The main ways to hedge risks when trading cryptocurrency

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Trading in cryptoassets comes with great risks due to the high volatility of digital currencies. Hedging is used to minimize risks and reduce potential losses. With this method, traders can control the marginal risk factor and limit potential losses. RBC-Crypto experts named the main methods of hedging risks when working with cryptocurrencies.


Diversification is the distribution of capital between different assets and instruments. This principle protects capital from losses in the event of a fall in an individual asset, sector or an entire market.

Cryptocurrencies in the investment portfolio should have a low correlation (as much as possible in the digital asset market), said Sergey Zhdanov, CEO of the EXMO crypto exchange. He advised balancing the portfolio by the level of asset capitalization:

  • More than $ 5 billion;
  • From $ 250 million to $ 5 billion;
  • Less than $ 250 million

“A more conservative portfolio: 50-60% of coins with a high level of capitalization, a more risky portfolio – low-capitalized,” the expert explained.

Another way of diversification that can reduce the risks when investing in cryptocurrency is the distribution of assets by industry type, Zhdanov noted. According to him, the industry can be divided into categories: currencies (Bitcoin, Litecoin, Bitcoin Cash), smart contract platforms (Ethereum, EOS, Cardano, NEO), finance (Ripple, Stellar), anonymity (Monero, Dash, Zcash), data storage (Sia, Storj, Filecoin).

Portfolio rebalancing

The portfolio should be reviewed regularly, taking into account changes in the market and the emergence of new trends, recommended the head of the analytical department of AMarkets Artem Deev. According to him, many investors increased the share of Bitcoin and Ethereum in the portfolio in the past month, as assets began to skyrocket and increase their market share.

“The issue of reducing risks and increasing profits is the need for a constant review of the investor’s portfolio. Professional market participants do this on a weekly basis or more often, depending on the volatility of different assets, ”added Deev.

In this situation, when the share of bitcoin in the market is growing, it needs to be increased in the portfolio as well, the analyst advises. He argues that the situation in the crypto market should be monitored regularly, as news of increased regulation from the world’s largest economies could lead to a decline in Bitcoin. In this case, altcoins will go up, the analyst said.

“In such a situation, the actions of the investor should be the opposite – reduce bitcoin, increase altcoins,” Deev concluded.

Stop Losses

To limit possible losses in each specific transaction, stop-loss orders are used, which allow you to exit an asset if its price moves in the wrong direction, Zhdanov explained.

Another advantage of using stop losses is the ability to trade in automatic mode, the expert noted. According to him, when using stop losses, a trader does not need to constantly and manually monitor open trading positions and rate movements.

Zhdanov also cited a situation in which a stop loss order will help to significantly reduce risks. He explained that if a crypto asset is purchased at a price of $ 9.5 thousand and its further growth to $ 10 thousand, a trader can set a stop loss at about $ 9.7 thousand in order to close the position in the event of a decline in the rate.

“This allows the trader to sleep peacefully, because now he will not worry about the loss of the deposit, if the price of the asset goes down, the stop loss order will sell it,” concluded Zhdanov.

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