Risk Management and Investing in Cryptocurrencies: Is it Possible? – The Dubrovnik times | Region & Cash

One of the things that makes cryptocurrency trading unique compared to other financial instruments is that you are not just trading an “asset” in the traditional sense. Rather, you invest in technology.

In fact, cryptocurrencies are not just digital stores of wealth that can be used for transactions, they are also an entire digital ecosystem with an almost unlimited number of uses.

While this is arguably what makes cryptocurrencies so unique and interesting to invest in, it is also one of the main sources of risk involved in investing in them. And perhaps because of this, those who are interested in crypto tend to pay very close attention to it OKX cryptocurrency prices Every day.

While they have a reputation for being a somewhat risky asset – especially when compared to other more traditional assets such as stocks, commodities or bonds – there are still some things you can do to manage your risk when investing in cryptocurrencies.

While some of these are general risk management Tips to always keep in mind and implement whenever possible, others are more specific to the cryptocurrency sector.

Cryptocurrency Risks

Before we examine some of the risk management techniques, strategies, and considerations, let’s first briefly outline what the sources of cryptocurrency risk are. There are several sources of risk associated with cryptocurrencies, although the following are arguably the most important to consider:

  • Legality and Regulation: There is still significant uncertainty as to how best to regulate crypto assets. This is being reinforced by governments around the world with few exceptions relatively slow to regulate them. Finding trustworthy crypto assets to invest in can be difficult. because this clear lack of regulators to turn to when things go wrong.
  • Security Risks: Bitcoin exchanges have been subject to a number of high-profile hacks over the past few years, many of which stem from illegal network access or 2-factor authentication hacks. Many cryptocurrency investors still lack the proper security training to protect themselves online. This is a particular concern given that many people keep 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 stem from the sheer volatility of market prices. Cryptocurrencies can often experience fairly large swings in daily price action, making it difficult to implement risk mitigation strategies. There can also be liquidity risks when so-called “whale” traders dump large amounts of cryptocurrencies onto the market without warning.

Risk strategies for cryptocurrency trading and investing

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

  • Don’t Overdo Leverage: Trading with leverage is understandably a very enticing prospect. While we recognize the temptation to use leverage to amplify your potential trading gains, we also recognize that leverage should always be used modestly. Excessive use of your positions – – may expose you to a significant risk of loss if the market turns against you. And remember, the risk with leveraged trading is that while your profits are amplified, your losses are Are also!
  • Always only trade what you can afford to lose: a good general rule to haveespecially if you are trading an experimental investment like crypto is to only ever invest what you can afford to lose. This will of course affect the amount of profit you can make, but it also ensures that you are never hit too hard by losses!
  • Use Multiple Time Frames: While historical price analysis is an inevitable part of developing and executing a trading strategy, you should always be careful never to solely focus on the narrower view. If you look at time frames that are too narrow, you could overlook or miss larger historical trends worth noting.
  • Think about your stop-loss orders: A risk reduction tip that can be applied to any asset is to always make sure you use stop-loss orders. These can be used to protect you from further falls if the market moves against your position. Always place stop-loss orders in advance to avoid unnecessary losses. These are especially useful in situations where you’re not paying close attention news and could miss an opportunity to close your trades!

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