Risk Management Fundamentals
🛡️ Risk Management 101: Protecting Your Capital in Perps Trading
Risk management is the foundation of long-term success in crypto perpetual futures trading. It’s not about maximizing wins — it’s about minimizing catastrophic losses and staying in the game when volatility strikes.
“Amateurs focus on rewards. Professionals focus on risk.”
— Jack Schwager
✅ Core Principles of Risk Management
1. Only Risk 1–2% Per Trade
Never risk more than 1–2% of your total trading capital on a single position. This ensures that even a string of losing trades won’t wipe you out.
Example:
• Trading account size: $10,000
• Max risk per trade (2%): $200
• If stop-loss is $50 below entry → your position size should be 4 contracts.
This is known as position sizing.
2. Use Stop-Loss Orders — Always
Stop-losses should be pre-defined before entering the trade.
• Hard stop-loss: Automated order set at a specific price
• Mental stop-loss: You monitor manually (less reliable)
3. Avoid Overleveraging
High leverage can destroy your capital fast. While 20x+ leverage is available, professional traders rarely go beyond 5x.
Leverage
Drawdown Needed to Liquidate
3x
~33%
10x
~10%
20x
~5%
Pro tip: Use lower leverage and increase position size if you want more exposure — not the other way around.
4. Factor in Maintenance Margin & Liquidation
Understand that liquidation occurs if your equity falls below the maintenance margin level.
• Initial margin: Collateral to open the trade
• Maintenance margin: Minimum required to keep it open
Always monitor how close your trade is to liquidation and avoid maxing out margin usage.
5. Diversify Trade Risk
Don’t stack multiple trades in the same direction on highly correlated assets (e.g., BTC, ETH, SOL). This concentrates risk and can trigger a cascade of losses.
“Risk management is not just about single trades — it’s portfolio-wide discipline.”
6. Avoid Emotional Trading
Trading on tilt (after a loss) often leads to revenge trading, oversized positions, and irrational decisions.
Create a trading journal to:
• Log your rationale
• Track R:R ratio
• Measure performance over time
• Identify emotional triggers
7. Understand Volatility and Slippage
Set wider stops during volatile market periods, and always account for slippage (getting filled at worse-than-expected prices) when calculating risk.
Stop-loss orders
Limit downside per trade
Take-profit orders
Lock in gains and avoid FOMO exits
Position size calc.
Adjust trade size to match % risk rule
Journal/log
Improve emotional control & strategy review
Volatility metrics
Adjust entries, stops, and size accordingly
🧠 Final Takeaways
• Think like a risk manager, not a profit chaser
• Always have a plan for the worst-case scenario
• Survive first, then thrive
“There are old traders, and there are bold traders, but there are no old bold traders.”
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