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When buying or selling cryptocurrency, your top priority should be responsible trading. This largely depends on proper planning. Creating a trading plan will help you take only deliberate actions.
Make decisions without emotions that may affect the success of your transactions. It will also be helpful to do your own research, diversify, use stop-limit orders, and avoid FOMO if possible.
If you trade using leverage, it is important to fully understand the possible risks. Binance offers various features that give users more control over the trading process, such as a voluntary lock-in period that allows you to lock your futures account for a certain period.
Introduction
Regardless of how much you trade, it is best to do so responsibly. Some techniques and helpful tips will help you reduce your risks and invest only what you are willing to lose. Many people tend to get carried away in the process. With our guide, you'll learn how to trade most effectively, determine the right limits, and increase your overall level of responsibility.
What is responsible trading?
Responsible cryptocurrency trading is not only about tracking your buying and selling transactions, but also about making rational decisions away from emotions. It is important for traders to take responsibility for their actions and admit in a timely manner that a particular trading method is not suitable for them.
There are different ways to invest or trade cryptocurrency. Options such as futures or margin trading can provide increased returns through leverage, but they come with their own risks. Some traders fail to use them responsibly. Buying cryptocurrency on the spot market and holding (HODL) are the safest options and may be better suited to your risk profile.
Responsible traders successfully refrain from actions that lead to negative results. Responsible cryptocurrency trading consists mainly in the fact that the trader sensibly evaluates his decisions and takes into account the negative factors that may affect these decisions. Beginning traders often trade impulsively or rely on intuition, since they have not yet developed the skill of responsible decision-making. Therefore, remember: the more objectively you try to assess the situation, the better.
How does Binance promote more responsible trading?
Binance trains and mentors users using the most effective techniques. Along with creating responsible crypto products, Binance was also the first cryptocurrency exchange to require users to pass tests on trading features. Binance Academy provides free information to educate millions of people around the world about safe investing and trading. Users looking to invest in cryptocurrency can find detailed reports on Binance Research.
The platform also implements certain anti-addiction measures to help those traders who are particularly susceptible to it. So, Binance may temporarily stop your trading activities if you suffer losses for a long time. This system is designed to combat impulsive trading behavior. These and other methods are actively used because Binance takes responsible trading extremely seriously.
More information can be found on the Responsible Trading page.
8 Tips to Help You Trade Cryptocurrency Responsibly
Cryptocurrency trading requires the ability to manage certain aspects of trading behavior. And it is not limited to buying or selling cryptocurrencies. Try following the tips below. You may think there are too many of them here. But believe me: they are all designed to improve your trading skills.
Protect your trading account and wallet
Before you even start trading, start with the main thing - protecting your account. Responsible trade planning will be meaningless if your funds, account and password are not protected. There are several ways to do this, including using two-step authentication (2FA), creating a strong password, and whitelisting withdrawal addresses. We've even put together a collection of 15 tips to improve the security of your Binance account. They will help you be confident that your cryptocurrency is secure (SAFU).
If you are using an external cryptocurrency wallet, the same rules must apply to your private key. Please remember that you cannot share your private key, seed phrase or bank account information with third parties. Depending on your needs and security level, you can choose a digital wallet from Binance Smart Chain's list of recommended wallets. You can also store additional funds in a hardware wallet for the highest level of security.
Creating a trading plan
The best way to eliminate unnecessary emotions from the trading process is to make a plan and stick to it. This way, sudden profits, losses, rumors or FUD (Fear, Uncertainty and Doubt) will not be able to influence your decision making. So, what does a trading plan include?
Your plan should describe the trades you would like to take, the trading conditions, and your trading goals. Your risk profile and trading style are determined by your limits. It is important to approach drawing up a trading plan as responsibly as possible and strictly adhere to it in future work. A trading plan may include the following:
The amount of leverage you plan to use (if you plan to).
Entry and exit prices for specific trades.
Maximum investment amount as a percentage of total capital.
The level of diversification of your portfolio.
Distribution of your crypto assets.
End of trading (time, volume, etc.).
Maximum losses.
Products or assets you trade.
Stop-limit orders
You can increase your level of control over the trading process using stop-limit orders on Binance. It is impossible to monitor the situation on the market around the clock, and with such instability of the cryptocurrency, there is a possibility of encountering unexpected losses. Responsible trading involves ensuring that large amounts of cryptocurrency are protected from volatility. Once you create a trading plan, you can use stop-limit orders to successfully stick to it.
Let's imagine that you purchased 1 Bitcoin (BTC) for $15,000, after which its price increased to $40,000. You want to make sure that if the price drops, you don't sell Bitcoin for less than $30,000. Your profit will then be $15,000. This process can be automated by setting a stop-limit sell order.
The first thing you need to do is set your stop price at $32,000 – your limit order will be triggered when Bitcoin reaches this price. You then set the limit price to $30,000 - this way your 1 BTC will sell for $30,000 or higher if the stop price is reached.
If you leave a gap between the stop price and the limit price, your stop-limit order will have the best chance of being filled. Without this gap, the market price may fall below your limit price and the order will not be executed.
Please note: a stop-limit order will not necessarily be executed, but if executed, you are guaranteed to receive the price you set or better. More information about using stop-limit orders can be found in the section What is a stop-limit order?
Study all available information yourself
While Binance Academy and Binance Research provide a wealth of educational and research materials, they should only be part of your own analysis. Be sure to do your own research (DYOR) to verify the information available.
This advice applies to both trading and investing on an exchange using decentralized finance (DeFi) products. No one can assess your risk profile and tell you what is right for your portfolio better than you. Before investing and trading, make sure you understand where you are investing your money.
Diversify your portfolio
If you decide to create a trading plan, then you should consider portfolio diversification to reduce risks. Holding just one or two assets in a portfolio tends to be riskier. Instead, you can diversify your portfolio by investing in different asset classes.
When working with cryptocurrency, it is worth starting with the distribution of your assets. For example, you can spread your investments across DeFi liquidity pools, staking, derivatives, stablecoins, and altcoins. The less committed you are to one asset class, the less likely you are to suffer large losses. For example, it is always possible to experience intermittent losses in the liquidity pool you have invested in, but you can easily offset them with profits from staking.
You can further diversify across these asset classes. Among the stablecoins that will help further reduce the risk of your portfolio, we recommend considering BUSD, USDT and PAXG for storage. However, these are just examples. There are other ways to responsibly plan your crypto portfolio.
Avoid FOMO
Missing Out (FOMO) is quite common for many traders and can negatively impact your performance. The fear of missing out on an investment opportunity can cause you to act rashly and ignore your limits and trading plans. Today we access vast amounts of information through the Internet, social networks and other communication channels, which makes us all more vulnerable.
Of course, it is important to do your research and find good investment opportunities online. But you also need to keep an eye on shilling. Users with hidden financial interests will promote their coins and projects regardless of their real value. Shilers use FOMO and manipulate traders' emotions. If someone convinces you that you're missing out on an opportunity even though you've never heard of it before, take the time to do some careful research before you risk your money.
FOMO can be caused by many factors. However, being aware of them will help you make informed decisions.
Social media: Twitter, Telegram, Reddit and other platforms facilitate the spread of rumors, false information and shilling. Be sure to do your own research. Many media personalities promote certain projects and altcoins for money, and scammers can use FOMO syndrome for criminal purposes.
Profit: With large profits, it can be tempting to use your funds recklessly. Overconfidence in your skills may also influence your decisions. Even with significant profits, your FOMO may grow in other areas.
Loss: The desire to recoup losses can influence the development of FOMO. FOMO can even cause you to enter a position, exit after a loss, and then return again. All this can lead to even greater losses.
Gossip and Rumors: Information on the Internet and advice from other traders may seem convincing and encourage you to invest. However, various rumors, tips or recommendations regarding a popular cryptocurrency should never replace independent research.
Volatility: Large price swings in both directions provide opportunities for profit. Whether you're investing in hopes of a price increase or borrowing by shorting it, it's easy to get carried away. You can even try to use a bear market to invest, but you will only end up with a falling knife.
Use leverage responsibly
The idea of borrowing against margin or futures to earn higher returns may seem appealing. But this comes with the risk of liquidation and loss of all your capital as losses will also be magnified. Liquidation isn't that bad if you don't exceed your limits. However, uncontrollable losses or risking large sums is not responsible trading. Before using leverage, make sure you understand how it works.
Leverage is often denoted by x - this means that 10x leverage multiplies your initial capital by 10. $10,000 with 10x leverage will give you $100,000 to trade with, and your initial capital is used to cover losses. Once your capital runs out, the exchange will liquidate your position.
Leveraged trading is not always used responsibly. It is associated with high risks, and therefore it is necessary to carefully study the Coin-Margined and USDT-Margined futures. Binance also protects new users by limiting their leverage to encourage responsible trading.
Use a voluntary lockout period
To help traders use leverage responsibly, Binance offers a feature for Binance Futures that helps monitor trading volume. Proper use of the lock-in period will help you stick to your trading plan and control your funds. This function allows you to block your account for up to a month. Once the lockout period is enabled, it cannot be disabled until the lockout period expires.
Summary
Trading must be done responsibly, including on stock exchanges. Binance takes its mission of helping traders make the right decisions seriously. No matter what you trade, you should always apply proper risk management strategies and do your own research. If you are worried about your trading performance, feeling overly stressed, or losing money uncontrollably, please contact Binance Customer Support.