May 15, 2020

Risk management: the basic concepts

The term “Risk management” is quite popular with traders and investors because cryptocurrency is thehigh-risk method of investing. Learn the basic concepts of this notion so that your trader and you are on the same wavelength.

The definition of risk management

There are many global threats on financial markets that influence the stability of markets and their participants, from а general fall of the market to problems with the cryptocurrency exchange’s availability. Sadly, a trader cannot affect them, so they are not a part of the whole risk management matter. The term usually means the threat of losing funds or earning less profit than expected as a result of financial dealings.

Risk management is a series of actions designed to reduce the risk for a working capital or other investments and profitable actions in an uncertain situation.

The most relatable term is “Cost of Risk”, which means entrepreneurs’ actual losses and the cost of managing risks, damage or compensations.

What makes a management system

Building management requires:

  • Smart strategic administration: it is a set of rules and restrictions for making decisions.
  • Tactical administration: methods and techniques for achieving goals.

Here’s an example of restrictions: a set of limits for risky dealings (the proportion of funds which can be used to deal with untrustworthy coins) and an exit point.

An example of rules: always have a capital cushion, about 25% of funds to catch up with the price declines.

How to boost the skill?

There are basic rules of risk management that can be used by businessmen, investors, and cryptocurrency traders. These rules are described in risk management manuals and can be studied at the training courses, too.

Particular risk management methods in cryptocurrency trading are detailed in various crypto media on the Internet and with practical advice, too. Additionally, they can be studied at lectures or in workshops.

Each trader has their own techniques of profiting and reducing possible losses, and they are often based on experience. But of course this subject is not of a total no-no: if a trader manages your funds, you are free to discuss all of the methods thoroughly. The easiest way is to check your trader’s experience in visual analytics. It indicates their success and can’t be faked unlike cryptocurrency exchange screenshots.