Risk Management & Mutual Funds for Crypto Business

Risk Management & Mutual Funds for Crypto Business

Technological progressions have paved the way and current trend is trading in crypto. Due to the new norm, the crypto exchanges and trading brokers are on their toes in ensuring all transactions are secured and simple. Crypto players are not able to eliminate the possibility of fraud in such transactions nonetheless crypto platform providers have and will continue to take in all the measures to make available a safe and secured trading / investment platform for all subscribers.

Read more: Understanding Cryptocurrency

Different Risk Management Strategies

  • Stop Losses and Take Profit Targets

The primary risk management technique for all trading in crypto must be to set ‘stop loss and take profit targets’. ‘Stop losses’ is essential as they restrict your probable losses in case that a trade backfires. Likewise, ‘take profit targets’ is important for traders as the use of them locks in any gain you make as an outcome of a trade going your way.

An absence of a ‘stop loss or take profit targets’ can frequently be troublesome for traders. For example, if no ‘stop loss’ is positioned, there is a unique possibility that a trader will be reluctant to close a losing trade as they believe that it will bounce in their favour. Crypto trading bots and signal groups are beneficial resources in permitting traders to position their ‘stop loss and take profit targets’ prior to indulging into a trade.

  • Position Sizing

Another significant risk management technique for all traders is to employ ‘position sizing’. The idea behind ‘position sizing’ is that a trader must not risk all of their trading account on any one trade at a set time. This is to refrain a trader from inflating their account and entirely lowering their capital balance if a single trade backfires. Rather, a trader must be using a certain set percent of their balance, say 1% to 3% rule. This sufficiently allows the trader adequately handle their risk as they concentrate on producing persistent returns in contrary to just stressing about draining their account balance completely.

  • Risk/Reward Ratio

Comprehending the possible ‘risk/reward ratio’ of a trade prior to it is positioned is furthermore essential to being an efficient trader. If a trader can entirely establish the return, they can presume to make against the threat they are taking on, then they are far more likely to only take trades with a greater possibility of success. Signifying that in the span of a trading career, a trader must produce a net return as they are only taking trades with a positive risk/reward ratio.

The formula for calculating risk/reward is :-

(Target – entry) / (entry – stop loss)

You can also use the below as a reference for identifying the risk to reward of a trade :

  • 1:1 is breakeven
  • 1:2 is great to trade
  • 1:3 is even better and is a perfect ratio

Anything less than a 1:1 risk/reward ratio is deemed to be an adverse trade and is usually not recommended.

Find out more about Setting Up A Crypto Business in Malaysia

Other interesting topics: Setting up a Cryptocurrency exchange in Malaysia and Labuan cryptocurrency exchange

Advice for Crypto Investment

Acceptance – When trading is involved, it is bound to have risk and this is inevitable and we can only cater to it and try our best to minimise it.

Assessing the Drawdown – Drawdown is to the diminution / reduction of your account size from a sequence of losses. For instance, losing USD 1,000 from USD 10,000, will make drawdown of 10%. The higher the percentage, the more you will require to put into the next series of trades to recuperate from your losses. Hence, it is necessary to always restrict the number of trades you have working at the same time based on the size of your account and still follow the 1% – 3% rule.

Emphasize on your Win Rate – There is always up and down in trading hence be contented with your winnings. By concentrating on your wins, you will build an optimistic approach as a trader.

Review the Fees – Part of your risk management plan is to remember to factor in the any fees incurred during the trading transactions such as withdrawal fees, leverage fees, etc.

Labuan Mutual Funds for Crypto Trading

Mutual Funds in Labuan can be integrated as a Limited Company, Limited Liability partnership or protected cell company – with the Limited Company being the highly preferred option for fundraisers to conduct its fund-raising activities legally in the most tax efficient manner.

Generally, there are two types of mutual fund : Private and Public.

Private funds do not require a License approval – the procedure is straight forward by filing a Prospectus (Information Memorandum) to the LFSA for approval. It can be open or closed-ended, however its shares cannot be provided to the public.

For private fund with less than 50 investors – A minimum MYR 250,000 (approx. USD 62,500) per investor applies.

With more than 50 investors – A minimum MYR 500,000 (approx. USD 125,000) per investor applies.

The appointment of a fund manager, administrator, trustee or custodian is optional and accounts are required to be filed or audited annually.

Public funds are governed by the LFSA and can request investments from the public. There are no restrictions in terms of number of investors or investment amounts. This is suitable for bigger investment groups of a few hundreds or even thousands.

Contrary to private funds, the fund owner must nominate a fund manager, trustee, administrator, and custodian – which should be verified by the LFSA, and a minimum of one service provider must be licensed by the LFSA. An approved external Labuan auditor is required and audit reports are a prerequisite annually.

All funds, both private and public, should comply with the AML/CFT regulations and guidelines offered by the LFSA.

Find out more about Labuan Private and Public Fund here!

Should you be in a crypto-related business or would like to expand the business via fundraising platforms, feel free to contact our experienced Consultants at +60 3 9212 6940 or consultant@qx-trust.com to also potentially explore on the possibility of owning a crypto exchange license and how to fundraise for your own crypto exchange platform that is legit and complies with all the necessary crypto exchange requirements. Book a complimentary session with us today!