Cryptocurrency

Published on November 29th, 2021 | by Bibhuranjan

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Managing risks while trading bitcoin – how is it so important?

It is a fact that 95 per cent of the bitcoin beginner investors lose their money. One of the primary reasons behind the loss of these newbies is their improper risk management skills which leads them to take the thoughtless decision while trading bitcoins. It is why risk management is an important topic when it comes to bitcoin investment and trading. The bitcoin market is now expanding at a very crazy speed. You will be glad to know that the total market capitalisation of the digital currency market was over the value of 1.36 trillion dollars as of June 2021, according to the reports of CoinMarketCap.

If we compare it to the market capitalisation at the beginning of March 2020, then it was only at the value of 160 billion. You can see the drastic change in cryptocurrency adoption in just one year. However, some people forget that bitcoin trading is not all about making gains; but it also involves risks. If you wish not to drain all your deposits on your first day only, you need to keep yourself updated with the risk management strategies.

The right strategy for managing risk will help you make a good amount of profit and decrease the risk of losses. First of all, you should know that risk management can predict and control the possible losses from an ineffective trade. If you want to know about the risk management strategies while trading bitcoin, you should visit The News Spy Official App.

Don’t invest all your money in bitcoin

The very first thing you have to keep in mind is that you are not putting all your eggs in only one basket. Suppose if you invest all your savings in bitcoin, and it decreases suddenly by approximately 50 percentage, you will lose half of your savings. But if you make smart decisions and invest your savings in ten different kinds of investments options, you will be able to manage the risks of losses up to a great extent. Therefore you need to diversify your portfolio. You should always analyse the market of this digital currency and then make your decision accordingly.

Consider the profit/loss ratio

It would help if you kept in mind that not every trade is going to be profitable. And even some of the professional traders also lose their money while trading. But the main thing is that you need to consider the profit and loss ratio before you invest or trade in any investment. Preferably, your profit to loss ratio should always range between three to one, or at least two to one. On some of the best bitcoin exchanges, you can also analyse and track your profitability ratio. In this way, you will make the most effective strategy for trading your bitcoin and making a good amount of profits.

Evaluation of the size of a trade

It is a matter of the fact that the traders get flooded in their emotions instead of making logical calculations. In the bitcoin trading world, a unique term is used to describe such a phenomenon, known as the FOMO (fear of missing out).

Sometimes the traders get motivated by the hype. As a result, they invest a considerable amount of their deposit in only one deal which can cause severe losses if the deal is unsuccessful. According to the experts, the traders of bitcoin should open their position in the trade by investing not more than two per cent of their money. If you follow this strategy, then you will never lose all your deposit. Furthermore, evaluating your trade size will help you know how much money you should invest in trading and at what time you need to stop. In this way, you can be on the safer side always while trading this digital currency.

Conclusion

These are some of the best risk management strategies that you can use for increasing your profits and decreasing the possibilities of loss. Determining your profit and loss level in advance will help you know when you have closed the position. Bitcoin is a high volatile cryptocurrency which is why you need to have a proper risk management plan to trade them efficiently.


Cover Photo by Executium on Unsplash

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About the Author

Editorial Officer, technofaq.org I'm an avid tech enthusiast at heart. I like to mug up on new and exciting developments on science and tech and have a deep love for PC gaming. Other hobbies include writing blog posts, music and DIY projects.



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