Managing risk is an essential skill for traders in the cryptocurrency market to master. While this remark may be accurate, it’s crucial to understand that the majority of traders do not employ any form of risk management. There is a very big possibility that you will sustain substantial losses if you lack the necessary expertise to manage risk. In this article on KuCoin, you will go over some fundamental risk management strategies that you may use to improve the safety and profitability of your trading. Here, we’ll demonstrate secure bitcoin trading techniques for you. I hope you all will be super excited to ride on this exploration. Well, I will assure you that it will be a dun read so let’s begin!
The unclear legal and regulatory environment is a serious concern associated with cryptocurrency. Currently, with the general public’s rising popularity in cryptocurrency, it is common to uncover various unregulated frauds, which have ultimately led to many victims falling into their traps.
Finding reliable cryptocurrency exchanges and wallets is therefore necessary for secure trading conditions. The best cryptocurrency exchange typically have greater trading volumes where most individuals and organizations are trading. One of the best and most trustful platforms for customers of crypto derivatives is promised by KuCoin, which guarantees some coins like DC, Ethereum, BTC, and sweat usdt.
2. Security and Technology Risks
As an illustration, consider the blockchain technology that powers the Bitcoin network, which serves as a public ledger or a visible record of all activities. However, the issue is that Bitcoin miners need a tremendous amount of electricity. These miners had to perform difficult proof-of-work computational math problems for a single transaction that contributed to scalability problems. In this sense, the high energy consumption of Bitcoin could limit how widely blockchain technology is used.
3. Exchange Risks and Custody
The following are some of the most considerable exchange hazards that could have an impact on your trading:
· Being potentially shut out of a situation
· Cryptocurrency exchanges may experience outages and other difficulties, especially during extreme volatility.
· Manipulation of prices
· Stop-loss searching
· Connection problems
All these factors make it more difficult for you to acquire and sell cryptocurrencies at an appropriate price.
Through digital wallets, either a desktop or mobile, the cryptocurrency is kept in custody (hot or cold wallet.) They can still be damaged or hacked, though. The safest ways to store digital assets are hardware (physical) wallets and paper wallets.
4. Liquidity Risks
Liquidity is the flexibility of accessing and leaving the trade without considerable slippage. However, it will be difficult to exit the trade at the right price when a commodity has little liquidity. At that point, both supply and demand are constrained.
The best strategy to reduce hazards of this nature is to confirm with:
· High-volume crypto asset trading
· Trade when business is booming
· Invest in assets that are well-liked by the trading communities. For instance, it is advised in cryptocurrencies to look for popular trading pairings, including ETHUSD, BTCUSDT, BTCUSD, and sweat USDT.
· Search for narrow spreads. Tighter spreads typically indicate greater market liquidity.
5. Leverage Risk
Leverage occurs when the broker gives the trader more purchasing power than his trading account can support. Larger positions can be taken via leverage. This means you can increase profits by up to 100 times your initial investment while trading with 100x leverage.
The most obvious risk is that it increases the size of your prospective loss.
What you need to do instead is:
· Use a position size that is appropriate for the level of risk.
· Identify a maximum loss in the event that the deal does not move in the desired direction.
If a clear trading risk management strategy is in place, leverage can be a great way to maximize earnings even though it has a significant chance of loss.
This guide’s risk management strategies will enable you to play the game for longer. Some of these dangers related to the risks of crypto exchanges will be eliminated when the efforts for using cryptocurrencies gain pace globally, so you can always take help via KuCoin. Whereas these risk management techniques could help you get started in trading and possibly aid in the creation of a more effective trading strategy.