Risk Management in Crypto Futures Trading

Risk Management in Crypto Futures Trading

Cryptocurrencies and derivatives (like crypto futures) can seem like the new hot thing, but crypto futures trading comes with an enhanced degree of risk, given how volatile cryptocurrencies are. As a result, even a small mistake could result in enormous losses for a crypto trader if they’re not careful. Because of the huge earnings and high leverage that crypto futures enable, most crypto traders are naturally drawn to trading crypto futures over spot crypto trading.

However, the risk of losing money is also significant, and in some situations, the loss can even be greater than the initial investment. This is why proper risk management strategies need to be implemented. Getting the right position sizes, knowing how to set and move your stop losses, and considering the risk/return ratio are important aspects of a solid risk management strategy. If you are a crypto trader, here are some sound risk management strategies that you can follow to establish a robust money management approach.

Stick to your strategy, even if you face a loss

Before you start trading, make sure you have a sound trading plan that will help you increase your trading consistency and grow to profitability. Entry and exit positions, entry and exit indicators, position-sizing, and stop-loss placements should all be detailed in your trading plan. Technical analysis in crypto trading can be a crucial tool.

It is critical to stick to your trading plan after it has been established, rather than having flexible strategies that you switch upon from time to time. Incurring losses are an inevitable part of trading, even for seasoned traders, so make sure that you don't abandon your strategy just because you faced a loss. Sticking to your approach also contributes to the development of a successful long-term trading record. However, if the trading strategy consistently produces more losses than gains, the trader can abandon it.

Stop-loss and take-profit rules

One of the most fundamental concepts in risk management is reducing the possibility of large losses. And the greatest way to mitigate risk is to use a stop-loss or a take-profit method. Stop-loss levels are defined as levels set by traders that will automatically cancel trades that lose money. On the other hand, take-profit levels are levels that are responsible for terminating profitable trades before the trend shifts.

These tactics can help reduce the dangers associated with abrupt market movements, particularly if the trader is not physically present in front of his computer.

However, it is critical not to rely primarily on these strategies and to use them with caution. Make sure your trades don't close too soon or too late. Closing deals too early might lead to missed opportunities where a lot of money could have been potentially made, while trades that are closed too late could result in losses.

Balancing the number of positions versus margin

Money management is a technique for adjusting position size to avoid risk while increasing a trading account's growth potential. In this strategy, the amount of money invested in a single trade is strictly limited to 5% of the account value and never more. Although the dollar value of that 5% fluctuates with the size of the account, the 5% limit will ensure that your entire account is not overexposed to one position.

Because cryptocurrencies are so unpredictable and volatile, traders could lose all of their money in a matter of minutes, especially if they invest in high-leverage derivatives like crypto futures. As a result, it's critical to set a limit that will help to mitigate risk. When trading volatile assets, the rule of thumb is to risk only 1-2 percent of your investment in each trade. Take your time to understand leverage and margin in crypto trading.

Imagine you have $10,000 in USDT in any of your crypto wallets. In this instance, you should risk between USDT100 and USDT200 for every trade. As a result, even if the trade goes against you, you will only lose 1-2% of your account's capital.

Don’t over-trade

Excessive buying and selling of crypto assets by brokers or individual traders are referred to as overtrading in crypto. Both are extremely distinct situations with quite different consequences. Most rookie traders are known for overtrading, which arises as a result of their inability to regulate emotions like greed, fear, and enthusiasm. Certainly, having many open positions can result in big profits, but it can also result in massive losses, which can be devastating.

In addition to the risk per trade, traders should also consider the total capital at risk or the cumulative amount of risk in their portfolio. As a general rule, it is ideal to set your total capital at risk to less than 10% of your entire portfolio. This means that if you are risking 1% of your portfolio for each trade, the maximum number of open positions you will have will only be 10.


Without a doubt, crypto futures are excellent financial instruments for making huge returns. Furthermore, in addition to the massive gains, crypto futures also provide significant leverage. Traders can lose their entire investment in the blink of an eye if they don't clearly understand how trading works and how associated risks can be minimized. However, by following the money and risk management tactics outlined above, you may maximize your profits while minimizing your losses.

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