This week, the market has maintained a downward trend that has intensified over the past two days, affecting our trades and increasing our risk exposure, especially when trading futures.
While managing risk doesn’t guarantee that every trade will be a winner, it does allow us to protect our capital and stay in the market. That’s why today I’d like to share the key principles I consider essential for protecting your capital and managing risk when trading futures.
Risk monitoring indicators
Margin ratio: This is an indicator of the risk level of our position. It reflects how close we are to liquidation being triggered.
The higher the margin ratio, the greater the risk.
When it reaches 100%, the liquidation process is triggered.
Don't wait until it reaches the limit to make decisions.
Liquidation price: The price at which Binance may close our position when the available margin is insufficient to maintain it.
For LONG positions, liquidation occurs if the price falls.
For SHORT positions, it occurs if the price rises.
Adding margin can move the liquidation price further away, but it does not eliminate the risk of loss.
Risk management
Before opening a trade, you should have a trading strategy in place and establish risk management measures to control and mitigate the risk of losses. To do this, keep the following recommendations in mind:
Set aside capital specifically for futures. Don't commit all your savings or money intended for other goals. Trade only with capital you can afford to lose.
Don't use all your available capital in a single position. As a guideline, allocate between 1% and 3% of your available portfolio capital to each trade.
Set up protective tools, such as Take Profit, Stop Loss, or Trailing Stop, if you can't monitor your trades or notice high volatility.
Don't use DCA (Dollar-Cost Averaging) impulsively to try to recover losses. Before averaging down, assess whether the strategy and market conditions are still valid.
Try to keep the margin ratio below 18%. If it approaches the 40% threshold, consider reducing it by closing positions in full or in part, prioritizing those that use up the most margin in your portfolio.
Don't close profitable positions early if they still have the potential to generate gains and the strategy remains valid. Remember that realized profits are also a way to fund our portfolio.
Check the liquidation price of each open position and assess how close it is to the current price, so you can identify higher-risk positions and take preventive measures before forced liquidation occurs.
As @Kiu Trades always reminds us, the goal isn't to win every trade, but to keep losses under control and ensure that one bad entry doesn't put all our capital at risk.
In trading, surviving the market is also a strategy!
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