Crypto glossary
Risk management in trading
Risk management in trading is the set of rules that limits how much a trader can lose, through position sizing, stop-losses and caps on risk and drawdown.
The core idea is to decide in advance how much of the account a single trade may lose, often a small fixed percentage, and size each position so that hitting the stop costs no more than that. Further rules cap total exposure, the number of open trades, leverage and the loss allowed per day or week before trading stops.
In crypto these rules matter more than in most markets. Prices can move 10% or more in hours, exchanges have failed with customer funds inside, and leverage of 50x or more is easy to access. A trader who risks too much on each trade can be wiped out by a short losing streak, even with a strategy that is profitable on average.
Risk management also covers threats outside the chart: spreading funds across custody options, avoiding concentration in one token and keeping enough stablecoins or cash to avoid forced selling. It cannot make a losing strategy profitable, but it decides whether a trader survives long enough to find out.
Example
With a 10,000-dollar account and a 1% rule, a trader whose stop sits 5% below entry buys at most 2,000 dollars of the coin, so a stopped-out trade costs about 100 dollars.
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