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7 Effective Strategies to Protect Yourself from the Risks of Crypto Trading

Posted by Fullerton Markets on Jun 15, 2022 3:18:22 PM


Major cryptocurrencies are taking a beating. Two of the major stablecoins -- USD Coin and Tether are on shaky ground. Is crypto still worth trading and investing in? 

Over the last few months, Bitcoin, Ethereum, Luna and other major cryptocurrencies have lost their values significantly. Following the destabilisation of TerraUSD and Terra, panic ensued. It's bad news all around for a lot of investors and traders. Many have lost faith in stablecoins and, most likely, cryptocurrencies in general.  

More than ever, traders and investors need to make sure that they have proper risk management strategies in place. Here are a few tips on how to protect yourself from the risks of crypto trading. 

How to Minimise Risks When Trading Cryptocurrencies 

1. Invest what you can afford to lose 

Only invest what you're prepared to lose. Given today's heightened risk and volatility in the cryptocurrency market, don't invest indiscriminately. If you don't have a solid emergency fund or are struggling to pay the bills, put off trading and investing until the market is less volatile.  

2. Use stop-losses to limit your downside risk 

"I know where I’m getting out before I get in." - Bruce Kovner 

When you trade on margin, minimise your downside risk by setting a stop-loss. A stop-loss is an order to sell or buy a stock or commodity at a specific price. It's designed to protect your capital when the market moves against you and limit potential losses. Without it, you might let fear or greed rule over you. By the time you change your mind, it's already too late.  

Discover 7 Habits of Great Forex Traders  

3. Set take profit targets

set take profit targets 

Take-profit targets allow you to lock in any profit when a trade moves in your favour. You're assured of a good earning, regardless of whether the price rises or falls after your take-profit target. Similar to a stop-loss, you won't be tempted to hold a position in hopes of it moving higher only to find the chart moves in the opposite direction. 

4. Stick to a fixed position size

"Limit your size in any position so that fear does not become the prevailing instinct guiding your judgement." - Joe Vidich 

Trading cryptocurrencies, stocks, Forex and other assets come with inherent risks. It's recommended that a trader should risk no more than 5% of their capital on any one trade. Some, even choose to risk just 1%.  

This is the concept behind position sizing and the goal is to keep your account from blowing up into smithereens.  

5. Determine the risk-reward ratio

Make sure you fully determine your expected returns against the risk you're taking before you open any trade.  

For example, imagine your risk-reward ratio is 1:2 with a capital of $10. This means you're risking $10 for a potential return of $20. The perfect ratio for most traders is 1:3. 

6. Diversify with different coins and tokens

diversify portfolio into different asset allocation

Given the volatility of the crypto market, it is important to diversify your portfolio with different coins and tokens. There are over 2,000 cryptocurrencies available with new ones being created every day. This means there are a lot of opportunities for you. You just have to know which cryptocurrency to invest in. 

Choose cryptocurrencies with different levels of risk and return potential. This way, if one coin goes down in value, you can offset the loss by investing in another coin that will go up instead.  

Learn How to Build a Portfolio That Guarantees Peace of Mind even During Uncertain Times  

7. Trade Cryptocurrency CFD

Trading this derivative instrument allows you to speculate on the price movements of cryptocurrencies without actually owning the underlying asset. Crypto CFD is usually paired with regular currencies.  

Fullerton Markets offers the following Cryptocurrency CFD: 

  • Cardano / USD (ADAUSD) 
  • Bitcoin Cash / USD (BCHUSD) 
  • Bitcoin / USD (BTCUSD) 
  • DogeCoin / USD (DOGEUSD) 
  • Polkadot / USD (DOTUSD) 
  • Ethereum / USD (ETHUSD) 
  • Chainlink / USD (LNKUSD) 
  • Litecoin / USD (LTCUSD) 
  • Ripple / USD (XRPUSD) 
  • Stellar / USD (XLMUSD) 

Unlike regular crypto, crypto CFD gives you the flexibility to take a position, whether a digital token rises or falls and profit on either if your strategy works in your favour. This gives you a hedge over the current market volatility.    

For example, you can go long (buy) if you think the price of Bitcoin will rise and go short (sell) if it loses value. You can use fundamental and technical analysis to forecast cryptocurrency prices. The former uses news and event that will influence the coins, while the latter relies on price data to predict a coin's supply and demand.  

Another option is to copy trade. Follow strategy providers trading crypto CFD, copy their winning positions and profit when their strategy wins.  

Fullerton Markets give you the option to manually trade crypto CFD or copy trade, depending on your skills and knowledge. Whichever is the case, you're assured of safe and secure trading in the best trading conditions.  

Trade Crypto CFD with Fullerton Markets today. Don't let market risks stop you from earning a profit. 

Protect Yourself from the Risks of Crypto Trading 

By investing money you can afford to lose, setting up stop-losses and take-profit targets, using position sizing, determining the risk-reward ratio and through diversification, you can limit your exposure to risks. Even when the crypto markets are bearish, your account won't implode.  

Protect your portfolio further by trading cryptocurrency CFD which is recommended for short-term trades. Find opportunities in both rising and falling markets.



Ready to grow your wealth in the world's largest financial market and enjoy unlimited bonuses at the same time? No better place to start than right here with us! Start trading with Fullerton Markets today by opening an account:

 

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