Risk management

Trading, especially in the Crypto scene is supposed to be a 'Get-rich-quick' scheme according to most social media, as people out there always brag around with how much money they have made, but the dark reality is that 90% of traders act as Exit liquidity for the few that actually remain profitable in the Long run, this is a rather detailed Summary about Risk Management and some suggestions on how to improve your understanding of managing funds.

Starting with the basics, Risk Management itself contains several important topics you should always have in mind and consider them when starting Trading:

• Emotions This contains 4 big emotions that every trader has to deal with, which are Greed, Fear, Depression & Euphoria Greed - You are overexposing when opening trades, thinking it would lead to a quick growth of your capital or marrying a position thinking it will keep going higher and perform even better, without actually taking Profits just to see it turn into the opposite direction after while

Fear - You are constantly scared of losing money and get over stressed which will reflect actions taken in real-life and trading

Depression - After several losing trades you start to 'make back losses' by simply taking trades you shouldnt take (revenge trading) which in the end leads to a full portfolio liquidation and the idea of quitting trading

Euphoria - You had several winning trades and your portfolio has grown by quite a bit without any major losses, leading to you thinking this streak will continue and you start overexposing

To keep these 4 emotions under control is giving most traders a hard time, so always stay calm when trading, consider every possible outcome, dont get stressed over a loss streak and start revenge trading, perhaps even consider a short break before you step back into trading and opening positions, if you had a bad day in real-life and you're already stressed then consider not looking at the market and dont open positions, not controlling your emotions usually leads to bad decisions which you should be trying to avoid.

• Leverage Leverage is used to multiply your Position size of a trade by 'borrowing' money from the Exchange itself, as an example you are opening a Trade with 100$ and 10x Leverage which leads to a 1.000$ Position size for the trade and a 1% movement (x10 Leverage -> 10%) from the asset would grant you 10$ Profit

Many people dont understand the concept of Leverage and its two modes Isolated and Cross, while Leverage itself doesnt matter most advanced traders stick to lower Leverage as they simply have more funds available than new people - It doesnt matter, but why is that?

To keep it short and simple, a 10$ and 10x Leverage Trade has the same Risk (Loss & Profit) as a 1$ and 100x Leverage Trade on Cross Mode, whilst on Isolated the 100x leveraged trade would be Liquidated after 1% movement into the wrong direction of your trade, however with Cross you can hold that trade into higher negative numbers than -100%, so a -500% (5% movement on 100x) is also possible and while the 10x Trade is -50% in negative, the 100x is -500% but both have the same amount of loss when it comes to Margin, as we have used less Margin on the higher leveraged Trade so it would be -5$ on both trades. The preferred and less stressful Leverage for new Traders would be somewhere between 1-10x, when following advanced Traders in Signals Groups such as Axion you dont necessarily have to use their Leverage which could be 20x or higher for example, always stick to your own preferences and do what you are most comfortable with, after all its your capital you are trying to protect and grow.

• Capital Usage, Storage & Exposure Something most people dont understand is the simple fact that Exchanges arent your friends, they dont try to see you grow and perform well, after all they make their money by your loss. While no Exchange is 100% safe, some are less riskier than others, for example an Exchange that holds licenses in almost every possible Country and is well respected by the Trading community is more likely to trust than one that requires no KYC (Know Your Customer) and tells you nothing about who is holding your funds. Always use an Exchange that has their Proof of Reserve published and is licensed in many countries, try to avoid new & small Exchanges even if they offer you a lot of Bonus for joining them and less fees, it is your Capital which is at risk there, so take it serious when picking which Exchange you want to sell your soul to.

As for the Usage of Capital, I personally have 90-95% of my Capital stored on a Hardware Wallet (Trezor & Ledger) as 'Longterm Investments' and I am only using 5-10% of my funds for Trading itself, which is more than enough considering you want to sleep in peace not thinking about a total wipe out of your entire networth. Remember, Spot Trading is always less stressful and risky than Perpetuals with Leverage and potential Liquidation.

Exposure ... while every Trader has a different opinion on the optimal exposure for a trade, I can only speak from my perspective Lets pretend the Funds you have available for Trading is 1.400$, most traders use 1-5% (I personally go with 2%~ depending on the trade/risk itself) You are using 5% for the trade which in this case would be 70$, say we use 10x Leverage and the Position size will be increased to 700$, while the profits seem to be 'low' compared to the initial Capital you have you shouldn't underestimate constancy and compounding. Even with as little as 0.2% Account growth per day you can double the entire capital within a year, always take it slow and steady Trading is a Marathon, not a Sprint. However, traders shouldnt aim for a daily or weekly Account goal as this forces you to trade - this was simply an example, hope you understood the assignment.

Always have a plan when opening Trades, use a proper and reasonable Stoploss, never be too greedy when taking Profits and dont let a single Trade damage your entire portfolio, refrain from overexposing and overleveraging and dont be disappointed if you have a Loss streak, things like this can happen even to the best traders, understand when to pass on a trade (for example with News around) or when to take a break, especially Weekends are riskier than Weekdays, simply because there is less Volume and the market is easier to manipulate by the big players, leading to higher Volatility sometimes and quick Liquidation wicks.