Cryptocurrency is known for its impressive price movements. This is attractive for traders but it also means you have to make sure you manage your risk. Imagine you own 1 Bitcoin and you use it to buy Ethereum. Say, Ethereum goes up and you sell at a profit, ending up with more Bitcoin than you started with. This is great, but in the meantime, the value of Bitcoin may have gone down against the US dollar, potentially canceling out your profits.
One way to deal with this is by using a stablecoin such as USDT as your base currency, making it easier to lock in profits. Another way, however, is to trade on the Futures market.
On the Futures market, you could short Bitcoin futures contracts. If the price of Bitcoin goes down, you would be making a profit on the Futures market. This way, while you’re trading Bitcoin against another coin, if the price of Bitcoin does go down, the profits that come from the Futures markets can compensate for that loss.
Another way that you can manage risk is by making sure you ‘diversify your portfolio’. In other words, don’t put all your eggs in one basket. Instead, spread your funds across different cryptocurrencies, including stablecoins; this way, you can make sure that the performance of a single coin doesn’t impact your overall wealth too much.