How to Trade Crypto Responsibly

How to Trade Crypto Responsibly

Beginner
แƒ’แƒแƒ›แƒแƒฅแƒ•แƒ”แƒงแƒœแƒ”แƒ‘แƒฃแƒšแƒ˜ Aug 6, 2021แƒ’แƒแƒœแƒแƒฎแƒšแƒ”แƒ‘แƒฃแƒšแƒ˜ Mar 15, 2023
10m

TL;DR

Trading responsibly should be your top priority when buying or selling crypto. Much of trading responsibly comes from proper planning. Creating a trading plan can help keep you accountable for your actions later on.

By making decisions when you have a clear head, you can avoid emotions affecting your trades. You should also consider doing your own research, diversification, using stop-limit orders, and avoiding FOMO where possible.ย 

If you trade using leverage, make sure you fully understand the risks involved. Binance has also included features to give you more control over the amount you trade, such as the Cooling-Off Period. This option allows you to lock your futures account for a fixed period of time.

Introduction

No matter how much youโ€™re trading, itโ€™s best practice to make sure youโ€™re doing so responsibly. With simple tips and methods, you can reduce unnecessary risks and make sure youโ€™re only trading what you can afford to lose. For some people, it can be easy to get carried away. If you want to learn how you can better manage your trading, read through our guide to determine your correct limits and improve your overall responsibility.

What Is Responsible Trading?

Trading crypto responsibly is more than just watching how much youโ€™re buying and selling. You should be in control of your trading behavior rather than act based on emotions. You also need to take accountability and understand if the trading activity youโ€™re doing really works for you.

There are many different ways you can invest in or tradeย cryptocurrencies. Alternatives like futures and margin trading can provide large returns through leverage but are riskier. Some traders may struggle to use these responsibly. Buying crypto on theย spot market andย HODLing is a safer option and might be more suitable for your risk profile.

Responsible traders will avoid the behavior and activities that can lead to irresponsible trades. A large part of responsibly trading crypto is to recognize when your decision-making might be negatively influenced. This skill does come with time and experience, and itโ€™s common for new traders to trade impulsively or rely on gut feeling. The more you avoid this, the better.

8 Tips to Help You Trade Crypto Responsibly

Trading cryptocurrencies responsibly requires you to manage multiple aspects of your trading behavior. It doesnโ€™t start and end with theย buyย orย sellย button. Try and incorporate as many of the tips below as possible into your routine. It might seem like a lot of advice, but they will help to improve your trading skills.

Secure your trading account and wallet

Before you even start trading, the best thing you can do is secure your account. No matter how responsibly you plan your trades, itโ€™s worthless if your funds, account, and password are compromised. There are multiple ways to do this, including usingย two-factor authentication (2FA), creating a strong password, and whitelisting withdrawal addresses. Weโ€™ve even collectedย 15 Tips to Enhance Security for Your Binance Account to make sure your crypto isย SAFU.

If you also use an externalย cryptocurrency wallet, the same rules apply to yourย private key. You should never share your private key orย seed phrase with others, just like your bank account details. Depending on your needs and level of security, you can pick a digital wallet from our list ofย recommended BNB Smart Chain wallets. If you have the option available, you can store extra funds on aย hardware wallet to keep them safe.

Create a trading plan

The best way to not let your emotions interfere with your trading is to create a plan and stick to it. This way, sudden gains, losses, rumors, orย FUD canโ€™t disrupt your decision-making. So what goes into a trading plan?

Your plan should outline the kind of trades you want to make, conditions for trading, and your trading objectives. Your risk profile and trading style will determine what your limits are. You should create your trading plan with a clear mind and be happy to follow at a later date with what youโ€™ve decided. Your trading plan can include:

  • How muchย leverage you want to use if any at all

  • Entry and exit prices for specific trades

  • Maximum investment amount as a percentage of total capital

  • Howย diversified your portfolio is

  • Your crypto asset allocation

  • When to stop trading (time, volume, etc.)

  • Maximum losses

  • The products or assets you trade

Use stop-limit orders

You can easily use stop-limit orders on Binance for greater control over your trading. You canโ€™t always be at a screen 24/7, and with crypto being so volatile, you can be left with unexpected losses. Leaving large amounts of crypto without any protection from volatility isnโ€™t a responsible way to trade. Once youโ€™ve set up a trading plan, you can easily use stop-limit orders to stick to it.

For example, imagine you purchased 1ย bitcoin (BTC) at $15,000 (US dollars), and the price of bitcoin is now $40,000. You want to make sure that if the price falls, you wonโ€™t sell for less than $30,000. This will leave you with a $15,000 profit. To automate this, you can set a sell stop-limit order.

You first set the stop price to $32,000. This is the price that will trigger your limit order. You then set the limit price to $30,000, meaning your 1 BTC will sell for $30,000 or better if the stop price is reached.

By leaving a gap between the stop price and limit price, your stop-limit order has the best chance to fill. Without a gap, the market price could move below your limit price without filling your order.

Note that a stop-limit order isnโ€™t always guaranteed to fill, but when they do, you will always get the price you set or better. For more information on how to use stop-limit orders, check outย What Is a Stop-Limit Order?.

Do your own research

Although we offer educational and research materials through Binance Academy and Binance Research, this should only be the beginning of your analysis.ย Do your own research (DYOR) to validate and double-check any information you find.

This advice goes for both trading and investing in coins through the exchange and usingย Decentralized Finance (DeFi) products. Only you know best your risk profile and whatโ€™s suitable for your portfolio. Before you start investing and trading, make sure you have a good understanding of where you're putting your money.

Diversify your portfolio

If you decide to create a trading plan, you should cover portfolio diversification to reduce yourย risk. Holding just one or two assets in your portfolio tends to be riskier. As such, you can diversify your holdings by investing in different assets across multiple asset classes.

In crypto, you can begin by defining your asset allocation. You could allocate your investments in DeFiย liquidity pools,ย staking, derivatives,ย stablecoins, and altcoins. By reducing your exposure to one single crypto class, you are less likely to experience big losses. For example, you may experienceย impermanent loss from a liquidity pool youโ€™re invested in but offset your losses through staking gains.

You can then diversify within these different asset classes. For stablecoins, you could holdย BUSD,ย USDT, and PAXG to reduce your overall portfolio risk even further. But these are just examples. There are multiple responsible ways toย plan out your crypto portfolio.

Avoid FOMO

Fear of Missing Out (FOMO) is a common feeling for many traders. However, you need to be careful how it affects your actions. The fear of missing out on an investment opportunity can cause you to abandon your limits and trading plans with rash judgments. We now have access to an incredible amount of information via the internet, social media, and other communications channels, making us all susceptible.

While you can research and find good investment opportunities online, you should always watch out for shilling. Users with ulterior financial motives will promote their coins or projects, regardless of their actual value. Shillers will take advantage of FOMO and manipulate tradersโ€™ emotions. If you begin to feel that youโ€™re missing out on an opportunity youโ€™ve never heard of before, take some time to research the project thoroughly before risking your money.

There are a lot of things that can cause FOMO. Recognizing them can help you realize their triggers.

  • Social media: Twitter, Telegram, Reddit, and other social platforms contain rumors, false information, and shillers. You should always DYOR. Many influencers are paid to promote projects and altcoins, andย scammers may take advantage of your FOMO to steal your funds.

  • Gains: If youโ€™ve been on a winning streak, it can be tempting to get reckless with the gains youโ€™ve made. You may also be overconfident in your skills and proceed to make bad picks. Even if youโ€™ve made a healthy amount of profit, this can increase your FOMO in other โ€œbigโ€ investment opportunities.

  • Losses: In an attempt to make back losses, your FOMO can increase. You may even enter a position, exit after making losses, and then reenter the position because of FOMO. Both of these can end up causing even bigger losses.

  • Gossip and rumors: Hearing information from other traders or through the internet can make an investment seem tempting. However, rumors, investment advice, or recommendations for a popular cryptocurrency should never take the place of solid research and analysis.

  • Volatility: Big price fluctuations in both directions provide opportunities for making profits. Whether youโ€™re investing and hoping the price will go up or shorting the cryptocurrency market in a downturn, it can be easy to get carried away. You might also see a bearish market as a good opportunity to invest but end upย catching a falling knife.

Understand leverage

The idea of borrowing funds on margin or futures to make larger gains can sound attractive. However, with this comes the risk of beingย liquidated and losing all your capital quickly, as your losses are enlarged too. Liquidation isnโ€™t necessarily bad if you stay within your limits. However, losing more than you planned or risking too much money isnโ€™t responsible trading. Before you start using leverage, make sure you understand exactly how it works.

You may have seen leverage displayed as a multiplier like 10x, multiplying your initial capital by 10. $10,000 leveraged 10x gives you $100,000 to trade, and your initial capital is used to cover your losses. Once your capital runs out, the exchange liquidates your position.

Leverage trading can be used irresponsibly. It has a much higher risk, so make sure to carefully studyย Coin-Margined Futures andย USDT-Margined Futures to understand the risks fully. Binance also protects new users byย limiting their leverage to encourage responsible trading.

Closing Thoughts

Everyone should take trading responsibly, and that includes exchanges too. Binance takes its role seriously in helping guide traders toย make the right choices. Whether you are trading digital assets, stocks, or commodities, you should always apply proper risk management strategies and do your own research. If youโ€™re worried about your trading activity, feeling overly stressed, or losing more money than you can afford, reach out toย Binance Customer Support.

Disclaimer and Risk Warning: This content is presented to you on an โ€œas isโ€ basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

แƒžแƒแƒกแƒขแƒ”แƒ‘แƒ˜แƒก แƒ’แƒแƒ–แƒ˜แƒแƒ แƒ”แƒ‘แƒ
แƒ“แƒแƒ™แƒแƒ•แƒจแƒ˜แƒ แƒ”แƒ‘แƒฃแƒšแƒ˜ แƒกแƒขแƒแƒขแƒ˜แƒ”แƒ‘แƒ˜
A Brief Guide to the Parabolic SAR Indicator
A Simple Introduction to Dark Pools
A Beginnerโ€™s Guide to Security Tokens
แƒ“แƒแƒแƒ แƒ”แƒ’แƒ˜แƒกแƒขแƒ แƒ˜แƒ แƒ”แƒ— แƒแƒœแƒ’แƒแƒ แƒ˜แƒจแƒ˜
แƒ—แƒฅแƒ•แƒ”แƒœแƒ˜ แƒชแƒแƒ“แƒœแƒ˜แƒก แƒžแƒ แƒแƒฅแƒขแƒ˜แƒ™แƒแƒจแƒ˜ แƒ’แƒแƒ›แƒแƒกแƒแƒงแƒ”แƒœแƒ”แƒ‘แƒšแƒแƒ“ แƒ’แƒแƒฎแƒกแƒ”แƒœแƒ˜แƒ— Binance-แƒ˜แƒก แƒแƒœแƒ’แƒแƒ แƒ˜แƒจแƒ˜ แƒ“แƒฆแƒ”แƒกแƒ•แƒ”.