What is Risk Management?

Risk management in crypto trading is the discipline of protecting your capital by controlling potential losses. It involves strategies and techniques to ensure that no single trade or market event can significantly damage your portfolio.

Why Risk Management Matters

Crypto markets are highly volatile:

  • 10-20% daily swings are common
  • 80%+ drawdowns happen in bear markets
  • Without risk management, accounts can be wiped out

Core Risk Management Strategies

1. Position Sizing

Never risk more than 1-2% of your portfolio per trade.

Example:

  • Portfolio: $10,000
  • Max risk per trade: $100-200
  • If stop-loss is 5% away: Position = $2,000-4,000

2. Stop-Loss Orders

Always define your exit before entering:

  • Set stop-loss immediately after opening
  • Never move stop-loss further away
  • Accept small losses to prevent big ones

3. Risk/Reward Ratio

Only take trades with favorable odds:

  • Minimum 1:2 risk/reward
  • Risk $100 to potentially make $200+

4. Diversification

Don’t put all eggs in one basket:

  • Multiple cryptocurrencies
  • Different sectors (DeFi, L1s, etc.)
  • Various timeframes

5. Leverage Control

Higher leverage = higher risk:

  • Beginners: 1x-2x maximum
  • Experienced: 3x-5x
  • Avoid: 10x+ except for scalping

Risk Management Rules

  1. Never trade with money you can’t lose
  2. Cut losses quickly, let winners run
  3. Don’t revenge trade after losses
  4. Take breaks during losing streaks

Trade safely on exchanges like Coinbase and Kraken with proper risk controls.