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How To Reduce Risks When Trading Crypto

Perhaps cryptocurrency is something that most people are now embracing due to the significant opportunity of making a substantial amount of money. While it’s possible to get generous returns by investing in crypto, the price of these coins can also drop and fluctuate in a span of minutes, resulting in significant losses.

After all, if there’s one thing that crypto is known for, it is its extreme volatility. However, don’t let it scare you, as there are some ways you can reduce the risk of a significant loss. And with that, below, we enumerate crypto trading tips to help you have better gains while minimizing risks.

  1. Use Crypto Trading Bots

One of the most popular ways to minimize the risk of crypto trading is using bots, like crypto arbitrage bots. These are automated programs that can examine prices across exchanges and make automatic trades to take advantage of price discrepancies.

In addition, trading bots can allow you to maintain your investment plan. It operates 24/7, buying and selling assets when specific, pre-defined market conditions are met. And since trades are done automatically based on trends and data, trading bots can help eliminate human emotion, which could derail even the most carefully planned investment strategy.

You can invest and install individual crypto trading bots, but some platforms may already come with built-in trading bots. Likewise, if you want to look for a trustworthy crypto exchange with excellent risk management tools and strategies, you can try Pionex.

  1. Diversify Your Portfolio

Whether you’re a newbie in crypto or a seasoned investor, you’ve probably heard about this line thrown away every time. It is because it’s one of the golden rules of investing.

Ideally, you don’t want to keep all your eggs in one basket and rely on a single crypto coin. Similarly, it may be wise to know better than investing it all in a single cryptocurrency. This is especially since there are various crypto coins you can explore and invest in.

While a certain cryptocurrency can be extremely rewarding if you play it right, it may not be an adequate replacement for a diversified and well-balanced investment portfolio. When the value of one asset fluctuates, at least you’ll have other investments to balance it out and keep your portfolio from bleeding red.

  1. Stop Using Too Much Leverage

Crypto traders often use margin since it can increase order sizes while allowing the flexibility of going short or long. That said, excessive leverage on your trades may not give you enough time to get out, and you can risk huge losses or even your entire principal amount when a liquidation happens.

Some crypto exchange platforms can offer leverage up to 100x. However, a 1% move against your order can cause significant losses. So, one sensible approach could be to use 3x leverage. It can allow you to increase your gains while providing enough buffer to exit a bad trade.

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  1. Plan An Exit

Speaking of exiting, a wise investor knows when to exit. It means they know when to take a profit and when to cut losses.

When investing, it is essential to identify and understand the resistance and support levels, so, you can plan your trades accordingly. It is also best to know the risk-to-reward ratio and set your target value for taking profits.

In contrast, you may need to plan and set stop orders to protect your investment if the market moves against you. Note, however, that stops may not always be effective when prices move too fast as it can result in bad fill.

  1. Don’t Fall For FOMO

Short for ‘fear of missing out,’ FOMO can be a crypto trader’s worst enemy. FOMO can cause traders to act impulsively, thus overriding their judgment and creating significant implications for their portfolios. In some instances, FOMO can also be a sign of mass adoption and the growing popularity of a specific crypto coin or trend.

In addition, it can result in distrust in crypto coins if traders feel that the market is rigged or that whales are manipulating prices for their benefit. As such, most newbie traders don’t do the proper research and become victims of pump and dump scams.

At times, you can get influenced by the hype, and you become too overconfident and end up buying tops. Once the hype is over and you see a significant drop, you may end up panic-selling and cashing out your position at the bottom.

That said, it is best to avoid falling for FOMO and always do your homework when thinking of investing in a particular crypto coin.

Take Away

Investing in cryptocurrency doesn’t have to be scary. With good research and knowing how to play it right, the risk can be worth it. That said, if you’re thinking of adding crypto to your portfolio, you can consider following the above strategies to help you manage the inherent risks of crypto trading while maximizing your gains.

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