August 09, 2021

Risk Management: Ed Khan’s Professional Opinion. Part 3

Today we continue to talk about risk and money management. These concepts determine 90% of your success in the crypto market. The questions are answered by a professional in his own area, a trader with years of experience, Ed Khan.

How do shoulders affect risk?

Actually, they don't. I can put 1% of the deposit in the $1000 range with both x2 and x20 leverage. If I have the same number of contracts and the stop loss is at the same price – the volume of loss will be the same, regardless of the leverage. Leverage only affects the size of margin. This is an important metric for users who trade without a stop loss. After all, the lower the leverage, the greater the margin deposit, but the further the liquidation (to read the introduction to margin trading please follow the link). And vice versa, the higher the leverage, the lower the deposit, but the closer the liquidation. Hence, all manipulations with the leverage just delay or bring liquidation closer. Although for reasonable users, the stop loss is always closer than the liquidation price. That's why the size of the leverage does not matter. For example, I trade conservatively and can afford Cross-leverage.

How can the risk be taken into account when calculating a position size?

Working with the exchange calculator. Such a calculator is a good trader's primary friend. You choose a number of contracts, so at the specified entry and exit prices, you lose exactly as much as planned. This metric is shown by PNL (Profit and Loss Explained).

What is the difference between the methods of working on the spot and futures markets?

The spot has no liquidation (more about the spot market in our article). Therefore, averaging is allowable there (purchases on massive falls), overstaying, etc. But I recommend working this way only with highly liquid coins. A sh*tcoin with a capitalization of a couple of thousand dollars may never grow back, making you a hostage forever. Large coins go through more predictable cycles, so a little "toxic" (martingale, averaging, trading without stop loss) is acceptable there. Every asset grows in price on the bull run, but on bearish corrections, you have to learn some patience. Futures are more demanding on RM and MM. Although the earnings prospects are higher, you have the opportunity to lose everything in a couple of minutes.

When it comes to futures, I would recommend aiming for realistic goals. You can earn +50-100% per month, but not for long. Soon there will be a deposit drain. An adequate profit indicator is 10-15% per month. Even if you earn 6-7% monthly, you will double your deposit in a year thanks to the effect of compound interest. Just recalculate the deposit once or twice a month (taking into account the earned amount) and risk with a new sum. Greed and spot are wrong friends. Greed and futures are foes!

Final Words

We hope that this article has been useful and you have learned the main idea about money and risk management. The key thing to remember here is that you need much practice. So try to put the tips into practice right now! See you soon on the pages of the Equite blog.

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