Risk Management

Almost all (good) trading advice will highlight the importance of managing risk. The reasoning behind this is that in order to make money you need money, if you have no money it can be pretty tough to profit from the markets. 

 

With non-leveraged spot trading Bitcoin, you will never run the risk of losing all of your capital but managing risk and expectations is still paramount. 

 

Assessing your account’s risk comes down to three main factors: 

 

  1. How important the capital you have in your account is to you now 
    1. Bills to pay
    2. Taxes
    3. Mortgage payments/rent

 

  1. What percentage of your liquid net worth is in the spot account you are trading
    1. Under 25%: Low risk
    2. 25% to 50%: Higher Risk
    3. Over 50%: Very high risk 
  2. What you stand to lose if BTC moves opposite to where you would like it to go
    1. If BTC and you are fully in USD, ask yourself how that would affect you
    2. If BTC falls and you have committed all of your capital to BTC, ask yourself how that would affect you

 

For example, if you need capital immediately from your spot account, are trading with the majority of your liquid net worth, and you stand to lose a lot if BTC moves adversely — these three factors lining up would be an example of extremely high risk. 

 

However, if you don’t need capital immediately from your spot account, are trading spot with under 25% of your liquid net worth, but you stand to lose the ability to buy a new car you’ve been saving up for: that would be considered a situation of low risk. This is because you don’t need the capital immediately and have time on your side, and you haven’t committed a large portion of your net worth to your position as well. 

 

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