Risk management is a vital element of success for any trader in any market. No matter the size of the capital you’re trading with or investing in, losses are going to be inevitable, particularly in highly volatile markets like cryptocurrency. Learning how to manage risk to minimize losses is vital. Yet, it’s also necessary to master risk management in order to ensure maximum gains. After all, the more you’re willing to risk, the greater the potential reward.
Risk management to prevent losses
Even experienced traders with impressive track records of reading the market can lose it all on one or two bad trades if they fail to employ proper risk management or let their emotions get in the way. The enticement of “hitting the jackpot” or chasing market sentiment can be too strong, allowing traders to become clouded or overconfident.
To prevent sweeping losses and allow traders to trade with a cool head, the very basic trading tools and forms of risk management must be used at the very least. These include establishing trading rules, such as market orders, limit orders and stop-loss orders, that allow traders to limit their losses by triggering an action when certain conditions are met.
With these types of mechanisms in place, traders can take a break from the screen and trade with confidence, knowing that they can limit their losses or take profit at an acceptable level. At what limit this is set will depend on the risk appetite of the investor and the amount of capital they are willing to lose on a given trade.
Another way of managing risk is, of course, the golden rule of always keeping a diversified portfolio spread out over several assets. This will allow you to gain exposure to more assets while hedging losses and ensuring that one bad investment doesn’t wipe out all your capital.
Risk management to maximize your gains
Last year in the cryptocurrency space, we saw astronomical growth with astounding gains from most major coins. Decentralized finance ignited a passion for yield farming and earning an attractive passive income on crypto assets, as well as enabling an entire ecosystem of borrowing and lending away from traditional finance. Against the backdrop of a struggling global economy due to the global pandemic and near-negative yield on cash savings, investors are turning to the crypto space in droves.
We’ve seen massive endorsements from institutional investors and major names, such as MicroStrategy, Guggenheim, PayPal and Square all lending legitimacy and fanning the flames of “institutional FOMO.” Bitcoin (BTC) has shot up like a rocket this year, blasting through its previous all-time high thanks to this action from institutions. MicroStrategy alone purchased more than 70,000 BTC last year, showing continued bullish support.
And as adoption from institutional investors grows, so does the need for more sophisticated ways of managing risk that go beyond basic market orders and allow professional and institutional traders to execute highly flexible and creative strategies that spread their risk across all assets and amplify the potential rewards.
Until now, such institutional-grade products in regards to risk management have been out of the purview of cryptocurrency exchanges. However, if we are to respond to the needs of this type of investor, serious exchanges must provide the infrastructure that institutions require, including the ability to cross-collateralize their positions and manage their risk more effectively.
Enhanced risk management for ultimate trading flexibility
Through features such as unified account management (otherwise known as Portfolio Margin), traders can manage all their accounts, trades and crypto assets from within one single interface. But more importantly, they can unify all their assets and trade with any instrument, using all of their purchasing power.
For example, let’s say a trader wants to enter an ETH/USD futures trade. With a unified account, they can do this efficiently without having to purchase Ether (ETH) and by simply using any of their existing crypto collateral. This is much more convenient for traders and also reduces the fees associated with buying altcoins with Tether (USDT) or BTC. It also allows them to take a much larger risk and position to amplify their earnings and substantially improve margin efficiency.
Risk management is probably the most important part of investing. If the crypto space is going to continue to grow and attract and retain the interest of institutional traders, we need advanced risk-management tools that can maximize gains for investors — and nudge the crypto market cap into the trillions of dollars where it rightfully belongs.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Jay Hao is a tech veteran and seasoned industry leader. Prior to OKEx, he focused on blockchain-driven applications for live video streaming and mobile gaming. Before tapping into the blockchain industry, he had already had 21 years of solid experience in the semiconductor industry. He is also a recognized leader with successful experience in product management. As the CEO of OKEx and a firm believer in blockchain technology, Jay foresees that the technology will eliminate transaction barriers, elevate efficiency and eventually make a substantial impact on the global economy.
Coin Metrics Report Details Surges in ETH, Doge Trading
Coin Metrics: Altcoins Are Taking Over
While bitcoin is still the world’s number one digital currency by market cap (it is currently trading for about $35,000 per unit), the asset has experienced some serious dips over the past month, while by contrast, Dogecoin and Ethereum have exhibited gains and are regularly moving up the digital ladder.
Coin Metrics garnered much of the information for its report by looking at data from Binance, arguably the largest and most popular crypto exchange on the planet in terms of daily trading volume. Additional statistics were gathered from exchanges such as Coinbase and FTX. Coin Metrics points out that thus far, 2021 has been the year for “smaller altcoins,” suggesting that a great many of them have surged heavily between the months of January and early May. From there, however, a serious crypto crash has taken precedence, with Coin Metrics unable to pinpoint what, exactly, might have been the cause.
For the most part, numerous altcoin pairs are offered on Binance, which explains why the company’s trading volume for many of the world’s smaller assets likely overtook that of bitcoin. The report says:
ETH volume surpassed BTC volume on Coinbase by a wider margin than on Binance. Coinbase did not offer Dogecoin trading in May (although they introduced it in early June), so it did not have a Doge rush similar with Binance, but it did have a relatively high amount of volume for some other altcoins, led by MATIC, ADA and Ethereum Classic (ETC)… Continuing the trend, ETH volume edged out BTC on FTX, although not by much, but comparatively, the top altcoins made up a lower percentage of total volume on FTX than on Binance and Coinbase.
Some of the world’s smaller exchanges – such as Huobi – also saw Ethereum and Dogecoin trading surge to levels beyond what people were doing with bitcoin. The report continues to say:
Similar with Binance, DOGE volume surged on Huobi, taking the spot as the third most traded currency by volume.
Bitcoin Hasn’t Been Fully Cut Out Yet
The only place – according to the document – where bitcoin trading appears to remain dominant at the time of writing is the CME in Chicago, Illinois. The company delves in bitcoin futures trading and has recently opened the door to ETH futures, though this is still in its early stages. Coin Metrics writes:
The markets continued to move mostly sideways over the last week. Bitcoin and Ethereum usage both stayed relatively flat, with daily active addresses dropping 2.5 percent and growing by 3.3 percent, respectively. Ethereum daily transaction fees dropped by over 35 percent week over week as gas prices continued to fall, and bitcoin transaction fees followed a similar pattern, dropping by 40.5 percent.
Bitcoin Taproot upgrade finally achieves activation lock-in!
The much-anticipated Bitcoin Taproot upgrade passed the Speedy Trial, which was a signaling period which gauged support for the upgrade from bitcoin’s mining sector. Since SegWit, Taproot has been touted as the next significant upgrade for Bitcoin.
Data from Taproot.watch, a webpage created by Bitcoin developer Hampus Sjöberg, released an interesting yet hilarious video to announce the completion of the lock-in stage.
— Hampus Sjöberg 🥕🟩 (@hampus_s) June 12, 2021
On the official page, it read:
“This period has reached 1815 Taproot signaling blocks, which are required for lock-in.”
Different mining pools tweeted their support for the upgrade on their respective platforms with Slush Pool being the first to do so.
TAPROOT LOCKED IN AT BLOCK 687285 BY SLUSHPOOL 🟩 pic.twitter.com/FFDdibtmGt
— pourteaux (@pourteaux) June 12, 2021
AntPool also supported the upgrade.
“As of block 687284, Taproot signalling has reached 1815 blocks this period, guaranteeing that absent very deep reorgs, it is guaranteed to lock in. Following that, it will activate at block 709632, probably around mid-November 2021.”
He also addressed that ‘there is a lot of work left of course’, which included:
a) PSBT extensions to communicate Taproot keys/scripts/signatures,
b) MuSig2 standardization so the software can cooperate in signing,
c) Output descriptors,
Why is it so important?
“With this upgrade, you’ll see Bitcoin to be the settlement network. Funds are transferred from one institution to another, say one bank to another.”
“The update would lower the data size of smart contracts, in turn lowering transaction costs. Taproot is also expected to enhance smart contract functionality and efficiency.”
Jeremy Rubin, a Bitcoin Core contributor and founder of Judica projected a similar optimistic narrative,
“With taproot, you get optimization of Bitcoin, much different from how people know Bitcoin today- little too inefficient or reveal too much information about what you’re trying to do. Taproot helps to be private and efficient.”
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Next-Gen Decentralized NFT Platform, NEFTiPEDIA Announces Launch of its ICO In 3 Days
NEFTiPEDIA, a next-generation decentralized NFT platform that operates in a way that contributes to the elevation of digital artists, creators, and investors has announced the launch of its ICO which is set to happen in 3 days.
NEFTiPEDIA has designed a commission-free platform to enable its artists to maximize income, following its aim to help them increase revenue via NFTs.
Following NEFTiPEDIA’s plans to storm the marketplace while launching its ICO, it aims to serve the marketplace with different categories of products including cosmetics, vehicles and property.
“….we believe NEFTiPEDiA will become a community-run marketplace and the industry will make our project as a kind and remarkable one in the world,” the announcement reads.
The development will see the platform provide a decentralized marketplace for Artists, where they can sell and validate their NFT links to fans and interested buyers.
NEFTiPEDIA Offers Exciting Prizes to Users
The team behind the project have allotted a total of 250,000,000 $NFT tokens for its users to enjoy in the upcoming ICO.
To further celebrate the intended development, the platform has proposed a referral scheme where winners can enjoy amazing and exciting prices.
Users who wish to participate in the program are required to sign up for the platform’s ICO panel and get a referral code.
The code can as well be shared with friends, giving users the opportunity to win exciting prizes.
A minimum of 5 referrals is required for participants to be considered for winning.
“Only those referrals ended in purchase will be added to the count. After the completion of ICO in 30 days, winners will be announced. Notably, winners will bear all the applicable tax.” The team further elaborated on the conditions for winning.
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