Educational Post

What is risk management?

Risk management entails predicting and identifying financial risks involved with your investments to minimize them. Investors then employ risk management strategies to help them manage their portfolio's risk exposure. A critical first step is assessing your current exposure to risks and then building your strategies and plans around them.

Risk management strategies are plans and strategic actions traders and investors implement after identifying investment risks. These strategies reduce risk and can involve a wide range of financial activities, such as taking out loss insurance and diversifying your portfolio across asset classes.

Risk Management Strategies

1. The 1% rule is a simple risk management strategy that entails not risking more than 1% of your total capital on an investment or trade.

2. A stop-loss order sets a predetermined price for an asset at which the position will close. The stop price is set below the current price and, when triggered, helps protect against further losses. A take-profit order works the opposite way, setting a price at which you want to close your position and lock in a certain profit.

3. Diversifying your portfolio is one of the most popular and fundamental tools to reduce your overall investment risk. A diversified portfolio won't be too heavily invested in any asset or asset class, minimizing the risk of heavy losses from one particular asset or asset class. For instance, you may hold a variety of different coins and tokens, as well as provide liquidity and loans.