Important to cryptocurency traders - how to reduce the risk of your investments

in #cryptocurrency3 years ago

First time I heard about risk management (A.K.A. Diversification) during my accountancy studies. When you work with money, you want to know how to keep them as safe as possible. Even if you are a person who is not trading or investing, it's 2018 and you probably keep money in your bank account.

I want to tell you a story of one big Lithuanian bank which was successful and reliable for a very long time. Everyone has its dark secrets, right? This bank wasn't an exception too, hiding its huge financial problems. Once the news reached society, everyone rushed to take their money back while it was still possible. Sadly, only premium clients and those who made it first got their money back. Others were left with nothing because bank couldn't have all the money at that moment and therefore it went bankrupt.

You can never know when something what is stable, reliable and secure is going to quit, retreat or dissapoint you. Make sure to diversificate (allocate) your investments between different banks, stock markets and cryptocurrencies.

There is a big variety of cryptocurrency exchange platforms today and even the biggest and most known ones like #Poloniex, #Bitfinex or #Bittrex can mysteriously banish your beloved currencies. That's why you should use a variety of exchange platforms to be a successful trader. Just note this - if you have, lets say, Verge coins, then split them to 5 parts and trade in 5 different exchange platforms but one of them quits, you still have 80% of your #Verge coins left. If you are using one platform and it quits, you loose all the coins you had.

The same goes with variety of cryptocurrencies you have. Based on the article in Investopedia, a well-diversified portfolio of 25 to 30 stocks yields the most cost-effective level of risk reduction. It also applies to crypto. So if you are a real Bitcoin fan, you might get dissapointed as soon as Bitcoin hits its bottom. But if you are investing in a bunch of other coins too (my favorite are #BTS, #RDD and #XVG) it won't hurt that much as some of them might skyrocket at the same time as others fall.

Also, consider holding your cryptocurrencies in wallets (such as paper, web, hardware wallets etc.). It is safer than keeping your coins in cryptocurrency exchange platforms.

Those precautionary measures can reduce the risk of your investments DRASTICALLY. That is, if one exchange platform quits or one cryptocurrency hits its bottom, you still have a decent amount of coins left. Otherwise, if you do not diversificate, you can loose everything and might even be too afraid to start trading ever again.

My tip of the day: never trade all the coins you have. Trading might be risky, use maximum 20% of your coins.

*I own only the first picture (that one with my face)

Very valuable post @oncyfia. Thank you for sharing. Diversify seems like the way to go!

Thank you! I just want people to be aware of the risk and ways to reduce it so they wouldn't loose their money and wouldn't stop trading / holding :)

Thank you, hope it helps :)

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