5 Ways to manage risk in crypto trading in 2024

Last updated on January 9th, 2024 at 11:38 am

In this article, we going to know about 5 Ways to manage risk in crypto trading in 2024. As we know cryptocurrency is becoming popular day by day among its investors. So we need certain risk management in crypto trading. 15 million Indians are now trading on digital money or cryptocurrency according to Chainalysis (the blockchain data platform) and in the USA 23 million.

What is cryptocurrency?

Cryptocurrency or digital money or currency is a new wealth of payment for goods and services in electronic form. It need not required any bank or agency to verify transactions. It is a peer-to-peer system. A peer-to-peer networking system that enables peers (nodes) to share the network resources without relying on a central computing system. The first cryptocurrency arrived in January 2009 in the shape of Bitcoin launched by Satoshi Nakamoto.

So we can say a cryptocurrency is a form of a digital asset that is on a network that is distributed across the network worldwide. It is a decentralized network and exists outside the control of governments or central authorities.

What are the risks associated with cryptocurrency?

Cryptocurrency highly volatile

As we know the volatility of the cryptocurrency market is very high and very risky. The crypto price fluctuates always. That is why one should be very cautious and always alert. Before investing one should read and watch all the external factors of the market. Fluctuation is the biggest factor in buying crypto.

Immutable or Irreversible transactions

Once the transaction is over, cannot be reversed. Moreover, the identities will not be known. So if a wrong transaction, your money will be gone forever. So the risk is very high.

Unmanaged and Unregulated

It is unregulated and unmanaged. Till now no government manage it. So the safety of investors is good.

Highly vulnerable to hacking

Cryptocurrency is very much popular now. This will attract hackers and scammers to steal hard money.

Research important cryptocurrencies

One of the first things you should do when starting your crypto investment journey is to do some research on the top currencies on the market. This is because they are not only more stable in terms of value addition but also have more advanced protocols and plans to advance by crypto companies; The biggest thing is the reason for being the top currency.

Your research should focus on the market capitalization of the currency, how much is traded per day, and what the future holds in terms of its value and utility in the real world.

You do not want to be frustrated if you cannot get the right pitch so invest in a good capo.

Some of the top currencies on the market right now:

Bitcoin – about $829.30Bmarket cap

Etherium – about $373.02Bmarket cap

Moniro – about $ 3b market cap

Litcoin – About $ 10B Market Cap

Cardano – About $ 9B Market Cap

Also, new crypto investors must know about ‘shitcoins’ (The word ‘shitcoin’ is an umbrella covering all the spin-offs of failing or already unsuccessful and failed crypt currencies.).

The long-term value of these ‘shitcoins’ is not very commendable and the financial risk here is very high, keep this in mind. So be careful about these coins while doing your research, you should be able to discover them very quickly and avoid them!

Learn about your risk-reward-ratio

In addition to researching different currencies, the next big step in crypto risk management is to know the risk-reward ratio. If you are a new crypto investor, your investment should be long-term so that you do not suffer any loss in daily price fluctuations. Instead, you hold your investment for a fixed period, from 6 months to a year. This will keep you risk-free.

What is the Risk-reward ratio?

This ratio basically compares the actual level of risk with your potential return. So, you may or may not be able to make as much profit as you take the risk. By investing in credible coins as opposed to shitcoins, you can maintain a safe risk of reward-ratio.

Identify the best way to enter and exit the investment

The right time to invest must be chosen in advance. Fortunately, the crypto market will give you a lot of opportunities, so you have to decide when to invest. Assuming you have been in it for a long time, you will definitely want to invest in crypto assets that are trustworthy and commendable.

A note of caution: do not start investing when the price is running parabolic. Instead, invest when prices fall or pullbacks come because (usually) the market is always quiet towards the end.

Crypto investment exit strategy

At what price will you sell your crypto assets?

• What taxes are involved for your profit? If so, how much will it be?
• Consider re-investing your crypto profits in currency or keeping some of it in traditional currencies like Bitcoin or Litcoin
• Consider reinvesting in other asset classes, such as stocks or bonds, for passive income
• Always remember: You may not be able to time the crypto market properly, but you must adhere to a strategy for how you want to achieve your hard-earned profits.

Diversify your crypto portfolio

Another way to manage crypto risks is to always diversify your crypto investments so that your financial assets do not fully reflect any particular volatility.

You can diversify your portfolio with different currencies of your choice so that you do not run risk and save yourself from anxiety!

For example, you might have a traditional currency portfolio with investments in Bitcoin, Ether, and Litcoin.

So, if you are someone who does not have a very high-risk appetite, these traditional alternatives are a good way.

If you feel more adventurous and want to reveal a wider set of coins, you can look for privacy-based coins in other well coins like Monero or Zcash.

Conclusion: manage risk in crypto trading

Cryptocurrency or digital money has a fair bit of its pros and cons. It risk should consider before trying any trade or invest in it. It is very volatile and very risky. But where there is risk there is gain. Mainly for gaining profit one should analyses the risk involved in it. So we should not follow anything blindly.

Happy trading… but must be safe and enjoy…….