Min menu


 How To Minimize The Risks When Trading Cryptocurrencies?

How To Minimize The Risks When Trading Cryptocurrencies?

Investing in cryptocurrencies can pay off big, but the risks are just as important: risks of hacking, operational, technical, related to the lack of knowledge or the emotions of crypto investors, to price volatility, to new products ...

Let's find out how you can minimize the risks in your cryptocurrency trading with a few tips.

How To Minimize The Risks When Trading Cryptocurrencies?

Choose a serious and reliable crypto platform

The risks of scams are high in the cryptocurrency world. This is why you need to make sure you choose a known, serious and reliable intermediary if you want to acquire or trade cryptocurrencies.

Cryptocurrency exchanges are not really regulated. You should therefore focus on the most famous and popular platforms like Coinbase, Binance or even Kraken. 

If you want to use cryptocurrency derivatives, you should always select a regulated stock broker to benefit from maximum protections and guarantees.

Use a VPN to trade cryptos

All transactions made with cryptocurrencies appear in the blockchain, which acts as a public account ledger. This makes it easy for hackers to view the transaction log and trace your IP address.

Many traders therefore use a virtual private server (VPN) in their crypto-trading to better secure and protect their online data and their crypto transactions from malicious actors on the web.

A VPN allows you to hide your real IP address and your geolocation for better anonymity, to secure your data with protection algorithms, to bypass the restrictions linked to the use of certain sites in certain countries to take advantage of all the trading services, to stay protected regardless of the type of Internet connection you use ...

Take advantage of risk management tools for crypto trading

Whether it's traditional trading or crypto trading, having a money management strategy in place to protect your capital is essential.

Depending on your trading strategy, your risk aversion and your financial objectives, you can for example use stop loss orders, take profit orders, vary the leverage, adapt the size of your positions to the conditions market, follow the news, etc.

Good risk management also involves improving your knowledge of crypto trading and controlling your emotions.

Transfer your tokens to a cold crypto wallet

You always need a wallet to hold the tokens you have purchased. A cryptocurrency wallet acts a bit like a bank account: you can store your tokens there, receive them, send them and sometimes convert certain virtual currencies.

To avoid having your crypto funds stolen from you, or losing them in the event of the bankruptcy of the online platform that keeps them, it is always advisable to avoid leaving your cryptocurrencies in the platform's wallet and transferring them to a cold wallet. The latter is a type of hardware wallet disconnected from the Internet that often looks like a USB flash drive.

By using an external physical wallet, you prevent your funds from being easily accessible to hackers. This option is ideal if you have invested a large amount in cryptocurrencies or if you intend to hold your tokens for the medium to long term.

Diversify your crypto investments as well as possible

Diversification is a key concept in trading. By investing in different asset classes, in different currencies, in different geographies and in different industries, you will obtain an optimal investment portfolio with uncorrelated (or weakly) correlated assets.

This is how you will be able to reduce the risks weighing on your portfolio to avoid significant financial losses due to positive correlations between the assets in your portfolio.

Although the cryptocurrency market tends to move in the same direction overall, and often follows the direction of Bitcoin, it is better to invest in several different tokens rather than putting all of your capital in a single cryptocurrency.

Consider the Dollar Cost Averaging method

One of the most difficult aspects of crypto trading is knowing when (or price) to enter the market. This is even truer when you take into account the extreme volatility of the market.

The recurring investment method, or DCA (Dollar Cost Averaging) method, is a popular strategy for smoothing the average purchase price of a cryptocurrency over time by investing recurring amounts to minimize the risk of an investment. .

You will also be able to better control your budget thanks to this strategy with automatic tools like the StackinSat Savings Plan and avoid letting emotions like FOMO take over.