How to Manage Risk and Trade Crypto Futures Responsibly

Main Takeaways:

• Responsible trading is vital when you invest in the cryptocurrency futures market. 

• Risk management strategies can protect users from over-trading and market manipulations. 

• Binance Futures offers tools and features to encourage and empower users to have better control over their funds. 

A responsible investing approach is the foundation of a successful trading experience as it helps you protect yourself against undesired outcomes and unexpected market events.

Binance encourages users to engage in responsible trading by offering tools and features that empower you to have more control over your trades and to mitigate risks.

Why Is Responsible Trading Crucial?

While trading cryptocurrency futures can be exciting, it can also lead to financial stress due to uncertain market conditions. Moreover, traders often encounter bad actors and situations that can cause upheaval in the overall market. Such instances may lead to impulsive trading actions that may increase a trader’s risk exposure. 

Responsible trading is about having better control over your trades and your overall trading strategy. Furthermore, it can help you protect yourself against market turmoil caused by sudden events. 

Top Risk Management Practices for Trading Crypto Futures

1. Cooling-off Period

Binance Futures integrates a Cooling-off Period function to prevent users from engaging in compulsive trading. The function allows you to temporarily disable futures trading activities for a predetermined period. You can set a cooling period of as short as one day to as long as one month, according to your needs. 

Traders worried about market volatility or suffering losses may engage in over-trading, driven by FOMO or panic selling. During such instances, it is advisable to use the Cooling-off Period function and take time to reflect on your trading strategy to prevent making hasty decisions. Once your Cooling-off Period is active, you will not be able to terminate it until the period ends. 

2. Take-profit and stop-loss orders

One of the pillars of responsible trading is knowing when to enter and exit the market, and adhering to your trading plan. Take-profit and stop-loss orders are tools that can help you execute your trading strategy with minimal emotions and a disciplined approach. 

A take-profit order helps you secure your profits when the market moves in line with your prediction, while a stop-loss order helps you minimize your losses when the market moves against your prediction. 

These functions help you to manage your risks effectively. As these orders can be set in advance and executed automatically, you can use them to secure your pre-determined profits, or cut your losses if your trades do not perform as expected. 

You can also leverage the Advanced TP/SL function on Binance Futures, which allows you to set your take-profit or stop-loss price by entering the gains you expect or losses you can bear. The calculator helps you set your trigger prices and shows the estimated profit or loss you may incur for take-profit and stop-loss orders, respectively. 

3. Price Protection

Price Protection is another function offered by Binance Futures to protect traders from extreme market movements. This function protects traders from bad actors who exploit market efficiencies and cause price manipulation. 

The Price Protection feature is helpful against unusual market conditions, such as a large difference between the Last Price and Mark Price. Usually, the Mark Price is just a few cents away from the Last Price. However, in extreme market conditions, the Last Price may significantly deviate from the Mark Price.

Such a situation can potentially trigger take-profit or stop-loss orders. You can protect your trades under such conditions by enabling Binance Futures’ Price Protection feature.

When this particular function is enabled, it ensures that your stop-loss or take-profit orders expire when the difference between the Last Price and Mark Price exceeds a specific threshold. 

Price Protection is a useful feature for both novice and advanced traders. It ensures your order will not be completed at a price that’s too far from the market price.

4. Customized Default Leverage

Leverage is an important aspect of the futures market. While it can potentially maximize traders’ returns, it can also lead to oversized losses if not exercised with caution (especially when novice traders indulge in over-leveraging).

Binance has a Customized Default Leverage feature to support users in setting default leverage for your trading before opening a futures account. 

When you open a futures account on Binance, you have three options: Beginner with 5x leverage, Experienced with 20x leverage, and a customized mode that offers 1X to 20X leverage on your account.

To ensure responsible trading, Binance will automatically select ‘Beginner’ mode and set the customized leverage to 1X. Additionally, to protect novice users from over-leveraging, Binance limits leverage levels to a maximum of 20X for new accounts within 60 days of registration. 

It is advisable for traders to start with a 2X to 5X leverage if you are new to trading cryptocurrency futures.

Closing Thoughts

Everyone, including exchanges, should practice responsible trading. Binance demonstrates its commitment to doing so by offering tools that encourage users to adopt a responsible approach toward trading. 

Binance Futures will continue to take proactive measures to empower users to protect their funds by enabling them with risk management strategies.

Read the following helpful articles for more information:

• (Support) How to Manage Risk and Trade Responsibly

• (Academy) Five Risk Management Strategies

• (Blog) How Binance Takes Responsible Trading Seriously, and Why You Should, Too

• (Blog) Crypto Futures Trading For Beginners: Here’s a 5-Step Plan to Get Started!