Risk

Allocation drift occurs when portfolio percentages shift from target allocations due to different asset performance, causing intended diversification and risk profiles to change without action. If Bitcoin outperforms altcoins significantly, it can grow from 50% to 70% of your crypto portfolio, concentrating risk beyond your intended exposure. Recognizing allocation drift triggers rebalancing decisions to restore target percentages and maintain consistent risk management.

Leverage trading allows traders to borrow funds to open positions larger than their actual account balance. It increases both potential profits and potential losses. Leverage is expressed as a ratio (e.g., 5x, 10x), showing how many times a position is amplified compared to the trader’s own capital. While it offers the chance for higher returns, leverage also introduces the risk of liquidation.

Risk-to-Reward (RR) Ratio measures how much risk a trader is taking on compared to the potential profit. A favorable ratio means the potential reward outweighs the possible loss. Traders often set stop losses and take profits based on a predefined ratio to ensure consistency, discipline and long term gains.