Risks in cryptotrading

Risk management in crypto trading: trading crypto without losing it all

As long as crypto existed, it went hand in hand with cloaks, daggers, danger, and Hollywood-level intrigue. The unknown creator is gone (not that anyone knew who he was, to begin with). The first time crypto made major headlines was with Silk Road. New hacks are reported more and more often. 

These days, it isn’t getting any safer. 

Do you think Bitcoin mechanisms are safe from Sybil attacks, packet sniffing, forced clock drifting, malicious code, security vulnerabilities, and a long list of other catastrophes? 

Turns out 80% of ICOs are scams. 

Users plant subdermal wallets somewhere no-one can find them because carrying them around is dangerous, and getting hacked is still as easy as going to sleep and realizing all your money is gone and no-one knows what to do to help. 

Most significant risks

Most significant risks

Probably the worst part though is not when you get to blame it on a mysterious superspy who hacked you (that can happen to anybody) but when you make the wrong decision and your money disappears perfectly legally. Then there’s truly no-one else to blame. Learning all about risks in crypto trading is vital. But that’s not as easy as it sounds.

Everyone tells you to ”never trade without a stop-loss order. Limiting your losses will be the best thing you’ve ever done”. You know that’s true. Bill Lipschutz, Stanley Druckenmiller and George Soros are all absolutely adamant about it.  You also took into account Toshko Raychev’s advice and absorbed all of Andreas Antonopoulos’s wisdom plus you’re basically in the know.

Then your assets get sold automatically as the price drops, you experience some losses while thinking to yourself: “Well, at least I didn’t lose all of it”. 

Then the price climbs. You threw your Bitcoins under the train at $900 apiece to save yourself from certain demise. And now they’re selling at $15 000. So much for good investment advice. 

Well, you certainly followed one golden rule of risk management – protecting your capital is more important than gaining new capital. But ultimately because of a missed opportunity, you lost money. A lot of it. Or have you? How do you even calculate your wins and losses?

Food for thought:

  1. You may not be able to use all of these at once on different monitors (but we would if we could, they’re so good) – but it’s definitely worth giving them a shot. Here are examples of good risk management software programs.
  2. Definitely give P+L a go. 

Your neighbor Johnny bought some Bitcoins in 2013 at $70 and forgot all about them. He doesn’t care about Bitcoins. He thinks they’re nonsense. Well, not anymore but he used to think they’re that psychedelic substance hippies smoke before free love. Actually, he meant to buy brownies but wrote it down unintelligibly on his grocery list. Now, Johny just made a 21328.571428571428% profit.

Or maybe Johnny has some money and he originally wrote down “Buick” on his shopping list. How much profit would he have made then? Yours and his results tell us Johhny has a perfect risk management strategy (and he can’t even spell any of those words). So how to get risk management right?

How to make sense of it all? 

The important thing about crypto is learning that there is a lot to learn – and taking it one step at a time. The first things you have to do if you don’t want your money stolen are basic, but they work. 

How not to get your money stolen

How not to get your money stolen

Making good decisions means covering as many angels as possible. Here are the basics: 

  1. Find a reputable company to trade with. Look for established professionals with good reviews and ongoing updates. 
  2. Read the reviews before registering. 
  3. See which news the company you’re about to hand your money over to was featured in. Some companies are vicious. Go for a deep dive. 
  4. Set up 2FA. 
  5. Use a browser that offers security (TOR and Brave are good options). 
  6. Write down your password along with the words “Bitcoin wallet password” and stick the note on your monitor. Warning! This is a joke. Obviously, memorize your password and don’t tell it to anyone. When it comes to large chunks of data if you have to write personal information down, separate it into parts – or better yet, use a hardware wallet like Trezor. 
  7. Don’t be in a hurry to open links from unknown sources – watch out for phishing. 
  8. Read and weep. Research more ways of protecting yourself by reading and watching courses like “Hacking The Hacker” etc. 
  9. Maybe even get a subdermal wallet (why not?). 
  10.  Risks are inherent to trading. Often missing is the opportunity to talk to someone who can help if something is badly wrong. Nominex, is a good example of an exchange that offers a huge database of educational articles and 24/7 support who will actually be there for you. In the unlikely scenario they aren’t, there’s always the community, which is only a click away. 

Risk-free crypto trading

Getting your risks down to a very minimum depends on implementing as many precautions as you can. That way, you can make failure the exception and not the rule. 


Now that we’ve more or less covered the basics, it’s time to put your clairvoyance skills to the test. A large share of fails comes from not being able to predict where the trend is going. 

That is mostly because people either don’t pay enough attention to the news or because there are so many variables that you never really truly know what’s coming. However, you can still control some of the outcomes some of the time. Here are the most important types of risk to consider. 

Credit Risk

This happens when companies who hold on to your money or who have your money fail to deliver. The best example of a cryptocurrency trade fail probably is MT Gox, an exchange that collapsed (more here), almost annihilating people’s faith in crypto – but somehow crypto survived. That is why we paid so much attention to the fact that you need to know everything about the companies you do business with. 

Countering Credit risk

  1. Read the reviews before registering. 
  2. Inspect news about the company you’re about to hand your money over to. Some companies are vicious. Do a deep dive. 
  3. Analyze the news about the company. See share performance over time. Specifically use quotes to search for fails and misdemeanors.

Systemic Risk

The Great Recession

Systemic Risk refers to events in the market (eg The Great Recession) like changes in price due to wars, laws that come into effect, and so on. These are factors that affect the whole market (or its part).  What if SEC bans crypto completely? What if your country bans blockchain? What if the US prints so much money no-one wants to have anything to do with the USD anymore? A certain class of assets may sink. Check out its volatility predictions.

How to counter Systemic Risks

Diversification matters for more reasons than one. An important rule is: don’t put all your eggs in one basket. Crypto is awesome, but that shouldn’t stop you from keeping some cash, some guaranteed-return bonds, some futures, some crypto, and some gold. If one asset class goes out of circulation, you’ll still have the others. Are you with us? 

Risk management pyramid

There’s no need to get paranoid and build an atomic bunker just to be prepared for any event, but reasonable diversification is good. Oh second through though, maybe the bunker idea isn’t so bad. The media tells us the Communists are almost ready to parachute on your lawn anytime now. Is that a hammer and sickle we just saw outside the window? 

Bad intel

As far as risk management in crypto trading is concerned, some will tell you there are guaranteed ways to win. Hey, why don’t you use the Martingale system and double every time you lose? You’ll get your money back eventually. That works until you find out you’re bankrupt. 


The casinos (who came up with that system and spread the rumor that it works) are smart. They will also offer the convenient option of automatically withdrawing funds from your credit card when you’re in a betting frenzy so you can get into ridiculous debt in a very short time. 

Countering bad intel

Manage investments carefully! Dr. Alexander Elder’s advice to not invest more than 6% on any given day is a good idea, though you may find even only using 1% of your capital a day works. Definitely worth a try. Don’t bet 100% on an altcoin! But hopefully, you already get that. 

Legal risks

We already mentioned risks associated with regulations. Legal Risks are associated with changes that come from the government and the regulators. 

If the government arrests a company for fraud or just bans crypto in one country, there is a problem. Although crypto is so effective it lives on even in countries where it’s been banned multiple times, probably trading there is hazardous. 

Crypto is illegal in Egypt, Bolivia, Nepal, Morocco, Algeria, and Pakistan but it’s legal in pretty much every other country in the world (with minor restrictions). After the banking ban in China, do you want to use a Chinese exchange? 

Countering Legal Risks

This one is more complex, but you need to watch what’s going on with the regulations. Check out SEC’s site regularly. Is Bitcoin taxed as an asset? A foreign currency? Subject to income tax or, in the UK’s case, corporations pay corporate tax, unincorporated businesses pay income tax, and individuals pay capital gains tax? 

Whew! Looks like you need a lawyer! The good news is, signing up for legal advice will cost you less than $100 a year and financial analysts are surprisingly susceptible to answering questions if you turn up with donuts and coffee. Stay in the know! 

Liquidity risks

It’s great having a lot of crypto. And yet, history shows today you may have it at $20 000 and tomorrow it sells for less than a third of that price. 

Some assets are very liquid. Sex sells. So do diamonds. In a time of trouble, food and water have high liquidity. However, it’s not impossible to have valuable assets on your hands that you just can’t sell. In this case, you’ve got trouble. 

For example, you may have all your money in property and you’re buying houses, redoing them in a chique way, and then selling them. Suddenly you need money to pay off a debt. Your houses are not selling. That means you have too much money invested in non-liquid assets/assets with low liquidity. 

Countering liquidity risks

  1. Make sure you have enough liquid assets for possible emergencies. 
  2. Make sure you have as little debt as possible, don’t borrow a lot, and keep track of how much you owe.
  3. Diversify. 
  4. Keep a cash stack. Calculate how many liquid assets you have and how long they will carry you if the worst comes to worst. The timeframe is what matters. 
Type of Risk Description Solution
Credit RiskHappens when companies who hold onto your money or who have your money fail to deliverDo your research! Lots of research!
Systemic RiskRefers to unexpected situations like wars, pandemics, newly introduced laws etcAnalyze the volatility predictions of the market and make sure to diversify
Bad IntelCasinos and other gambling nichesManage investments carefully and don’t fall into mind traps
Legal RisksRisks associated with changes that come from the government and the regulatorsKnow the regulations situation, keep an eye on the news and the environment
Liquidity RisksOwning assets that you can’t actually sell presents a lot of risk to inexperienced tradersDiversify and make sure your assets are all liquid


As far as advanced techniques go, some are more important than knowing what to do. These concern knowing how to do it, when, and what for. Which can ultimately make the difference between winning and losing in the long run. 

Study analysis in-depth

Although a controversial subject, technical analysis can genuinely help you get ahead. The results, however, are not guaranteed. 

Know why you’re trading and leave when you reach your goal .

In speculative markets, especially as speculative as crypto, it’s easy to get carried away. However! As much as they will tell you it’s all about technical analysis and experience, a lot of what’s happening in the markets is just luck. Besides, with the level of incentives for hackers, getting cleaned out is a real opportunity. Your chances are growing the longer you stay in the game. 

Set yourself a goal. Measure your progress and losses. Alter your strategy accordingly. But when you make enough money to buy that bungalow in Hawaii with a sea view, stop trading, get your cash, and walk away. Sounds frivolous, but you need to know when to stop. 

The psychology 

cycle market emotions

Listen to your nearest and dearest if they’re telling you your judgment is becoming affected, make time to rest properly, and try going to a psychologist to get a second opinion on whether you’re healthily doing everything. 

Lose bad habits like smoking (definitely). Exercise enough. Keep your ego in check! “I know what I’m doing”. Famous last words. 

It’s enormously important to keep a cool head. Especially when it comes to day trading, which is an infuriatingly nerve-wracking profession, you must always be in control to make adequate decisions. 

Risk management

Let's see how attentive you were - did you pay attention to what you just read, or were you just thoughtlessly scrolling through the article? Time to find out!


Now that you know the most important aspects of trading responsibly and minimizing risks, remember never to forget the seemingly small but important foundational rules. 

Is there anything else you want to see covered? Let us know in the comments. Happy trails!


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