Social trading platforms have been on the scene since social media hit the Internet. From that time on, traders have enjoyed a new way to earn money by offering their trading tips and strategies to novices anywhere in the world. Each social trading platform excels in bringing together these two groups. But where they fall short is in providing environments where newer traders can hedge their risk enough so they don’t “Get Rekt”.
As these platforms proliferate and grow, the problems facing newbie traders continue to escalate. It’s not to say that the fault lies solely on these platforms. Markets are ripe with FUD (fear, uncertainty, and doubt), FOMO (fear of missing out), and volatility. Nowhere is this more glaring than in the cryptoverse.
These aspects of uncertainty, while providing opportunities for seasoned traders, make it extremely challenging for less experienced investors. On top of that, how can they sort out the noise to determine which sources of information are reliable?
Fortunately, tried and true risk management strategies are available to traders of every skill level. Additionally, there are many steps we can take as investors to ensure our data and crypto assets are secure. Lastly, modern technologies, including blockchain and smart contracts, allow social trading platforms to offer more ways to hedge their risk.
In this article, we’ll review traditional risk management strategies, crypto security tips, and then cover newer approaches enabled by technology. By implementing a strategy that embraces both the old and the new, traders can carry out risk management that helps them wade through the FUD while maximizing profitability.
Social Trading Platform – Risk Management Strategies
In the traditional investment sphere, as well as with forex and cryptocurrency trading, having the basics under your belt is essential. The common strategies below can be used in almost every social trading platform:
- Plan the trade and trade the plan. By setting out a strategy and sticking to it, you’ll find it easier to stay objective and calm during times of extreme volatility. To create a plan, determine your risk level, the amount you can afford to lose, and how you will diversify.
- Set up a “stop-loss” and “take profit” for your trades. Know ahead of time when you will cut your losses and take whatever you may have earned. Also know what price you are willing to pay or at which you will sell. These automated features of social trading platforms help you avoid letting market sentiment override your trading plan.
- Let the 1% rule be your guide. Try not to ever put more than 1% of your available capital into one trade. For example, if you have $5000 worth of bitcoin in your social trading platform account, avoid putting more than $50 in BTC into any one trade.
- Diversify. Many consider this to be the simplest yet most profound rule of trading. You never want to have all your eggs in one basket. However, in the crypto world, having a lot of eggs may not be the best idea either. Doing your own research into the projects and coins you are behind will give you an advantage in trading volatile and offen scam-ridden cryptocurrencies.
Security Tips for Crypto Assets
A key part to risk management for crypto social traders is how to keep their data and cryptocurrency safe. The following tips go along way in making it difficult for scammers and hackers to do their ‘work’.
- View several sources of exchange ratings before you use an exchange. Examples would include CryptoCompare and CoinMarketCap.
- Check the cryptocurrency GitHub account to see if there have been active commits. A link is often found at the bottom of the website’s homepage.
- Minimize your holdings on crypto exchanges, which have been regularly targeted by scammers who view them as ‘honey pots’.
- Be sure to always enable 2-factor authorization and email confirmations.
- Using public WiFi when crypto trading adds too much risk, avoid this.
- Don’t discuss what cryptocurrencies you have, or how much you invest when in social media.
- Always double check the cryptocurrency exchange’s receiving address before sending.
- Practice strong password management, using a password manager like LastPass.
- Hard wallets or other cold storage help keep your assets safer than when storing them in online or in ‘hot’ wallets.
- Store the private keys to each cryptocurrency offline, in a safe place, with a safe back up as well.
Blockchain based methods of hedging risk
Now it’s time to hone in on some of the newly developed ways to trade more safely. Thanks to blockchain technology, having stronger risk management can also mean better profitability. By taking a close look at the HedgeTrade social trading platform, we’ll show you why.
What is HedgeTrade?
The HedgeTrade platform, like most social trading applications, allows experienced traders to share their knowledge to those wanting to learn to trade. It’s a prediction platform where traders can publish their predictions on market movements of crypto and fiat currencies. Newer social traders can view the trader’s success scores and shop for predictions in the “Blueprints” Marketplace.
And here is where HedgeTrade diverges from all other social trading platforms:
If a trader’s prediction is wrong, those that paid for the Blueprint to access the trade details get their money back. Additionally, these traders can stake varying amounts of HEDG tokens against their predictions. Again, if their forecast proves wrong, the newbie traders benefit. Some of that stake is distributed automatically to those that bought the Blueprint. If the prediction proves correct, the trader receives their stake back plus the revenue from the Blueprint purchases.
So how does this type of social trading platform help traders hedge their risk? Let’s take a look at the two major groups of participants, pro traders, and novices:
When traders have enough experience and they’re confident about their abilities, they often seek out social trading platforms to try and earn from their knowledge. Most of these platforms offer the traditional risk management outlets, such as stop losses.
On HedgeTrade, traders have access to multiple exchanges and trading pairs when building the prediction Blueprints they want to sell. These options to diversify include crypto exchanges like CoinBase and Bitstamp, as well as currency pairs such as BTC-USD, ETH-GBP, and BTC-EUR. Additionally, there is no limit to the number of Blueprints they can create. So, theoretically, they could both long and short an asset to hedge their risk.
The traders that exhibit the best performance will move up in HedgeTrade’s proprietary algorithm. So, in effect, those that publish the most correct predictions will then show up to more users in the Blueprint marketplace.
Not only that, these pro traders are incentivized in several ways to be correct, compelling them to post the most accurate information, to their benefit. If they end up being wrong, whatever was paid for each Blueprint by other users is returned, along with a portion of the stake.
Experienced traders have the choice to stake varying amounts of HEDG tokens to back up their forecasts, increasing their potential to earn. Between this feature and the opportunity to rank higher in the algorithm, these traders can hedge their own risks of capital markets.
On the other end of the stick, there are novice traders who want to participate in social trading. But they need to start out by learning from the best. By signing up to the HedgeTrade tokenized app, they’re able to buy trading predictions that are automatically guaranteed to be correct. Otherwise, they get their money, and a little bit more, back.
By taking a look at how HedgeTrade’s features work, we can gain insight into the platform’s technology and how it enhances risk management.
Each time a trader publishes a predictions Blueprint, a smart contract is automatically triggered, based on the prediction details. An oracle will communicate to the smart contract when the entry and exit prices of trades are reached on whichever cryptocurrency exchange was selected.
The truth as to whether the prediction was correct or not is automatically generated and connected to each Blueprint.
Each smart contract-powered Blueprint has another technology behind it: blockchain. This is due to the fact that all the trading pairs available on the app include a cryptocurrency. As you probably know, each cryptocurrency is a digital asset that lives on a blockchain. As such, data cannot be changed or deleted. These secure ledgers provide a new kind of asset ‘truth-telling’ that ensures the blockchain verified data is correct.
For each transaction on the HedgeTrade social trading platform, you’ll easily find blockchain verified data to back it up:
How HedgeTrade improves crypto risk management
By providing the aforementioned features of accountability, incentivization, and automated blockchain data, HedgeTrade improves overall investor confidence. Between the staking mechanism, smart contracts and ranking algorithm, all participants in this social trading platform may access verified trade data, as well as up to the minute trader performance.
Like all social trading platforms, HedgeTrade enables real-time cryptocurrency market data. They also create an ecosystem that brings together new traders with pros. But unlike the others, in HedgeTrade, users have additional ways to hedge their risk, thanks to blockchain technology and the fusing of accountability with incentivization.
Welcome to the new world of social trading – where optimizing profitability and hedging risks are available to traders of all experience levels.