Good risk management for crypto futures trading is a must! We show you how to manage your risk when trading crypto futures with crypto signals in 2023
Updated: 10.01.2023
What is proper risk management in crypo trading?
Crypto risk management refers to the techniques and strategies used to mitigate potential losses and protect your trading capital when engaging in cryptocurrency trading. It encompasses the steps taken to identify and assess potential risks, as well as the measures put in place to minimize the impact of negative events, such as losing trades or unexpected price spikes. Due to the high-risk nature of crypto trading, implementing risk management practices is crucial for any trader looking to maximize their chances of success and protect their investments. This can include the use of leverage in crypto futures trading, but also having a thorough understanding of the market, and setting up rules to follow while trading. Overall, a good risk management plan will not only help you avoid excessive losses, but also enable you to capitalize on opportunities to make a profit.
Where in do we need risk management for cryptocurrencies?
We trade futures signals at PumpBot. Those are trading signals provided by professional traders and smart algortihms. The output are those so called trading signals as you can see one below. Those signals give you all the information to start trading as a beginner – except one: proper risk management.
And that is for many newbies a problem. How much funds do I need to trade? How much USDT do I use for this trade? And exactly this question we are answering in the following. There are many approaches to this problem and I will show you one in the following.
How to do risk management for crypto futures signals
Why to Risk only 1-5% per trade ?
The main reason is…. No one wins every trade, and the 1-percent risk rule helps protect a trader’s capital from declining significantly in unfavourable situations. If you risk 1 percent of your current account balance on each trade, you would need to lose 100 trades in a row to wipe out your account. If novice traders followed the 1-percent rule, many more of them would make it successfully through their first trading year.
Crypto trading risk management Example
Suppose your capital is $10,000 and with 1% rule here your risk will be $100. We are going to use simple formula to decide final amount.
Amount to borrow = Risk / Stoploss %
$2000 = $100 / 5%
You can borrow $2000 for this trade or take 20x leverage (20 = 2000 / 100). How to apply this non Leverage trade ? It is simple …
Amount to Invest = Risk / Stoploss %
$2000 = $100 / 5%
You will invest $2000 and 5% Stoploss.
So on any given trade you would loose only 1% of capital or you will make 1%-3% of capital in single trade. And investing only 1% per trades makes you sleep better without any worry knowing fact that you are going to loose only 1% of whole capital or make 2%-5%. Even with $100 you can risk 5% and make good money end of the month.
$100 = risk $5 / SL 5%
you will end up making $10 – $25 per trade or you will loose $5. To become profitable you need to target ABOVE following winning %
- 33% winning rate to hit breakeven by 1% Stoploss & 2% Target.
- 25% winning rate to hit breakeven by 1% Stoploss & 3% target.
You need winning rate above 33% or 25% to become profitable. If you manage to make 30% gains per month within a year your account would compound from $10,000 to $232,981!!
THIS IS HOW PROFESSIONALS TRADE.
Conclusion
With proper risk management you will become a profitable trader. There is no way around it. If you don’t want to do the maths you can simply use between 2% and 4% of your total funds per trade. This is just a rule of thumb but it works and is better than guess work.
