Key takeaways:
When investing in the cryptocurrency contract market, responsible trading is crucial.
Risk management strategies protect users from excessive trading and market manipulation.
Binance Futures provides a variety of tools and features to encourage users to improve their financial management and control.
A responsible investment approach helps protect you from unexpected outcomes and market shock bombs, and is therefore the cornerstone of a successful trading experience.
Binance provides a variety of tools and features that allow users to improve transaction control, eliminate risks, and encourage users to trade responsibly.
Why is responsible trading important?
Trading cryptocurrency contracts may be exciting, but it can also sometimes lead to financial stress due to uncertain market conditions. What's more, traders often encounter unscrupulous people and malicious behavior, causing overall market instability. These examples may encourage impulsive trading, thereby increasing the trader's risk exposure.
Responsible trading is about improving the control of your trading and overall trading strategy. It can further help you protect yourself from market disruptions caused by unexpected events.
Risk Management Best Practices for Trading Cryptocurrency Contracts
1. Cooling-off period
Binance Futures integrates a cooling-off period feature to prevent users from over-investing in forced transactions. This feature allows you to pause contract trading activity for a preset period. You can set a cooling-off period based on your needs, which can be as short as one day or as long as one month.
Traders who worry about market volatility or incurring losses may develop fear of missing out (FOMO) or panic selling and overtrade. When this happens, it is recommended to use the cooling-off period function and take some time to think about your trading strategy to prevent hasty decisions. Once a cooling-off period is enabled, you cannot terminate the feature until the period ends.
2. Take-profit and stop-loss orders
A big part of conscientious trading is knowing when to enter and exit the market and following your trading plan. Tools such as take-profit and stop-loss orders help you block out your emotions and execute your trading strategy in a disciplined manner.
Take-profit orders help maintain profits when the market moves in line with your predictions, while stop-loss orders help minimize losses when the market moves in the opposite direction to your predictions.
These features help you manage risk effectively. Because these types of orders can be preset and automatically executed, you can take advantage of them to maintain preset profits or reduce losses even if trading performance does not go as expected.
You can also use the advanced take-profit/stop-loss function of Binance Futures to enter your expected profit or tolerable loss to set a take-profit or stop-loss price. The computer can help you set the trigger price and display the estimated profit or loss for take-profit and stop-loss orders respectively.
3. Spread protection
Spread protection is also a feature offered by Binance Futures to protect traders during times of extreme market volatility. This feature protects traders from unscrupulous individuals who would exploit loopholes in market efficiency to manipulate prices.
The spread protection function is also very useful when market conditions are abnormal, such as when there is a huge spread between the latest price and the marked price. Often the marked price will only differ by a few cents from the latest price. However, in extreme market conditions, the latest price may differ significantly from the marked price.
Such situations may trigger take-profit or stop-loss orders. You can enable Binance Futures’ Spread Protection feature to protect your trades from extreme market conditions.
As long as this feature is enabled, it ensures that stop-loss or take-profit orders expire immediately when the difference between the latest price and the marked price exceeds a certain threshold.
Spread protection is a very useful feature for both new and experienced traders. It can ensure that the transaction price of the order will not differ too much from the market price.
4. Customize default leverage
Leverage is one of the important aspects of the contract market. Although leverage has the potential to maximize trader returns, it can also lead to huge losses if not used with caution (especially for novice traders who indulge in excessive leverage).
Binance’s custom default leverage feature allows users to preset trading leverage before opening a futures account.
When opening a futures account on Binance, you have three leverage options: 5x leverage is recommended for novices, 20x leverage is available for experienced players, and custom mode provides account leverage from 1x to 20x.
To ensure responsible trading, Binance automatically selects "Beginner" mode and sets custom leverage to 1x. Additionally, to protect novice users from excessive leverage, Binance limits the maximum leverage to 20x for new accounts registered within 60 days.
If you are new to cryptocurrency contract trading, it is also recommended that you start trading with 2x to 5x leverage.
Summarize
Everyone, including exchanges, should practice responsible trading. Binance provides a variety of tools to encourage users to adopt responsible trading methods, thereby demonstrating their commitment to responsible trading.
Binance Futures will continue to take proactive measures to provide users with risk management strategies to help users protect the safety of their funds.
