How to Manage Risk and Trade Responsibly
Risk management is an essential component of trading. With proper risk controls, you can reduce losses and prevent yourself from losing your entire trading capital. If risks can be controlled, you can increase the chance of making money in the market.
After all, without a proper risk management plan, you could lose all significant profits in just one or two bad trades.
What is Responsible Trading?
The beauty of a free market is that everyone can participate in it. When you’re in a trade, the market will do whatever it wants to do - it could go up, down, or even sideways. As such, market movements are completely out of your control.
What you can control instead is risk, and decide how and when you trade, under market conditions that are conducive to your methods and style.
Responsible trading is about having complete control over your trades and taking responsibility for your actions. Trading responsibly calls for not spending beyond your means. In other words, don’t risk money that you can’t afford to lose.
Here are some tips and good practices that will help you be a more responsible trader:
4 Areas of Responsible and Safe Trading
1. Practicing Self-Discipline
When trading, self-discipline refers to avoiding unhealthy excesses like compulsive trading or gambling. We advocate users trade responsibly and practice self-discipline, especially when they feel pressured by losses or a losing streak.
Our system-generated notifications constantly remind users of the dangers of compulsive trading and the risk involved when trading more complicated products like derivatives.
2. Continuously Educating Yourself
Cryptocurrency trading is a vast subject that may seem overwhelming to novice traders. As such, you need to continuously educate yourself to stay sharp and competitive.
Binance has worked towards educating its users on every aspect of crypto trading, from the underlying technology of cryptocurrencies to the complexities of crypto-economics. These are freely available on Binance Academy, Binance Research, and Binance Support Pages.
3. Protecting Your Capital at All Times
Risk management is a core component that is key to every trader’s success. It helps you avoid substantial losses that can lead to you losing your entire trading account.
On the Binance trading interface, we have established risk management features such as stop-loss orders to help users manage the risk in individual trades.
Additionally, Binance Futures have also established other safety features such as liquidation mechanisms and insurance funds to protect users from adverse losses.
4. Knowing When To Stop
Knowing when to stop, and learning to recognize unhealthy trading habits, calls for being honest with yourself about the risks you take on and the behavior that accompanies it.
After losing, for example, do you then keep trading to recoup your losses and risk running up heavier losses in the process?
As a responsible trader, you should always keep yourself in check and ensure that you have procedures to avoid compulsive trading disorder.
Binance has set in place several procedures to remind users and prevent impulsive behavior. For instance, when a user experiences a losing streak or suffers a heavy loss, we continuously remind them of the risk involved in trading and encourage them to hold back on trading activities.