Risk Management for Crypto Trading (Part 04)
Hedging and Position Sizing Strategies for Risk Management in Crypto Trading were discussed in the last post. Basically, I am continuously discussing risk management, whereas in today's post, i.e. in the 4th episode, two more widely used & popular risk management strategies are being discussed.
Options and Futures: These two are derivative instruments. And in the trading sector that can be used to manage risk. Futures contracts create opportunities for traders to buy or sell an asset at a predetermined price at a future date. Business organizations, especially, sometimes need to have some assets in the form of coins in the future to meet the payment of their business.
If the price changes a lot then it will be a problem for them in the future. So this strategy can help them to mitigate the risk of future fluctuation of price. In this way, future needs of the demand for the asset have been ensured and the risk of price fluctuations is mitigated. Options give traders the right, but not the obligation, to buy or sell an asset at a set price before a specified date. These instruments can be used to create complex trading strategies.
Diversifying Across Exchanges: Another advanced strategy is diversifying your holdings across multiple exchanges. Different exchanges can have varying levels of security and liquidity. They have different operational risks. By spreading your assets across several exchanges, you reduce the risk of losing all your funds due to an exchange hack or operational failure.
Along with that, the price fluctuation in different exchanges can give you another opportunity to gain some arbitrage. For example, if TRX is traded in Poloniex at the price of 0.115$ and 0.113$ in Binance then there is an arbitrage chance of gaining the difference (0.115-0.113)$ that is another for each TRX by buying from one exchange and selling to another.
~ Regards,
VEIGO (Community Mod)
Upvoted! Thank you for supporting witness @jswit.
This part of the article in which you talked about more information related to the risk management of crypto trading is good. Earlier parts were also good and in this part I find that the information you have shared is interesting and surely worth going through to figure out if 1 can easily apply that will help the person to manage the risk for the crypto trading.
Indeed diversification among exchange is another great risk management incase one exchange is hacked we won't lose everything we have labored for, thanks for sharing.