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What is The most important point to trading responsibly?

trade responsibly

In this article, we look at, how you can avoid emotions affecting your trades. You should also consider doing your research, diversification, using stop-limit orders, and avoiding FOMO where possible. 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 you’re buying and selling. You should control your trading behavior rather than act based on emotions. You also need to take accountability and understand if the trading activity you’re doing really works for you.

 

There are many different ways you can invest in or trade 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 the spot market and 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 it’s common for new traders to trade impulsively or rely on gut feeling. The more you avoid this, the better.

 

7 tips to help you trade crypto responsibly

Trading cryptocurrencies responsibly requires you to manage multiple aspects of your trading behavior. It doesn’t start and end with the buy or sell button.

 

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, it’s worthless if your funds, account, and password are compromised. There are multiple ways to do this, including using two-factor authentication (2FA), creating a strong password, and whitelisting withdrawal addresses.

If you also use an external cryptocurrency wallet, the same rules apply to your private key. You should never share your private key or seed phrase with others, just like your bank account details. Depending on your needs and level of security

 

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, or FUD can’t disrupt your decision-making. So what goes into a trading plan?

 

Your plan should outline the kind of trades you want to make, the 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 what you’ve decided at a later date.

 

Use stop-limit orders

You can’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 isn’t a responsible way to trade. Once you’ve set up a trading plan, you can easily use stop-limit orders to stick to it.

What Are Stop-Loss and Take-Profit and why do we have to use them?

 

Do your own research

Only you know best your risk profile and what’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 your 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 Defi liquidity pools, staking, derivatives, stablecoins, and altcoins. By reducing your exposure to one single crypto class, you are less likely to experience big losses.

 

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.

 

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 being liquidated and losing all your capital quickly, as your losses are enlarged too. Liquidation isn’t necessarily bad if you stay within your limits. However, losing more than you planned or risking too much money isn’t responsible trading. Before you start using leverage, make sure you understand exactly how it works.

 

What is Leverage Trading in Crypto? Is It A Guide For Beginners?

 

Closing thoughts

Everyone should take trading responsibly, and that includes exchanges too. Whether you are trading digital assets, stocks, or commodities, you should always apply proper risk management strategies and do your own research. If you’re worried about your trading activity, feeling overly stressed, or losing more money than you can afford, reach out to Binance Customer Support.

 

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