Risks of trade in cryptocurrencies: Guide to risk management techniques
The cryptocurrency trade has become more and more popular in recent years, with many people and institutions invested in digital currencies such as Bitcoin (BTC), Ethereum (ETH) and others. Although cryptocurrency causes high yields, it presents significant risks that can be prejudicial to the investment portfolio.
As a merchant, the assessment of risk management techniques is essential to mitigate these risks and guarantee that your investments are safe. In this article, we explore the different aspects of risk management in the cryptocurrency trade and give advice to the effective evaluation of these techniques.
To understand the risk
Before entering risk management techniques, it is essential to understand the risk of trade in cryptocurrencies. The risk refers to the potential of losses or gains that can affect the investor’s financial well. In the case of cryptocurrencies, the risks are as follows:
- Volatility of the market: The prices of cryptocurrencies can fluctuate quickly, which can cause significant price samples.
- Liquidity risks: Market conditions can make it difficult to buy or sell cryptocurrencies at a quick and fair price.
- Security risks: Low passwords, inadequate security measures and piracy threats can endanger investor funds.
Risk management techniques
Risk management techniques for cryptocurrency trade include identification and relief of the above risks. Here are some effective techniques to consider:
- Diversification: Distribution of investments in various cryptocurrencies, asset classes and market conditions to minimize the exposure of individual investments.
- Orders stop-loss: Configure price alarms and automatically sell part of the investment when it falls below a certain level to limit losses.
- Position measurement: Limit the amount of capital invested in each commercial or active class to avoid significant losses if market conditions are unfavorable.
- Heding
: Use derivative products such as term contracts to compensate for possible losses by buying or selling an underlying device at a reduced price.
- RATIO RISK RISK: Define a ratio that compares the potential reward with the risk of investing in a cryptocurrency class or particular assets.
Technical analysis and basic analysis
Technical analysis and basic analysis are basic tools to assess the risks of the cryptocurrency trade. Technical analysis includes the use of diagrams, indicators and other visual devices to analyze price movements and identify trends. The basic analysis focuses on the analysis of assets, such as the case, such as use, potential sources of income and competitors.
Some popular technical indicators are as follows:
- Middle Mobiles: Use mobile averages to identify the reversal of trends or suites.
- RSI (Relative resistance index): Observe RSI to assess the conditions on purchased or excessive.
- Bollinger bars: Analyze price movements in Bollinger strips to predict volatility.
The basic analysis consists in studying the economy underlying the tool, for example:
- Use case: Determine the cryptocurrency request according to the use of use and acceptance rate.
- Competitive landscape: Identify potential competitors and assess their position on the market.
- Sources of income: Analyze income sources and calculate the estimated financial performance.
Risk assessment
After developing an understanding of risk management techniques, it is essential to assess these risks in a given trading portfolio. Consider the following steps:
- Define assets at high risk: Determine cryptocurrencies or devices that are mainly due to market conditions, liquidity risks or security threats.
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