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Risk Management for Traders and Investors

Risk management is an important part of any trading or investment strategy, and this is especially true in the world of cryptocurrency. The high volatility and lack of regulation in the crypto market can lead to significant losses if proper risk management techniques are not employed.

Risk management refers to the processes traders and investors put in place to help keep losses under control and achieve a good risk/reward ratio while trading or investing. It involves developing strategies to reduce losses and maximize gains.

In this blog post, we will discuss key risk management strategies that crypto traders and investors can use to protect their portfolios and maximize their chances of success. We will be looking at what risk management is, why risk management is important, how to manage risk while trading and investing, and risk management strategies, tools, and resources.

What is Risk Management?

The process of identifying, assessing, and managing the risks associated with any investment or trading activity is called Risk Management. It involves understanding the likelihood of an investment or trade losing money as well as the potential for it to generate profits. It also includes strategies to manage the risk and prevent losses, as well as techniques to maximize potential gains.

Risk management’s goal is to ensure that the risks associated with any trading or investment activity are minimized, while at the same time maximizing the potential for profits. Risk management is an essential component of any trading or investment strategy and should be taken into consideration when making trading or investment decisions.

Why is Risk Management Important?

Crypto markets are highly volatile, with prices fluctuating significantly in short periods of time. This volatility presents significant risks to traders and investors, including the potential for significant losses. To minimize the impact of these risks, it is important to implement a risk management strategy.

Effective risk management can help to preserve capital and ensure that traders and investors are able to make informed decisions about their investments. It can also help to reduce the overall level of stress and anxiety associated with trading and investing in crypto markets.

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How to Manage Risk in Trading and Investing

There are several steps that traders and investors can take to manage risk in crypto markets:

Diversify your portfolio: One of the most effective risk management strategies is to diversify your portfolio. This means spreading your investments across a range of different cryptocurrencies, rather than putting all your eggs in one basket. By diversifying, you can reduce the impact of any one particular coin on your overall portfolio. For example, if you have a portfolio that is heavily weighted towards Bitcoin and it suffers a major price drop, your entire portfolio will be affected. However, if you have a diverse portfolio with a range of coins, the impact of any one coin’s price drop will be less significant.
Use stop-loss orders: Stop-loss orders are a useful tool for limiting potential losses on a trade. They allow you to set a certain price at which your trade will automatically close, thereby limiting your potential losses. For example, if you buy a coin at $100 and set a stop-loss order at $90, your trade will automatically close if the price of the coin drops to $90. This can help you minimize potential losses if the market moves against you.
Use limit orders: Limit orders allow you to set a specific price at which you would like to buy or sell a coin. This can be useful for maximizing your profits on a trade. For example, if you buy a coin at $100 and set a limit order to sell at $120, your trade will automatically close once the price of the coin reaches $120. This can help you lock in your profits and avoid the temptation to hold onto a coin in the hope that it will go even higher.
Use risk-reward ratios: Risk-reward ratios are a way of measuring the potential risk and reward of a trade. The basic idea is to compare the amount of money you are risking on a trade to the potential reward if the trade is successful. For example, if you are risking $100 on a trade with a potential reward of $200, your risk-reward ratio is 1:2. In general, it is advisable to aim for trades with a risk-reward ratio of at least 1:2, which means that the potential reward is at least twice the amount of money you are risking.
Regularly review your portfolio: It is important to regularly review your portfolio to ensure that it is still in line with your risk tolerance and investment objectives. This can help to ensure that you are not taking on more risk than you are comfortable with.

Risk Management Techniques for Different Types of Trading and Investing

Traders and investors can use a variety of risk management techniques to manage their risk. Different types of trading and investing may require different risk management techniques. Here are a few examples:

Long-term investing: If you are a long-term investor, you may be more concerned with minimizing the overall risk of your portfolio. In this case, diversification and regular portfolio review may be particularly important.
Day trading: If you are a day trader, you may be more concerned with minimizing the risk of individual trades. In this case, setting limits on your trades and using stop-loss orders may be particularly important.
Margin trading: If you are using margin to trade, you may be taking on significantly more risk than you would with regular trading. In this case, it is especially important to carefully manage your risk, including setting limits on your trades and using stop-loss orders.

Conclusion

Risk management is a critical part of success in the world of cryptocurrency trading and investing. By implementing strategies such as diversification, stop-loss orders, limit orders, and risk-reward ratios, you can help protect your portfolio and increase your chances of success in the highly volatile crypto market.

Regardless of your trading or investing style, it is important to implement a risk management strategy to protect yourself from significant losses. By identifying and managing risk, you can help to ensure the long-term success of your crypto portfolio.

December 22, 2022/by Alin Breabăn

How To Build a Diversified Portfolio

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What is a diversified portfolio? How to build a diversified portfolio? And how can a diversified portfolio improve your chances of reaching your financial goals? Creating and maintaining a diverse portfolio may seem like an overwhelming task. After all, the market has had some big ups and downs over the years. But knowing how to properly allocate assets can make your investment experience much more rewarding. The information in this article will help you understand what kinds of assets are needed in order to compose a well-balanced and effective portfolio.

What is a diversified portfolio?

Spreading your investments so that you are not exposed to one type of asset for an extended period of time is known as diversification, and it is aimed at reducing the volatility of your portfolio over time.

One part of a portfolio that’s declining in value can hopefully be offset by another part that’s increasing in value. Though diversification does not ensure positive investment performance, it is widely used in investing to construct portfolios that can withstand changing economic conditions.

Advantages of building a diversified portfolio

Impacts of market volatility are reduced
Ensures the security of the capital
Contributes to long-term investment plans
Monitoring the portfolio requires less time
Gives you peace of mind

Asset classes to use when building a diversified portfolio

The most important element of diversification is to find the right combination of asset classes that have the lowest possible correlation. For example, real estate will be hardly connected with crypto.

Here’s a non-exhaustive list of all potential asset classes you might want to consider:

Crypto

Think of using Vestinda as it enables you to automate your portfolio, greatly removing the human element that causes problems.

Equity

in general markets. You can buy index funds like the Vanguard total market index fund which gives you a safe exposure to the full US stock market. Or you can bet on the entire world and buy an ETF like the one from iShares that tracks the investment results of an index composed of developed market equities. Or just hand pick your own basket of preferred stocks and ride the ones you believe in.
in your own business. Being an entrepreneur and starting your own business is the best form of investment. That is because you own equity and, assuming your business succeeds, you could automate parts of it, allowing you to have forms of passive income.

Debt

Bonds are used in most of the portfolios as the risk is low. It doesn’t come with a high return but can be vouched by governments or good companies that will most probably not default.
Another way of investing in debt is P2P lending. You can consider platforms like Mintos in the traditional space or Nexo and Blockfi in the Crypto space. Our advice is to use regulated companies that have strict collateral rules in place and insurances.

Commodities

In this category, the most known investments are precious metals like gold, and silver. But there are a bunch of other subcategories to think of like energy or agriculture. It may come with more risk due to seasonality, or the storage of the commodities.

Real Estate

One of the most used category assets is also one that works best most of the time. It works during high inflation and can be used as a hedge to the more risky options. The drawdowns are low liquidity and a cost of maintenance (both in time and money).

Alternative assets like art and collectibles

This is one of the categories that gets more and more exposure in overall portfolios for the more sophisticated investors. The returns can be quite appealing; as more rich people want to own luxury or unique pieces. Similar to real estate, luxury pieces have lower liquidity so you need to account for that when giving this category a slice in your portfolio.

One can also diversify within the same asset class.

You can do it on a national level. The mortgage market in the US is safer but less lucrative than the one in Venezuela.
In Forex, you can buy major pairs like the EUR or GBP, but at the same time, get exposure to exotic, more volatile pairs like the Turkish lira or Russian Rouble.

If you don’t want to make them, you can instead look for other ways to make money work for you for you:

You can angel invest in a business. That way, you let someone else take the risk of executing the idea and do the hard work.
You can try to copy and automate investment strategies on platforms like Vestinda, that can help you find a profitable and consistent trader.

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How to diversify your portfolio?

Once you have identified the assets you can, and want to have as part of your portfolio, you need to ask a very important question: “what is my risk profile?”

Are you someone who likes taking high risks, and expecting high rewards? Do you like the idea of buying SHIB and seeing it rise 1,000%, at the risk of buying another coin that will drop 90%?
Or, are you someone who’s more risk averse and is okay with a return that beats inflation and the indexes by a few basis points?
Or, are you a conservative person who prefers to invest in tangible assets that you can see such as physical gold, or real estate?

Your profile can of course be a mix of all of these profiles, and there is no one set rule here. You need to identify what kind of investor you are, in order to allocate your capital. At the end of the day, no matter how many dollars you have, you still have to divide a pie worth 100%.

A risky investor might want to decide to put up to 80% of his capital in crypto, while a conservative might choose to be 50% in real estate, with 20% in bonds and interest rates, with the last 30% left for stock speculation and crypto investments.

To sum it up, there are 2 very important requirements to diversify your portfolio:

Determine your risk profile
Create an investment strategy that serves your profile best… and STICK to it. Don’t cheat and look around for new strategies when the price doesn’t go your way!

How to diversify a crypto portfolio?

In crypto, you can think of the coins as being divided into 6 categories:

The most popular large caps that everyone knows like Bitcoin or Ethereum.
Other famous layer 1 tokens that have existed for a while like Litecoin, Ripple or Monero. These are usually pre-ICO era.
Newcomers largely propelled forward by the rise of DeFi such as AAVE, COMP, or LINK.
The newer coins that flourished during the ICO (2017) and DEFI (2021) eras, but never materialized in real-world projects. These are usually highly volatile.
You can also expose yourself to the highly volatile meme coins such as Doge or Shib.
And last, but not least, the metaverse tokens that are gaining in popularity such as AXS or MANA.

In order to build your diversified portfolio, follow these steps:

Decide how many buckets you will divide your cryptos in. You can use the 4 categories above for example. Note that it is also possible to divide them instead by sector or user case. Payments, Security, Governance, etc…
Based on your risk profile, determine how much you will allocate to each of these buckets. A safer investment would focus on the big guys and old guard, while a riskier one would include more of the shit coins with massive upside potential.
Decide on how often you will add to the portfolio. Will you add every other week, or once a month?
Decide where you’ll store the coins, and how or when, if ever, will you take your profits.

When to consider portfolio rebalancing?

At the end of the day, the key to success in any investment strategy you employ is that you come up with your own investment strategy. Do the research yourself and study the options well so that you can come up with your own investment thesis and the best moment for rebalancing. A bespoke solution might be the wiser since it can be adapted to your own needs and risks profiles.

In order to maximize the profit and safety of your portfolio, it might be wise to look at other topics, for example:

Global macro trends and macroeconomics can have a significant impact on your assets. COVID is such an important event that affected all asset classes at once creating chaos in some areas, but if you were smart enough, you could have turned this into a fantastic opportunity.
Technological trends also play a massive role in the rise or fall of a portfolio’s assets. Crypto tokens are a prime example of an entire asset class capable of disrupting or bringing massive innovations to many areas of life. When smart contracts, for example, will reach mainstream usage, we will see a trove of new opportunities. NFT’s are such an example, but all other sorts of tokenized assets will change in life day to day, and thus, impact the price of assets that are directly correlated with the asset in question.

Keep these aspects in mind, and try to look for major news headlines, or hidden nuggets, that can point at a change in the wind for the progress of a certain industry or technology.

For example, what are the potential repercussions of remote work on some tech stocks, or traditional retail stores, and thus of their price?
What can be the future of semiconductors once the TSM bottleneck is resolved? And which stocks are capitalizing on it?
How can you be part of the new cannabis boom?
What new technologies that are now on the early adopters’ curve will change the world 15 years from now?

And on a final note, no matter what you decide when you ask yourself how to build a diversified portfolio, always remember the importance of having a strategy, and sticking to it.

December 6, 2021/by Alin Breabăn

A Guide to Crypto Portfolio Tracking

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Following your crypto portfolio should be as simple as a walk in the park, right? In the always changing crypto market, where innovations and new features are offered on a rapid pace by different players, crypto portfolio tracking is becoming a more complex topic.

What is a Crypto Portfolio?

A crypto assets portfolio is a series of investments across a number of digital assets. It could be a combination of Bitcoin, Litecoin, Ethereum, Dogecoin or others, with different weights to suit the risk appetite of the investor.

The exact mix of assets isn’t relevant to the definition, but you may want to focus on the exposure you get and on the weights that are right for you.

How to set up a Crypto Portfolio?

Step 1: Asset allocation

Since the goal of a financial portfolio is to optimize returns for your tolerance of risk, you need to know how to best determine an asset allocation that conforms to your personal investment goals.

Step 2: Build portfolio by choosing the initial weights for each asset

As with more conventional investments such as stocks and bonds, crypto assets portfolios should contain a good balance between investments. In the case of the crypto market, this can mean splitting those investments between more established projects like Bitcoin or Ethereum and more innovative new providers.

Step 3: Rebalance portfolio based on market conditions

Once you understand how to set up a portfolio, the next step is to keep pace with the ever changing crypto market.

What is a Crypto Portfolio Tracker?

A crypto portfolio tracker is an application (mobile or web) that lets you know how much your portfolio is worth at any given moment. It will track and display your investments in multiple crypto assets in real time.

The software connects with various exchanges to provide updates and to display current balance to the users. Many will also connect your crypto wallets.

Why do You Need an App to Follow Your Net Worth?

As mentioned in the beginning, crypto portfolio tracking becomes more complex with diversification. And we know you should diversify.

Many crypto exchanges deal with a restricted number of crypto assets while others offer different functionalities. You may use staking on Kraken or Earn on Binance and at the same time trade Futures on FTX. In order to build a diverse portfolio, multiple exchanges are needed. That’s why crypto portfolio trackers come to the rescue: they offer a unified dashboard where you can follow your entire net worth, just one click away.

With a rising number of crypto assets and exchanges, it makes sense to utilize a crypto aggregator to easier follow your investments. Of course it’s possible to use traditional spreadsheets, but this is time consuming and requires constant monitoring and manual updating.

In contrast, by having all crypto in the same place, you can instantly assess your net worth overview and automatically monitor profit and loss. Essentially, a crypto tracker gives back your time. Now you can put more focus on your investment decisions or simply enjoy your profits.

How to Track Your Crypto Assets Portfolio

It’s important to know how to manage a crypto assets portfolio effectively, without giving away most of your time. As hinted at in the previous section, there are really only two ways in which to do this:

One option would be for you to undertake the task yourself by utilizing spreadsheets and updating your results manually. There are crypto traders who keep track of their crypto in this way and some may prefer it. It may feel that it gives them a greater sense of control, but in the end it’s just Excel :)

Obviously, a better solution lies in finding a tracker. The most flexible of these can be used as an app for iOS and android, as well as the web, and they return real time results. You can monitor as much as you want, as the platform will automatically sync your balances across exchanges.

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How to Choose the Best App to Manage Your Portfolio?

There are many crypto trackers on the market. So how do you choose the right one?

You should be looking for a portfolio tracker that ticks a number of boxes:

It should integrate with an extensive range of financial institutions. As we’ve seen, there are many potential exchanges and an increasing number of outlets where crypto can be purchased.
There are more than 11k tokens on the market at this point so an effective crypto tracker should integrate as many assets as possible.
New assets should be added as soon as they hit the market. Make sure your preferred solution reacts fast.
Real time results with 24/7 monitoring is a must. Needless to say, the data gathered from those various exchanges should be accurate.
A crypto tracker should be secure. In a crypto world where hacks are tried every day, you want to work with the best technology.

Why Choose Vestinda to Track Your Crypto Portfolio?

Vestinda successfully checks all of those essential requirements. On top of that, it’s free for new sign ups during Private Beta.

Meet Vestinda’s portfolio tracker superpowers:

Accurate history of the portfolio shown on a chart from the moment you connect your exchanges.
Automatic syncing of assets from the connected Exchanges – you don’t have to manually enter each of their assets balance or trades.
Great UX – you can monitor your portfolio both on desktop and mobile, 24/7 at one click. Multiple charts and different views give you a simple and crisp overview of your holdings.
The portfolio tracker will allow you to isolate and monitor a specific exchange. With a click of the button you can switch back to the unified dashboard which outlines all of your investments in full.

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August 21, 2021/by Alin Breabăn

How to connect your Poloniex Exchange

Connect Exchanges

In order to connect your account from Poloniex Exchange to Vestinda, you first need an API KEY.

An API KEY is a secure way to allow Vestinda to read your balance and automate investments. It acts as a secret authentication token and you can control its level of access. Vestinda needs read access to track your portfolio and trading access to automate your investments. No withdrawal access is needed; we recommend you keep this permission unselected.

Create an API key in Poloniex

Step 1

Login to your Poloniex account and go to Settings > API Keys section from the menu. If you don’t have a Poloniex account yet, consider opening one here.

Step 2

Once you got to the API Keys management list, click on Create New Key and submit your 2FA.

Step 3

Once you confirm 2FA you will receive a confirmation link in your email. Go to your inbox and follow that link.

Step 4

Now your API Key is Enabled. Make sure Enable Trading is checked.

Connect Poloniex with Vestinda using the API KEY

Now that you have an API key, you can take advantage of the power of Vestinda by connecting your Poloniex Exchange.

You can do this in a simple step in your Vestinda Account area. Copy the API Key and Secret from Poloniex and enter those in Vestinda.

August 17, 2021/by Alin Breabăn

How to connect your Kraken Exchange

Connect Exchanges

In order to connect your account from Kraken Exchange to Vestinda, you first need an API KEY.

An API KEY is a secure way to allow Vestinda to read your balance and automate investments. It acts as a secret authentication token and you can control the level of access. Vestinda needs read access to track your portfolio and trading access to automate your investments. No withdrawal access is needed; we recommend you keep this permission unselected.