Risk management. Main aspects

Each of us faces risk management at home every day. When to get up so as not to be late for work, how much to set aside on a savings account, and how much, to insurance against rainy day, how to act so as not to become a victim of scammers. A lot of this is done almost unconsciously, but when it comes to financial markets and big money, you need to act exclusively consciously.

If we talk about individual traders and investors that are most understandable to each of us, then effective risk management will come down to control and rational distribution of several classes of assets: cryptocurrency tokens, goods, stocks, securities, real estate, etc.

Of course, universal strategies have been developed that can significantly reduce most of the possible risks even at a basic level. The simplest of them involves 5 separate steps. So.

Financial risk management

But all this does not always help. For example, the market may begin to move against the futures contracts. Or players may begin to hastily sell assets in order to somehow compensate for the sharp fall in value because of the banal panic and the impact of emotions.

The latter option is quite common — there are even targeted strategies that allow you to play it effectively. Most often, however, such a departure from a pre-selected behaviour strategy is observed during the periods of the “bear market” and surrender.

However, it is extremely useful to have at least some strategy of behaviour and a well-thought-out pool of possible actions. Especially if you regularly review and adapt it to the ever-changing conditions of the financial market. However, some basic mitigation actions rarely change.

The most common risks and ways to mitigate them

Conclusion

Before you start working with any cryptocurrencies, you need to understand the basics of risk management. A basic strategy will be enough, especially at first. Plus, be ready to lose money anyway — theoretical knowledge does not compensate for the lack of practical experience.

Over time, understanding will come about how to act in each situation. And the realization that financial losses in this business is basically impossible to avoid. However, it is possible to create an effective strategy to make the profits dominate the losses in time. This is the key to effective risk management.