inevitable, especially in very volatile markets like cryptocurrency. It is important to learn how to handle risk in order to minimize losses. However, it is also necessary to master risk management to get maximum profits. Because the more you are willing to risk, the greater the potential reward.

Risk management to avoid losses

Even seasoned traders with impressive track records of reading the market can lose everything on a bad trade or two if they fail to properly manage risk or let their emotions get in the way. The lure to hit the jackpot or chase market sentiment can be too strong, causing traders to become clouded or cocky.

In order to avoid widespread losses and allow traders to trade with a cool head, at least the basic trading tools and forms of risk management must be used. This includes setting trading rules such as market orders, limit orders and stop-loss orders, which traders can use to limit their losses by triggering an action when certain conditions are met.

These mechanisms allow traders to take a break from the screen and trade with confidence knowing that they can limit their losses or take profits at an acceptable level. The limit at which this is set depends on the investor’s willingness to take risks and the amount of capital he is willing to lose on a particular trade.

Another type of risk management is of course the golden rule of always keeping a diversified portfolio spread across multiple assets. That way, you can get exposure to more assets while hedging against losses and making sure that one bad investment doesn’t wipe out all of your capital.

Risk management to maximize your profits

Last year we saw astronomical growth in the cryptocurrency space, with amazing gains on most of the major coins. Decentralized finance sparked a passion for income farming and generating an attractive passive income on crypto assets, as well as enabling an entire ecosystem of borrowing and lending outside of traditional finance. Against the backdrop of a tough global economy due to the global pandemic and the near-negative return on cash savings, investors are turning to the crypto space in droves.

We have seen massive endorsements from institutional investors and big names like MicroStrategy, Guggenheim, PayPal, and Square, all of which give legitimacy and ignite the flames of “institutional FOMO”. Bitcoin (BTC) has shot up like a rocket this year and has surpassed its all-time high thanks to this action by institutions. MicroStrategy alone bought more than 70,000 BTC in the past year, showing continued positive support.

As adoption by institutional investors increases, so does the need for more sophisticated risk management methods that go beyond basic market mandates and allow professional and institutional traders to implement highly flexible and creative strategies that spread their risk across all assets and increase potential returns.

So far, such institutional grade products have not come under the purview of cryptocurrency exchanges in terms of risk management. However, if we are to respond to the needs of this type of investor, serious exchanges must provide the infrastructure institutions need, including the ability to back up their positions and manage their risk more effectively.

Improved risk management for ultimate trading flexibility

Features such as uniform account management (also known as portfolio margin) allow traders to manage all of their accounts, trades and crypto assets via a single interface. More importantly, however, they should be able to unify all their assets and trade any instrument, using all of their purchasing power.

Suppose a trader wants to get into an ETH / USD futures trade. With a unified account, they can do this efficiently without having to buy Ether (ETH) and by simply using one of their existing crypto collateral. This is much more convenient for traders and also reduces the fees for buying Altcoins with Tether (USDT) or BTC. It also allows them to take a much greater risk and position to grow their profits and improve margin efficiency significantly.

Risk management is probably the most important part of investing. If the crypto space is to continue to grow and to keep institutional traders interested and interested, we need advanced risk management tools that will maximize returns for investors – and bring crypto market cap to the trillions of dollars, which it rightly ranks.

This article does not contain any investment recommendations or recommendations. Every investment and trading step is associated with risks. Readers should conduct their own research in making their decision.

The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Jay Hao is a tech veteran and seasoned industry leader. Prior to OKEx, he focused on blockchain-powered applications for live video streaming and mobile games. Before entering the blockchain industry, he already had 21 years of solid experience in the semiconductor industry. He is also a recognized leader with successful experience in product management. As the CEO of OKEx and a staunch supporter of blockchain technology, Jay believes that the technology will remove transaction barriers, increase efficiency and ultimately have a significant impact on the global economy.